On June 30, 2020, SEC Chairman Jay Clayton moderated a virtual roundtable titled "Q2 Reporting: A Discussion of COVID-19 Related Disclosure Considerations."

He was joined by Corporation Finance Director Bill Hinman and a high-powered panel, who commented on what they hope issuers will disclose about the impact of COVID-19 and a wide range of other topics. 

The roundtable follows a succession of recent statements from the SEC about what issuers should be addressing.  In this memo, we will summarize some themes from the roundtable and highlight a few key points about preparing disclosure in these uncertain times.  

In a separate memo published today, we explore some challenges companies face in seeking to quantify the effects of COVID-19 on their financial performance.  We have also attached as Annex A to this memo a practical checklist of disclosure topics an issuer should consider in considering whether it has adequately addressed COVID-19 in its second-quarter disclosures. 

The panel for the June 30 Roundtable was well placed to speak about what investors wish for from corporate disclosures in these difficult times.  They were:

  • Gary Cohn – now a venture capitalist, Mr. Cohn was director of the National Economic Council in 2017-18, and previously Chief Operating Officer of Goldman Sachs.
  • Glenn Hutchins – Mr. Hutchins is a leading figure in private equity, chairman of North Island and co-founder of Silver Lake Partners
  • Tracy Maitland – Mr. Maitland is the founder and Chief Investment Officer at investment management firm Advent Capital Management.
  • Barbara Novick – a co-founder and the Vice-Chairman of BlackRock, Ms. Novick oversees its investment stewardship team.

Following are some themes from their discussion of particular interest to reporting companies.

SEC guidance

The panelists praised the disclosure guidance emanating from the Division of Corporation Finance, and particularly the lists of questions for issuers contained in Disclosure Topics No. 9 (March 25) and No. 9A (June 23). A compendium of those questions is attached to this memo as Annex B, and a list of SEC guidance on COVID-related disclosures is attached as Annex C. Director Hinman told the panel that the staff of Corporation Finance would review disclosures after second-quarter reports are filed and highlight model disclosures on emerging issues.

Several panelists called on the SEC to take more action to make disclosures standardized and mandatory, in a range of areas including forward-looking information and human capital management.

Forward-looking disclosures

All the panelists called for more forward-looking disclosures. Several expressed disappointment about issuers withdrawing guidance and limiting themselves to reporting historical performance.1 Recognizing that issuers cannot know how the current crisis will play out, they suggested that issuers should be able to identify a range of alternative scenarios and be transparent about their possible impact.

Addressing the reticence of issuers to provide forward-looking disclosures, Chair Clayton and Director Hinman said, as they have in the past, that the SEC "does not expect to second-guess" forward-looking disclosures that are made in good faith. Hinman emphasized that a test of good faith would be whether information that is made public is consistent with what is used internally and with the board of directors. This general outlook, while welcome, will of course not prevent private litigants, or authorities including the SEC itself, from challenging disclosures in the future.

Resilience and adaptability

The panelists emphasized that companies should consider what they have learned from the crisis about their resilience and adaptability, emphasizing supply chain management, community engagement and human capital. They suggested that resilience would be essential to an issuer's future prospects in addressing not only COVID-19 but also challenges like climate change and diversity.

Human capital and social issues

The panelists emphasized the importance of disclosures on human capital issues, including how in these times of crisis companies have addressed the interests of their employees and customers and their communities. They highlighted the current societal crisis, and several said that if not for COVID-19, social justice and diversity would be the top concern of boards of directors today. They asked companies to take the initiative to provide additional disclosures on the steps they are taking on these topics, and several asked the SEC to require more disclosure in these areas.

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Footnote

1 Mr. Hutchins said that only 49 of the S&P 500 issuers currently have outstanding guidance. A study published on June 26 by FACTSET gives that figure for second-quarter guidance and also reports that 183 of the S&P 500 have withdrawn full-year guidance. The Wall Street Journal reported on June 28 that more than 40% of the S&P 500 have withdrawn guidance.

Originally published July 1, 2020.

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