Wachtell Lipton: What to Say on Your Next Earnings Call in the Time of COVID-19

This evening, in an unusual and groundbreaking statement, the Chairman of the Securities and Exchange Commission and the Director of the SEC’s Division of Corporation Finance proactively addressed a challenging question that every U.S. publicly traded company is wrestling with:  how to handle the upcoming earnings call now that the unprecedented global, human and economic impacts of COVID-19 are apparent?  Their statement answering that question is a must-read for directors and senior executives, and it is attached in full.

Unlike most January and February year-end earnings releases and conference calls, the upcoming calls to be held by public companies within the next several weeks into next month will occur during a period of great uncertainty and concern, “will not be routine” (far from it) and will be consumed by a vastly broader audience than ever before that includes employees, supply-chain partners and customers as well as Main Street and institutional investors seeking insights and assurances as to corporate health, industry performance, measures being taken to protect stakeholders and modify operations, mitigation efforts, going-forward plans and whether or not business matters are under control.  SEC Chair Clayton also recognizes that the nation’s strategies for addressing COVID-19 will continue to evolve to address health risks effectively “while fostering a meaningful, responsible increase in economic activity.”

In this demonstration of fascinating leadership sensitive to the reduced resources and bandwidth of many companies, the SEC’s new call for disclosure action encourages America’s private sector to use upcoming earnings calls not as a forum to showcase historical results that may now be “relatively less significant,” but instead as an opportunity to address “(1) where the company stands today, operationally and financially, (2) how the company’s COVID-19 response, including its efforts to protect the health and well-being of its workforce and its customers, is progressing, and (3) how its operations and financial condition may change as all our efforts to fight COVID-19 progress.”

Recognizing that “producing forward-looking disclosure can be challenging,” the SEC’s senior leadership nevertheless urges companies that “taking on that challenge is appropriate” and suggests that doing so, in addition to benefiting investors and market valuation, will enable “the broad dissemination and exchange of firm-specific plans for addressing the effects of COVID-19 under various scenarios” and “substantially contribute to our nation’s collective effort to fight and recover from COVID-19.”  The statement also directly addresses potential litigation and liability concerns from making forward-looking statements in this environment, assuring companies that “we encourage companies that respond to our call for forward-looking disclosure to avail themselves of the safe-harbors for such statements and also note that we would not expect good faith attempts to provide appropriately framed forward-looking information to be second guessed by the SEC.”

As we noted in our prior memoranda, almost every public company will need to decide what it is going to say about the impact of COVID-19 and when it is going to say it.  We have counseled companies to consider the challenging disclosure issues carefully and proactively, seek sound legal advice and work in good faith to get it right.  SEC Chair Clayton and Director Hinman make clear that this quarter’s upcoming earnings call is also an opportunity for corporate America to convey what they are doing, how they are helping and coping and where they are going – in other words, to show, and strike a tone of, real leadership.