The COVID-19 pandemic has had a dramatic impact on the management of organizations, including throwing managers at all levels into an “all-hands-on-deck” reactive mode. In large measure, the immediate focus of management-level employees has been on business continuity, particularly moving the organization to a work from home workforce, workforce management including reductions in force by way of layoff or furlough programs, and client/customer relations efforts aimed at maintaining the company’s lines of revenue. As this pandemic continues to impact directly or indirectly companies of various sizes and industries, we anticipate that the board of directors of both publicly traded and privately held organizations will increasingly consider and seek to assess their governance role in addressing, managing through, and disclosing the impact of the pandemic on the company’s ongoing operations, financial results, and general sustainability. Similar to times of other major crisis, we recommend that company boards remain vigilant and take an active role in the oversight of these organizations during this perilous time.
In the midst of this crisis, the U.S. Securities and Exchange Commission (“SEC”) has emphasized the importance of a company’s disclosure obligations. Addressing the issue of disclosure, the SEC Division of Corporation Finance issued a CF Disclosure Guidance which states:
The Division encourages timely reporting while recognizing that it may be difficult to assess or predict with precision the broad effects of COVID-19 on industries or individual companies. We also recognize that the actual impact will depend on many factors beyond a company’s control and knowledge. Nevertheless, the effects COVID-19 has had on a company, what management expects its future impact will be, how management is responding to evolving events, and how it is planning for COVID-19-related uncertainties can be material to investment and voting decisions.
The Guidance includes a series of questions aimed at assessing the effects of COVID-19 on a company. These questions, excerpted below, provide a helpful roadmap for questions board members can utilize so as to engage with management about the company’s position and thereby fulfill their governance responsibilities:
The full list of questions, which the Division describes as non-exhaustive, can be found here.