By Bill Flook
Rep. Brad Sherman, a California Democrat who heads the House Financial Services Committee’s Capital Markets subcommittee, has introduced a bill to require public companies to disclose pandemic-related risks to investors.
H.R. 6371, the Pandemic Disclosure Act, was one of several components of the committee’s so-far unsuccessful package of reforms meant to address corporate disclosure requirements amid the COVID-19 pandemic. That bill, the Financial Protections and Assistance for America’s Consumers, States, Businesses, and Vulnerable Populations Act, would have put in place a series of new public disclosure and corporate governance requirements to accompany its financial aid to businesses.
A public company, under the legislation, would see new disclosure mandates related to how its business is exposed to global pandemics “including risks to health and worker safety faced by the issuer’s employees and independent contractors.” Companies would also need to describe the steps they are taking to protect their workforces, among other steps to mitigate risks.
The Financial Protections and Assistance for America’s Consumers, States, Businesses, and Vulnerable Populations Act has so far failed to win any traction in Congress. Instead, the Coronavirus Aid, Relief and Economic Security (CARES) Act served as the latest vehicle for COVID-19 relief, which excluded many of the legislative priorities spelled out by House Democrats. President Donald Trump signed the CARES Act into law on March 27, 2020. (See Democrats’ Disclosure, Governance Priorities Thwarted in Coronavirus Relief Package in the March 30, 2020, edition of Accounting & Compliance Alert.)
Democrats have sought to advance those priorities separately as individual bills, such as H.R. 6471, which Sherman introduced on March 23.
“Since the outbreak of this crisis we have seen historic declines in stock markets,” Sherman said in a statement. “Investors deserve to know which companies are most exposed to the risks of a pandemic. Not only will this help protect investors but also improve the efficiency of our capital markets.”
The bill’s requirements would kick in when the World Health Organization (WHO) declares a pandemic. The WHO on March 11 declared COVID-19, the disease caused by the novel coronavirus, to be a pandemic, after it had reached more than 118,000 cases in 114 countries. Today, there are more than a million cases of COVID-19 globally.
Sherman said his legislation builds on a recent statement by SEC Chair Jay Clayton, in which Clayton warned that “how companies plan and respond to the events as they unfold can be material to an investment decision.”
Clayton, in the March 4 statement, urged companies “to work with their audit committees and auditors to ensure that their financial reporting, auditing and review processes are as robust as practicable in light of the circumstances in meeting the applicable requirements.”
“Companies providing forward-looking information in an effort to keep investors informed about material developments, including known trends or uncertainties regarding coronavirus, can take steps to avail themselves of the safe harbor in Section 21E of the [Securities] Exchange Act of  for forward-looking statements,” he added.
Section 21E provides a safe harbor for forward-looking statements, provided issuers meet certain conditions
This article originally appeared in the April 6, 2020 edition of Accounting & Compliance Alert, available on Checkpoint.
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