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US Securities and Exchange Commission

Unions, Activist Groups Call for Greater COVID-19 Disclosures

Thomson Reuters Tax & Accounting  

· 5 minute read

Thomson Reuters Tax & Accounting  

· 5 minute read

By Bill Flook

In a June 16, 2020, letter to the SEC, a coalition of unions, activist groups, academics, and others called on the SEC to require public companies to make a broader set of disclosures on the impact of the novel coronavirus pandemic.

The SEC needs to act, the groups wrote, “to require companies to provide consistent, reliable data to investors about the economic impact of the pandemic on their business, human capital management practices, and supply chain risks.”

Among the nearly 100 organizations signing onto the letter were the Americans for Financial Reform Education Fund, the AFL-CIO, the American Federation of State, County and Municipal Employees (AFSCME), and Boston Common Asset Management. Academics joining in the call for COVID-19 disclosures included Georgetown University Law Professor Urska Velikonja and David Wood, director of the Initiative for Responsible Investment at Harvard’s Kennedy School.

The letter lays out 11 topics on which the writers want public companies to provide more detail for investors. Those include:

  • Financial Implications: Issuers, according to the letter, should explain how the pandemic has impacted their cash flows and balance sheet, “as well as steps taken to preserve liquidity such as accessing credit facilities, government assistance, or the suspension of dividends and stock buybacks.” The Coronavirus Aid, Relief and Economic Security (CARES) Act, a $2 trillion relief package signed into law in late March, temporarily bars companies receiving loans from buying back their own stock, paying dividends, or engaging in certain excessive executive compensation practices.
  • Executive Compensation: The letter writers argued that companies should “promptly disclose the rationale for any material modifications of senior executive compensation due to the COVID-19 pandemic, including changes to performance targets or issuance of new equity compensation awards.”
  • Political activity: The groups want public companies to disclose all “election spending and lobbying activity,” including contributions to trade associations, tax-exempt 501(c)4 organizations, and other third-parties. Advocates for greater corporate political spending transparency have been pushing the SEC for action since the Supreme Court’s 2010 Citizens United ruling, which lifted certain restrictions on independent political expenditures by corporations and unions.

The letter is the latest in a months-long campaign to pressure the SEC to mandate COVID-specific disclosures.

In March, Rep. Brad Sherman, a California Democrat who heads the House Financial Services Committee’s Capital Markets subcommittee, introduced a bill to require public companies to disclose pandemic-related risks to investors.

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 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 eight million cases of COVID-19 globally, with 2.2 million of those in the United States.

In an April 8 joint statement, SEC Chairman Jay Clayton and Division of Corporation Finance Director William Hinman spelled out that disclosures should reflect the reality of the pandemic and address interest in a company’s operations and financial position, how its COVID-19 response is progressing, and how “how its operations and financial condition may change as all our efforts to fight COVID-19 progress.”

“Historical information may be relatively less significant,” they wrote.

Hinman and Clayton urged public companies “in their earnings releases and analyst calls, as well as in subsequent communications to the marketplace, to provide as much information as is practicable regarding their current operating status and their future operating plans under various COVID-19-related mitigation conditions.”

The groups, in their letter, praised that April statement from Hinman and Clayton.

“This was a step in the right direction but more needs to be done to ensure that investors and the public have access to consistent, comprehensive information,” the groups wrote.


This article originally appeared in the June 22, 2020 edition of Accounting & Compliance Alert, available on Checkpoint.

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