The outbreak of COVID-19 (commonly known as the coronavirus) has left public health authorities around the world taking precautions and measures to try to limit and contain the spread of the disease. As the coronavirus outbreak keeps spreading in various countries and weighs on the global economy and on businesses, public companies and securities regulatory authorities are beginning to address the potential effects that the coronavirus poses or may pose to their businesses and the relating disclosure considerations.
Certain regulators such as the U.S. Securities and Exchange Commission (“SEC”) and the U.K. Financial Reporting Council (the “FRC”) have recently issued guidance relating to the disclosure issuers may need to make concerning the coronavirus. In a recent statement, the Chairman of the SEC directed the SEC’s staff to start monitoring companies’ disclosures related to the “current and potential effects” of the coronavirus on their businesses. While the SEC recognized that such effects may be difficult to assess or predict with meaningful precision both on a general and as an industry (or issuer) specific basis, and that the coronavirus is an uncertain issue where actual effects will depend on many factors beyond the control and knowledge of issuers, how issuers plan for that uncertainty and choose to respond to events as they unfold can nevertheless be material to an investment decision.
The Canadian securities administrators have not issued any specific guidance relating to the disclosure issuers may need to make concerning the coronavirus. Considering the uncertainty surrounding the coronavirus outbreak and the difficulty some Canadian public issuers may face in assessing or predicting its effects on their businesses, such issuers should carefully assess whether disclosure, if any, should be made regarding potential relating risks on their businesses and their plan for that uncertainty and the best way to respond to events as they occur.
While it is expected that businesses with extensive operations, customers, manufacturing or suppliers in affected countries or that have significant trading links or global supply chains that are dependent on manufactured goods in affected countries are most likely to be exposed to direct risk, other businesses may be affected by the coronavirus outbreak as the situation evolves and the economic impacts become known. In this regard, the nature and level of disclosure, if required, will vary from one issuer to another. Some issuers, such as Apple Inc. and Ralph Lauren Corporation, have updated and others, such as United Airlines Inc., have withdrawn, their financial guidance due to the uncertainty around the fast-spreading coronavirus. Other issuers have also disclosed the potential impacts of the coronavirus as a risk factor. Canadian public issuers have also started making disclosure, as some did in 2003 with respect to the outbreak of the Severe Acute Respiratory Syndrome (SARS), in various forms relating to the coronavirus outbreak. Issuers expecting not to be directly affected by the coronavirus might consider more generic disclosure relating to “pandemic outbreaks” in the form of a risk factor or otherwise as a mean of capturing any potential but unforeseen underlying risk relating to the coronavirus outbreak.
Given the rapidly changing global situation, the extent of the risk and the degree to which it might crystalize depends on the specific circumstances of each issuer, as does the disclosure, if any, required; Canadian public issuers should closely monitor the situation and the potential effects of the coronavirus on their businesses to determine on a case by case basis if, and when, specific disclosure should be made.