On Monday, April 6th, Elizabeth Saunders, Partner at Clermont Partners, joined Katten Muchin Rosenman LLP to discuss key reporting, disclosures, annual meetings, and other legal issues faced by public companies during the COVID-19 pandemic.
Elizabeth was joined on the panel by Katten Corporate Partners Farzad Damania and Brian Hecht, as well as Cathy Conlon of Broadridge Financial Solutions and John Hughes of Marcum LLP. Each panelist was able to provide their expertise to inform audience members of current market trends and best practices.
As public companies continue to navigate unprecedented disruption, it is critical that they provide ongoing disclosures regarding risk and may want to consider adding cautionary language to forward-looking statements, Katten’s Damania and Hecht advised.
As of March 2020, over 2,000 current reports related to COVID-19 have been filed with the SEC. Companies are utilizing these filings to provide business updates, address credit facilities, withdraw guidance, and pre-release earnings, among other pertinent announcements. The SEC has also issued conditional relief, allowing companies additional time for reporting and the ability to change the format of their shareholder meetings without providing additional proxy materials. The panel expects this same relief to be extending to the upcoming 10Q filing process.
It is also crucial that companies look closely at their inventory and long-lived assets, as well as goodwill and other intangibles during a time of crisis, noted John Hughes. Several companies, as previously mentioned, have made announcements around debt modification and loan covenants, as well as loss contingencies, during this time. And, in the first or second quarter, companies are likely to have a wave of restructuring charges related to the fair value of some of these assets.
Given the current market conditions and all the regulatory changes, one might wonder what is on the mind of an investor? Sell-side and buy-side analysts are worried about different things right now, according to Elizabeth Saunders. Sell-side analysts are worried about their models being incorrect, so any information companies can provide to help guide modeling would be impactful. On the flip side, buy-side analysts are having to justify why they’re holding a company’s stock and if they can’t make an argument for holding, they will sell. But, on the flip side, Saunders expects value-oriented stock pickers, who are finding highly undervalued assets with good free cash flow and low operating risk, will be hunting for new investments post earnings season.
Another interesting COVID-19 development mentioned is how investment stories have changed. Historically, they have been recreated to sound like growth stories, but now a company might be better off leading with low operating risk and liquidity. ESG and activism also remain prevalent during this tumultuous time. Money is still being funneled into ESG programs and they should not be ignored. Activism trends also remain unchanged from pre-pandemic conditions, and many companies are re-thinking the poison pills they may have retired years ago.
Earnings season is upon us, and it would serve companies well to reframe current investment narratives in light of near and long term COVID-19 impacts. CEO statements and videos that show a leader in charge and provide anecdotal information from the industry or customers will go far in giving investors confidence that the company has the right leadership in place during this difficult period.
There has been a considerable uptick in virtual meetings since the COVID-19 outbreak began, according to Cathy Conlon. Her company, Broadridge Financial Solutions, is the largest provider of virtual shareholder meetings in the world. While the adoption of this technology is still relatively slow, it can be equally as effective as an in-person meeting, especially during times of crisis. Shareholders receive an invitation to join the meeting and can ask questions and make proposals as usual. It takes approximately four weeks to set up a meeting, but the timeline can be condensed to two weeks if needed.
While these are unmatched times for both companies and investors, there are several precautionary steps that an organization can take to weather the uncertainty and continue to provide company updates while successfully managing business operations and investor relations programs.