March 25, 2014

Survey: Top 10 Most Common Risk Factors

Thanks to Intelligize, here are the most common risk factors during ’13 based on their research looking through both ’34 Act and ’33 Act filings last year:

1. Failure to Compete Successfully
2. Trading Market May Not Develop/Potential Share Price Volatility
3. Dependence on Management Team
4. Difficulty Raising Capital/Insufficient Funding
5. General Economic/Consumer Spending Conditions
6. Failure to Protect Intellectual Property Rights
7. Negative Impact of Changes in Regulations/Policies
8. Dividends May Never Be Paid
9. Principal Shareholders/Management Will Have Significant Control
10. Anti-Takeover Provisions May Prevent a Merger/Acquisition

Here are some runner-ups:

– History of Losses/No Revenue
– Operational Disruptions
– Potential/Current Litigation/Claims
– Dilution in Ownership Due to Future Share Issuances/Conversions
– Failure to Maintain Effective Internal Controls
– Failure to Manage Growth / Expansion Costs
– Integration Challenges from Merger/Acquisition

Don’t forget our 39-page “Risk Factor” Handbook. And note that the SEC has finally posted the panels for tomorrow’s cybersecurity roundtable

Too Many Risk Factors vs. Potential Liability: Where Is The Line?

Recently, I blogged – on my “Proxy Season Blog” – about “Will Corp Fin Start Objecting to Too Many 10-Q Risk Factors?” Meanwhile, Doug Greene of Lane & Powell ran this excellent blog on limiting your liability by improving the quality of your safe harbor warnings. I picked his brain by asking: “Now that disclosure reform is being discussed, some investors are complaining about too many risk factors – and I guess perhaps a safe harbor disclaimer that is too much kitchen sink would also be a complaint. How does a company attempt to manage its risk to litigation if only a handful of risk factors is allowed? Think investors want more than just killing the boilerplate.”

Doug responded:

The tension between curtailing risk factors and making them more meaningful is difficult. But it’s possible to harmonize the two goals, and the solution may even be the same: a sharper focus on the company’s real risks and more straightforward descriptions. The problem then becomes how to design and implement a better system for disclosing risks. Companies know their real risks and can plainly describe them, but should we leave them to do it or continue to provide a complex set of instructions? I think that companies, overall, would get it right under a streamlined system.

And here’s a proposal to reform common risk factors from Keith Bishop…

Dramatic Risk Factors: The Movies!

Dramatic readings are all the rage on YouTube. So to illustrate the silliness of some of the more common risk factors, one of the series on features a variety of folks joining together to dramatically read a risk factor. Here are two of them:

Dramatic Risk Factors: Trading Volatility (Vol. 1)

Dramatic Risk Factors: We Face Competition (Vol. 1)

– Broc Romanek