February 14, 2020

Risk Factors: Here Come the 10-K Coronavirus Disclosures. . .

Last month, I blogged about the first 10-K filing to include a coronavirus risk factor. As concerns about the virus’s economic impact have continued to grow, a total of 26 companies have included a risk factor or, in some cases, MD&A disclosure about the virus in their 10-K filings. This Audit Analytics blog reviews those disclosures.  Here’s an excerpt:

While the economic effects of the Wuhan coronavirus are still unknown, it makes sense that the majority of references to the disease have been included in the Risk Factors section of a company’s 10-K. Most of the language seen thus far discusses the uncertainty of the disease’s effects on global macroeconomic conditions, production capabilities, and decreases in international travel; this is similar language used surrounding other risk factors such as political unrest, natural disasters, and terrorism.

However, some companies have discussed the impact of the coronavirus in the Management’s Discussion & Analysis (MD&A) section of the 10-K, indicating that some companies expect to experience significant effects. For example, Carnival Corp [CCL] disclosed in their MD&A that the travel restrictions as a result of the outbreak could have a material impact on financial performance:

Fiscal Year 2020 Coronavirus Risk
In response to the ongoing coronavirus outbreak, China has implemented travel restrictions. As a result, we have suspended cruise operations from Chinese ports between January 25th and February 4th, canceling nine cruises. We also expect that travel restrictions will result in cancellations from Chinese fly-cruise guests booked on cruises embarking in ports outside China… If the travel restrictions in China continue until the end of February, we estimate that this will further impact our financial performance by an additional $0.05 to $0.06 per share… If these travel restrictions continue for an extended period of time, they could have a material impact on our financial performance.

Other companies that have mentioned coronavirus in the MD&A section include Mondelez International, Inc. [MDLZ], Mettler-Toledo International, Inc. [MTD], and Las Vegas Sands Corp. [LVS].

If you’re looking for disclosure precedent (who isn’t?), the blog names all 26 companies that have included 10-K disclosure about the coronavirus to date. And to demonstrate that there’s nothing new under the sun, the blog also includes a chart with the number of companies that included 10-K disclosure about other recent international public health emergencies.

Board Recruitment: Want Diverse Candidates? Climb Down the Org Chart

This Bloomberg BusinessWeek article says that companies looking to enhance the gender diversity of their boards would be wise to look further down the org chart than has traditionally been the case when looking for potential directors. That’s because while many big companies are reining in CEO participation in outside boards, some are actively encouraging less senior execs to obtain board positions:

Outside corporate board gigs are a classic perk of being a chief executive officer. The side jobs offer extra pay, as well as a way to network—perhaps for the next big job. But all those top bosses filling up directors’ seats has a predictable effect. Since CEOs are an overwhelmingly white, male bunch, they tend to reinforce the lack of diversity on corporate boards.

That makes a push by Marriott International Inc. to get lower-level executives to join boards a bigger deal than it might seem. CEO Arne Sorenson says his aim is to give the hotel company’s rising stars valuable experience. Incidentally, though, of the five who have found board positions, three are women and one is a black man. The same trend is showing up at other large U.S. companies. Among the 10 companies with the most employees serving on other boards, the executives with directorships are overwhelmingly women or people of color, according to data compiled by Bloomberg.

The article points out that while Marriott’s effort to promote board participation doesn’t have a diversity goal, executives who aren’t white males are more in demand for board slots.

Transcript: “Cybersecurity Due Diligence in M&A”

We have posted the transcript for our recent webcast: “Cybersecurity Due Diligence in M&A.”

John Jenkins