February 24, 2022

Conflict in Europe: Considerations for Public Companies

Overnight, Russia attacked Ukraine, despite intense efforts to find a diplomatic solution. The continuing tensions have prompted a spike in the price of oil and significant volatility in the stock market. While our concern for the safety of the people of Ukraine is paramount, public companies must consider whether and how to address the conflict and its attendant consequences in their public disclosures.

This timely Morgan Lewis memo points out that companies may need to address the conflict in their upcoming risk factor disclosures, and points out examples of disclosures that may be required depending on a company’s particular circumstances:

Against the backdrop of rising tensions between the United States and Russia, particularly as it relates to Russia’s actions in Ukraine, and the new sanctions announced on February 22 by President Joseph Biden and several European leaders against Russia, public companies should review their risk factor disclosure to ensure that it appropriately addresses the risks associated with these events as they relate to their business, results of operations, and financial condition.

For example, if a company’s business depends on exports or imports to or from Russia, its disclosure should appropriately convey the potential effect of bans, sanction programs, additional licensing requirements, and/or boycotts on its business, including supply chain disruptions and other restrictions, to reflect the uncertainty surrounding the escalating conflict as it is unfolding in real time.

Additionally, a company that materially depends on third parties for its operations should consider whether those third parties may be impacted by the events in Russia and Ukraine. For example, third party contractors may have staff, material operations, financial transactions, research and development facilities, equipment, or other properties located in Russia or Ukraine that could be directly impacted by the conflict, which, in turn, could result in material implications for the company’s operations.

Similarly, a public company may have a material customer base located in Russia or Ukraine whereby both the economic and security conditions could limit the company’s ability to provide its services or products to such customers, as well as limit its ability to receive payments, resulting in a potential loss of revenues.

– Dave Lynn