TheCorporateCounsel.net

When I read Liz’s “Debbie Downer” blog last week about the disclosure implications of the “polycrisis,” I was so bummed out that I wanted to go back to bed and pull the covers up over my head.  However, my wife decided there was zero chance I was going to get away with that stunt and accused me of using that as an excuse to avoid taking the trash & recycling out to the curb.

Okay, it turns out she was right about that, but the important thing is that I’ve recovered my equilibrium and feel that I need a “Gloomy Gus” blog to pair with Liz’s Debbie Downer offering.  Thanks to this Morgan Lewis memo, I’ve found my topic.  Liz catalogued a whole bunch of economic & geopolitical developments that might merit an updated risk factor or two, but this excerpt from the memo highlights one she didn’t address – the increasingly frosty relationship between the United States and China:

As geopolitical tensions between the United States and China continue, issuers should consider carefully tailoring their risk factors to address specific risks facing their businesses related to China, and should benchmark these risk factors against what their peers are disclosing. While the risk factors of Chinese-based companies publicly traded in the United States offer a catalog of China-related risks to consider, including those risks for which the US Securities and Exchange Commission (SEC) has requested explicit disclosure through staff comment letters, many of these will not be relevant to US issuers doing business in China.

Reliance on generic risk factors related to the risks of doing business internationally may fall short of properly informing investors of the specific risks an issuer may face when engaging in certain China-related activities, and the SEC discourages such boilerplate disclosure.

The memo says that while the SEC hasn’t put forward guidance on risk factor disclosure relating to the implications of significant exposure to China, companies should look to the disclosure guidance provided by the Staff on COVID-19 & the Staff’s sample comment letter on the business impact of Russia’s invasion of Ukraine as a framework.  It goes on to provide a list of some specific areas of China-related risk that companies might want to address in their disclosures.

– John Jenkins