TheCorporateCounsel.net

One of the challenges that public companies with a December 31 year end are facing right now is whether and how to incorporate disclosure about the impacts from the avalanche of Trump Administration Executive Orders into their imminent Form 10-K filings. As we saw with the tariff developments that I blogged about earlier this week, companies can experience some whiplash trying to address these issues in real time, because policy positions are changing so rapidly.

I think it is important to keep in mind in this situation that public companies are not necessarily obligated to report external developments in their SEC filings, but it is important to evaluate how such external developments could materially impact the company’s business, reputation, financial condition or results of operations. Further, when disclosing any potential risks in the risk factors section of the Form 10-K, the relevant risk factor disclosure should not cast the particular risk as a hypothetical possibility, when in fact the company has actually experienced an event that is relevant to that risk. Given the wide-ranging potential impacts from the Trump Administration’s Executive Orders to date, it is important to evaluate how the late breaking developments could impact matters that are already the subject of disclosure in a company’s SEC filings.

Which brings us to the Trump Administration’s recent actions on DEI matters. On January 20, 2025, President Trump signed an Executive Order titled “Ending Radical and Wasteful Government DEI Programs and Preferencing” which, in part, directs federal agencies to terminate federal contracts and grants related to DEI, as well as environmental justice related contracts and grants within 60 days. On January 21, 2025, President Trump signed an Executive Order titled “Ending Illegal Discrimination and Restoring Merit-Based Opportunity,” which directs the U.S. Attorney General, in consultation with the relevant agencies, to submit a report by May 21, 2025 with recommendations for taking appropriate measures “to encourage the private sector to end illegal discrimination and preferences, including DEI.” As part of the plan, the agencies must identify up to nine potential civil compliance investigations of different kinds of organizations, including public companies.

While some specific disclosure items potentially relate to diversity matters (such as the human capital disclosure requirement and the board diversity disclosure requirements), much of the disclosure that companies presently include in their Form 10-Ks and proxy statements is what we often call “voluntary” disclosure. It is important for companies getting ready to file their upcoming Form 10-K to take a step back and evaluate existing risk factor and other disclosures to determine if any changes need to be made to reflect changes in the company’s DEI practices that may result from these Executive Orders or other material implications, recognizing that it may be too early to evaluate the potential impacts arising from these Executive Orders. Companies with federal government contracts may also want to evaluate their disclosure in the business and risk factors sections addressing the ability of the federal government to terminate contracts to determine whether it is appropriate to note this new initiative in that context.

– Dave Lynn