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I think it’s fair to say that the market reaction to “Liberation Day” has been more severe than was expected when Dave first shared disclosure considerations for tariffs last week. If your company’s business is affected as the duties kick in, those considerations warrant an even closer look now. And given recent commentary, you might even want to dust off “recession” risk factors from 2008-2009 and consider whether and how some version of that should be added in a future periodic report (with particularity, of course).

While the business folks take a close look at the numbers, they’ll depend on the disclosure folks for risk factor suggestions. The immediate question becomes, “Do we need to update the risk factors in our Form 10-Q?” To analyze whether a “material change” has occurred, you need to be able to issue spot and ask the right questions on a compressed timeframe. This Bryan Cave memo identifies business risks that could arise as a result of tariffs as well as a potential economic slowdown. It suggests considering:

– Tariffs – magnitude of business subject to tariffs, availability of alternative suppliers and contractual cost-allocation provisions, ability to raise prices, etc.

– Economic slowdown – impact of reduced consumer confidence and demand, impact on credit markets and interest rates, lower equity valuations, effects on foreign currency, etc.

– Other issues – whether other countries will retaliate and the spiral effect that could have, uncertain duration of trade conflicts, the possibility of legal challenges or Congressional action, impact on the reputation of U.S. companies abroad, uncertainty for future cap-ex or investment, etc.

The memo also discusses forward-looking statements, MD&A and disclosure control issues. I recommend revisiting John’s 2022 blog on “quarterly risk factor updating practices” – as well as Dave’s blog last week on “market rout” considerations that go beyond the risk factors. For a deeper dive on “everything old is new again,” we discussed recession-related risk factor updates in the November-December 2008 issue of The Corporate Counsel newsletter.

I am sorry to say I do not have a lot of risk factor examples for the business impact of the breakdown in the rule of law and the democratic order that Ray Dalio says investors aren’t paying enough attention to (yet). Hopefully the probability of this big-picture risk is still low enough to make it immaterial for most companies.

If you analyze those risks “just for fun,” the threats themselves can also be viewed as piecemeal issues that would overlap to a certain extent with the items above – and may be similar to some things discussed over the years in “international operations” risk factors. Companies also would need to consider whether there could be particularized impacts from unenforceable contracts, retaliation, lack of qualified workers, changes in bribery practices, shifting consumer and tourism habits, etc… Risk factors and investor litigation would be the least of our worries!

– Liz Dunshee