As infections stemming from the coronavirus pandemic continue to mount around the world, publicly traded companies face questions about when and where to disclose that their CEO or other key executives have contracted the virus.
There are also good reasons to make a public disclosure if a key company executive is quarantined but not infected, especially if the quarantine somehow inhibits that executive’s ability to perform his or her leadership functions.
In this environment, boards of directors should “err on the side of over-disclosure” when it comes to CEOs and C-suite executives contracting coronavirus, said Jackie Liu, co-chair of Morrison & Foerster’s Global Corporate Department.
When should companies report their CEO or other key executives are infected?
“There’s no bright line,” Liu said. In her position with Morrison & Foerster, Liu has counseled publicly traded companies for two decades about what information should be conveyed to regulators like the U.S. Securities and Exchange Commission (SEC) and when. The general guideline is to report a material change to business operations as soon as it is known.
With the coronavirus pandemic and its effect on nearly every aspect of business, Liu says she is counseling her public company clients to disclose if a CEO or C-suite level executive is infected with coronavirus.
“It’s difficult to argue that is not material,” she said.
Since March 4, two publicly traded companies, a mining company and telecommunications firm, informed the SEC that they will delay filing certain financial reports because their CEOs have contracted the coronavirus or entered quarantine, according to a March 20 blog by Audit Analytics.
Other companies have also announced their CEOs are infected. Altria Group CEO Howard Willard disclosed he has coronavirus and will take a leave of absence, according to the Wall Street Journal. The CEO of Holy Name Medical Center in Teaneck, N.J., Michael Maron, tested positive for coronavirus, as has the president of Harvard University, Lawrence Bacow.
Even so, disclosure of positive test results for a CEO or executive should not be automatic, argued Kevin Abikoff, partner and firm co-chair at Hughes Hubbard & Reed.
Companies often have to make the difficult balancing act in considering whether immediate disclosure through a press release or Form 8-K (as opposed to period filings) is required. One company employee—be it the CEO or other “critical inspirational people”—going out of pocket temporarily requires detailed analysis but does not automatically trigger a need for immediate disclosure, Abikoff said.
Liu said one disclosure trigger may be upcoming earnings calls. Companies may find it difficult to explain away the unexplained absence of a key executive like a company CEO.
Another trigger might be the press, according to a recent blog post by the firm Vinson & Elkins.
“As a practical matter, absent any public- or shareholder-facing notice that your CEO has tested positive for COVID-19, the press may end up doing it for you,” the blog post read. “A public communication can provide opportunities to assure shareholders and dissipate panic. It can also do the opposite, and companies must be cautious not to provide misinformation.”
Should companies decide to disclose that their CEO or key executives are infected with coronavirus, Liu cautions against playing it too cute. The company should name the executive officer and explicitly say the medical condition sidelining them is a coronavirus infection, she said. Otherwise, a disclosure might just create more uncertainty.
“In this environment, you can’t just say a named executive has a medical condition. No one is going to buy that,” she said.
Peter Cohan, author and professor of strategy and entrepreneurship at Babson College in Wellesley, Mass., argued companies have an obligation not only to disclose coronavirus infections of key executives, but provide regular health updates.
“Without such disclosure, companies are holding on to market-moving information that they should disclose to investors so they can make informed decisions,” he said. “Absent such disclosure, the board ought to be liable for any insider trading that occurs as a result of a failure to disclose the information.”
What about informing other employees?
If a company decides not to make a public disclosure about a positive coronavirus test for an executive, the company is still obligated to inform employees who came in contact with that person.
“Privacy regulators in the U.S. and around the world have cautioned employers about the need to protect the confidentiality of employee health information, including in response to the current pandemic,” said Chris Lyon, a partner in Morrison & Foerster’s Privacy and Data Security practice. “However, companies may face competing pressures to reveal the identity of the affected individual, when the individual is a key senior executive whose absence may attract attention notice or require explanation. This may require a more tailored risk-based approach, working with the individual where possible to align on the nature and content of the disclosure.”
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