As many public companies finalize the disclosure in their Annual Reports on Form 10-K, they should consider paying particular attention to their risk factors in light of the multitude of federal government actions following President Trump's inauguration. Since January 20, a flurry of Executive Orders has been issued, focusing on areas including immigration, federal government budgeting and spending, and diversity, and equity and inclusion ("DEI") initiatives. Tariffs on both Canada and Mexico were adopted and then suspended, and the majority of the civilian federal government workforce was offered a "deferred resignation," although the deadline to accept the offer was recently extended in accordance with a U.S. District Court order.
In particular, public companies should evaluate the impact these actions could have on their disclosure; in accordance with Item 105 of Regulation S-K, providing a "discussion of the material factors that make an investment in the registrant or offering speculative or risky." Disclosure in certain recently-filed Annual Reports includes risk factors discussing the potential impacts of tariffs, including: (i) increased costs on Mexican imports from an issuer that manufactures goods in Mexico, (ii) increased cost of lumber imported from Canada in the United States, (ii) macroeconomic impacts on the global supply chain in the pharmaceutical and construction equipment businesses and (iv) impacts on the auto industry, which is heavily cross-border.
Disclosures are not limited to those related to tariffs. In particular, several issuers have highlighted the potential risks posed in connection with Executive Orders focused on DEI, such as investigations of public companies' DEI initiatives and related litigation risks, and the challenges of engaging with stakeholders regarding the same. Remembering that risk factors are highly company specific, public companies must consider the risks that relate to their unique business and facts and circumstances. Is there a risk implicated by Executive Actions related to immigration, or actions in the financial services industry or business conducted directly with the federal government? Given the rapidly changing nature of these issues, consider revisiting your risk factor disclosure shortly before filing.
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