Insight for What’s Ahead: While the corporate reaction to the Russian invasion of Ukraine has been swift and unprecedented, companies need to follow established—and robust—processes to comply with SEC disclosure requirements and with the company’s own communications policy to describe the actions they have taken. Even companies that have not withdrawn from Russia need to consider what communications are required or appropriate. And firms need to continuously assess whether they should update those communications.

The words “unprecedented” and “unique” are greatly overused, but both words seem appropriate to describe the astonishing speed, scope, and intensity of corporate America’s reaction to the invasion of Ukraine. Certainly in recent years some US companies have made statements or taken limited actions, such as canceling meetings, to publicly oppose legislation or other state and local government action. But withdrawing or suspending operations in an entire nation—particularly one as large as Russia—reflects a dramatic expansion of the corporate role in society, with potentially significant consequences for a company’s performance and prospects. Given those consequences, communications about withdrawing or suspending Russian operations—or not doing so—are of great importance.

As part of their oversight responsibility, boards should carefully consider, guide, and monitor their companies’ statements about responses to the invasion, encompassing both required communications, such as disclosures in filings with the SEC, and less formal communications.

What must be disclosed—SEC and other requirements

Whatever a company’s response to the invasion, it needs to consider what to say about the impact of the invasion on its business and prospects. Public companies will need to provide the disclosures required under SEC rules, including the following:

• Material information: For companies that choose to do so, suspending or terminating operations in Russia will have dollars-and-cents consequences that may be relatively easy to measure, such as the loss of revenues and related profits, possibly offset by reductions in various expenses. Companies that choose to remain in Russia may need to disclose the extent to which sanctions make it difficult or impossible to engage in normal banking activities, including receiving payments and paying bills. Decisions as to the materiality of these consequences—and therefore the need to disclose—may similarly be relatively easy to make. However, many consequences may not be susceptible to easy measurement or quantifiable at all. Examples include asset impairments or other charges, the effects of withdrawal or suspension on a company’s global supply chain, access to capital, and the inability to access cash and other assets held in Russia. In addition, matters such as human capital, which are increasingly viewed as material, may be difficult to quantify in considering the impacts of withdrawal or suspension of operations.
• Forward-looking information: Required disclosures of risk factors and management’s discussion and analysis—particularly the requirement to disclose “known trends and uncertainties”—may pose challenges for many companies. Risks such as the possible seizure of assets, the increased possibility of cyberattacks, and potential retaliation against Russian employees or agents are among the risks and uncertainties that will need to be considered.
• Other items: SEC rules require disclosure of a number of “line item” matters, including properties, legal proceedings, and mine safety that may be affected by actions involving Russia. Recent amendments to SEC rules also require disclosure of changes in strategy, which could well be triggered by the withdrawal or suspension of operations in Russia. In addition, activity in areas other than business fundamentals may need to be disclosed. One example may be executive compensation; might the cessation of business in Russia have an impact on the compensation of any members of the C-suite?

Beyond SEC requirements, companies’ disclosures will need to be responsive to other stakeholders’ expectations: employees, suppliers, and customers may have their own “takes” on what should be disclosed.

What may be disclosed—beyond regulatory requirements

Many companies that have or had operations in Russia have engaged in communications other than those required by the SEC, such as statements by management and social media postings designed to communicate the companies’ commitment to corporate purpose, corporate citizenship, and other values underpinning their decision to suspend or continue operations in Russia. These statements can also serve other purposes, such as demonstrating that the decision to leave or not leave Russia is consistent with short- or long-term strategy.

However, these communications do not stand alone; they need to be considered in the context of SEC requirements and prohibitions and must also be consistent with the company’s communications policy. Among other things, companies should align their informal communications with the information in their SEC filings, as inconsistencies may raise comments from the SEC or subject the company to liability.

The content of informal communications, as well as their preparation, review, and dissemination, needs to be handled in accordance with the company’s communications policy. These internal policies, many of which reflect the requirements of SEC Regulation FD, often require reviews by specified individuals or groups, indicate who is authorized to speak for the company, and direct members of management and the board—and in some cases all employees—that any questions from the media or otherwise must be referred to a designated spokesperson. Such policies can assist in making communications consistent, appropriate in tone, and reasonable in terms of time horizon and other factors. For example, a statement that predicts or anticipates developments too far into the future can prove embarrassing (or worse) when circumstances change. In addition, statements about a particular matter can create expectations that the matter will be addressed in future communications.

Finally, companies need to monitor developments so that their communications remain relevant and consistent with reality, as well as to anticipate the nature and timing of future communications. And above all, companies need to keep their boards informed so directors can provide the necessary degree of oversight. In fact, given the potential sensitivity of these communications, boards may want to review them before they are issued.

Thinking ahead

As companies increasingly seek to fulfill their corporate purpose and to be good citizens, it is likely that corporate reactions to geopolitical and other developments will increase. Thus, properly addressing SEC filings and other communications in the context of the Ukraine invasion should prove helpful going forward.