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To disclose or not to disclose: Transparency in a crisis

Management must continue to communicate with stakeholders if there has been a material change in their business

MANY companies have had to furlough employees or outright shutter their doors for good as the Covid-19 lockdown measures decimated demand. The most severely affected companies are generally in the travel sector - airlines and hospitality companies, including the food and beverage sector. As economies emerge from the great lockdown, social distancing measures and cautious consumers may still result in companies throwing in the towel albeit at a slower rate.

On a regular basis, we continue to be fed news of companies filing for bankruptcy. Among them are global companies known to Singaporeans, such as Hertz Global Holdings. The century old US-based car rental firm was forced to file for bankruptcy protection when talks with its creditors came to naught.

Closer to home, Thai Airways International also filed for bankruptcy as air travel came to a halt. More airlines may follow suit as foreign travel is still in the eye of the storm, and many consumers remain apprehensive of flying despite the touted social distancing measures in the cabin.

In Singapore, Chinese local daily Lianhe Zaobao reported that as many as 529 eateries closed in the February to April period. Since then, there continue to be closures of various food and beverage outlets and chain stores as a vaccine for Covid-19 has yet to be found.

As the global pandemic rages on, many companies continue to be under pressure and face major changes in their operations. In a bid for survival, management must, among other pressing issues and sensitivities, still remain transparent and continue to communicate with stakeholders if there has been a material change or development in their business.

What does transparency entail?

In the investment profession, developing and maintaining clear, frequent, and thorough communication practices are critical to providing high-quality services to clients.

However, in communicating material changes or development due to the pandemic, investment professionals must also not knowingly make any misrepresentations relating to analysis, recommendations, actions, or other professional activities. Here, misrepresentation is defined as providing an untrue statement or omission of a fact or any statement that is otherwise false or misleading.

Other relevant issues

In communicating material company changes or development, several other issues may be relevant. They are:

  • Loyalty: Investment professionals are required to protect the interests of their firm by refraining from conduct that would injure the firm, deprive it of profit, or deprive it of the professional's skills and ability;
  • Material non-public information: investment professionals who possess material non-public information that could affect the value of an investment must not act or cause others to act on the information; and
  • Market manipulation: there should be no engaging in practices that distort prices or artificially inflate trading volume with the intent to mislead market participants.

Monetary Authority of Singapore (MAS) guidelines on fair dealing

MAS sets out several outcomes in its "Guidelines on Fair Dealing - Board and Senior Management Responsibilities". When dealing with financial institutions, customers should receive clear, relevant and timely information to make informed financial decisions. This requirement for customers to have relevant information is in line with the transparency principle.

At the onset of a relationship with customers, financial institutions should set out the scope of its services and after-sales services. Should the after-sales services include updates to customers, then the financial institution should funnel updates on material developments affecting customers' investments as provided by the product providers on a timely basis. This ensures that customers have the relevant information, and are kept abreast of any material developments affecting their investments.

Case study

Because of a global pandemic, which has severely limited the demand for its products, Everett Inc, a major sports equipment manufacturer, has shut down its operation and laid off 90 per cent of its employees. But the government is considering invoking its emergency powers and contracting with the company to make desperately needed medical equipment.

A team of Everett's engineers is working on retooling the machines at the company's manufacturing plant. In addition, if and when regular product production is resumed, the company will be eligible to receive low-cost loans under a government stimulus plan that could greatly affect Everett's long-term financial position. Jabari, the company's chief financial officer (CFO), is responsible for investor relations as well as managing the company's employee pension plan. He is wrestling with how to address all of this information and different potential outcomes in disclosures to investors.

Jabari should:

A. refrain from providing any information because the future is uncertain.

B. disclose the potential government contract and that Everett's engineers are working on transforming the company's manufacturing capabilities.

C. express confidence to investors that, in his opinion, the low-cost government loans will result in minimal disruption to the company's past profitability projections.

D. protect investor interests by aggressively touting Everett's long-term financial prospects to keep the stock price from collapsing.

E. none of the above.


In this case, one of Jabari's responsibilities as CFO of Everett is to provide information about the company to investors and the securities markets so they can make informed investment decisions. Refraining from providing any information about the company (Choice A) will likely not satisfy investors or the financial markets and lead to negative financial consequences for Everett.

Although the potential government contract and knowledge that Everett engineers are working on retooling the company's machines to manufacture medical personal protective equipment is factual (Choice B), Jabari must make sure that this information about the early stages of an enormous new business initiative is not confidential or material nonpublic information. Such information should be disclosed only when it is timely to give to investors generally.

And although the existence and eligibility of Everett for the low-cost government loan programme (Choice C) is apparently publicly known, Jabari's opinion about whether the company takes advantage of this programme, the amount of money borrowed, and how the funds will affect Everett's bottom line seems at this point to be both opinion and speculative. Protecting investor interests and the interests of Everett employees and retirees by maintaining the company's stock price (Choice D) is a worthy goal.

But doing so by circulating false and misleading information in an effort to manipulate the stock price is unethical. Although it may be difficult in the uncertain and challenging times, Jabari must work to come up with a balance between helpful, factual information and informed information about the future without disclosing confidential information or overly building up Everett's financial prospects in a way that could be seen as manipulating the company's stock price. Under the facts provided, Choice E is the best response.

This column has been adapted from content by CFA Institute and is printed here with permission from CFA Institute.

  • The writers are CFA Charterholders who volunteer with the Singapore society on advocacy issues with a view towards promoting financial literacy among retail investors and improving overall standards and integrity in the industry. Should you have comments and feedback, do write to the CFA Society Singapore Advocacy Committee:

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