With tariffs so top of mind right now, I checked in with Cooley’s Beth Sasfai and asked her to think back to her in-house counsel days and what she would be doing to help her company navigate the current environment. Here are 25 things on “Beth’s Crisis Response Checklist for In-House Counsel.”
Board and management crisis governance
- Set up a cross-functional management response team to develop a comprehensive action plan to address tariff impacts under various scenarios (e.g., include leadership from critical areas, including operations, supply chain, investor relations, communications, legal, compliance, finance and pricing).
- Talk with your board about the desired information flow between the management response team and the board. Are ad hoc calls needed in between formal board meetings?
Risk management and compliance
3. Assign responsibility for tracking of tariff developments and evaluating the company’s dependency on affected countries, along with the near-term and longer-term business and financial impacts of tariffs to the company, as well as developing the company’s plan to comply.
4. Revisit compliance programs and processes and take reasonable measures to ensure compliance with trade laws.
5. Consider increasing diligence of third-party suppliers and manufacturers and remain alert to red flags – such as significant price differentials quoted by different suppliers, especially with respect to products historically sourced from high-tariff countries.
6. Develop compliance education and training for affected teams and functions.
Business strategy and operations
7. Assess the feasibility of diversifying the supply chain to mitigate tariff exposure and potential issues in moving to alternative suppliers (e.g., contractual obligations, logistics, timing).
8. Review existing contracts to determine whether price adjustment or force majeure clauses may be implicated, whether changes to contract terms for new contracts/renewals are warranted to address the current environment, and whether any notice or termination provisions should be exercised.
9. Finance teams should calculate potential increases in costs at various tariff levels, and determine how this affects pricing, profitability, liquidity and financial covenants under key agreements.
10. Analyze relevant credit facilities and other key contracts, and determine whether there are any notice obligations or potential defaults arising out of the tariffs and their actual or potential impact on the company.
11. Decide how any pricing increases will be communicated to customers (e.g., separate “tariff” line-item or surcharge? “Dear customer” note?).
12. Together with the board, consider whether near- or longer-term strategic changes need to be made to the company’s business plan and operations to address vulnerabilities.
Compensation
13. Assess the effect of tariffs on existing compensation programs and whether adjustments may be needed to preserve intent.
– Considerations include continued appropriateness of specific performance goals, effect of stock price volatility on equity incentives and equity plan share reserves, including any automatic equity grants and availability of cash versus equity.
14. Focus on board education, involvement and buy-in with respect to any adjustments, as well as employee and shareholder perceptions.
Public company disclosures and trading implications
15. Coordinate with investor relations to determine whether it is helpful for the company to discuss the extent of exposure with investors and analysts in advance of the next earnings release/10-Q filing, or in response to inbound calls, and if so, make sure that the information is disseminated in a Regulation FD-compliant manner.
16. Consider whether risk factors in the most recently filed annual or interim report are adequate or need to be updated or supplemented in the periodic report (in particular, risks that were previously hypothetical that have already begun to manifest, such as cost increases or demand decreases, or financing difficulties).
17. Consider whether to provide more detail in periodic reports on revenue and supply chain geographies – for example, general references to Asia may warrant more specificity as to the particular country or countries being referenced.
18. Be mindful of the importance of early warning disclosures in the MD&A to avoid later surprise disclosures, particularly where known trends and uncertainties are reasonably likely to create a significant disconnect between historical and future financial performance.
19. Reevaluate previously issued guidance and disclosures considering the current environment to determine whether to revise or withdraw.
20. Consider whether it is prudent to forgo issuing future guidance until the company is better able to produce reliable guidance.
21. Consider whether otherwise open trading windows should be closed, and remind employees that while tariff developments are common knowledge, their evolving impact on the company may constitute material nonpublic information, and trading activity should be carefully evaluated in accordance with the company’s insider trading policy.
Stakeholder engagement
22. Develop talking points to support consistent messaging to key stakeholders on the company’s actions and responses, including employees, customers, suppliers and regulators.
23. Consider whether tariff impacts should be discussed, along with other material business and financial matters, in the CEO letter included in the annual report accompanying the company’s proxy statement.
24. Consider treatment of potential questions from the floor at the company’s annual shareholders meeting (and prepare Q&A ahead of time).
25. Ensure communications with stakeholders, including at the annual shareholders meeting, are Regulation FD-compliant.
Authored by
Broc Romanek