Public companies with a calendar year-end have begun filing their annual reports on Form 10-K during the 2025 reporting season at a time of uncertainty driven by rapidly evolving federal government policy developments. We summarize some of the key early trends that we have observed thus far in the 2025 reporting season.
Disclosure impacts as a result of the change in the U.S. Presidential Administration
During the 2025 reporting season, companies are considering what must be disclosed regarding the change in the U.S. presidential administration. Companies are not necessarily obligated to report external developments in their SEC filings, but it is essential to evaluate how such external developments could impact the company’s business, reputation, financial condition or results of operations. Here is a summary of lessons learned based on early filers:
- Risk Factors – Companies should review their risk factors to ensure they have adequate risk factor disclosure regarding the material impacts arising from policies of the new presidential administration. As a reminder, when disclosing any risks in the risk factors section of an annual report on Form 10-K, the relevant risk factor disclosure should not cast the particular risk as a hypothetical possibility if the risk has materialized for the company. Topics that companies should consider, among others, are:
- International Trade – Companies should consider whether the 25% tariff on imports from Canada and Mexico, which were subsequently suspended for a period of one month, a 10% additional tariff on imports from China, and a 25% tariff on steel and aluminum imports, as well as any related impacts of those tariffs, will have a material impact on the company’s business, reputation, financial condition or results of operations. As a result of the current tariff environment, companies should evaluate existing international trade risk factors to ensure the risk factor discusses any material impacts arising from the increased tariffs, including any retaliatory tariffs or increased political tensions that are caused by the tariffs. Companies that have material risk exposure due to the recently imposed tariffs should also consider whether disclosure of the tariffs is necessary in its Management’s Discussion and Analysis of Financial Condition and Results of Operations section. It may be appropriate, for companies that do not have exposure to rising tariffs reference the impact of rising tariffs and more aggressive trade policies in a general macroeconomic risk factor, given the potential for broader economic impacts arising from these trade actions.
- ESG and DEI Programs – As we recently noted, in light of the Executive Order titled “Ending Radical and Wasteful Government DEI Programs and Preferencing,” companies should evaluate existing risk factor disclosures and determine if any changes should be made to reflect changes in the company’s actual DEI practices, including, for example, practices regarding numerical diversity goals or quotas. In addition, companies could consider referencing the risk of negative publicity related to its ESG initiatives if it already has an ESG focused risk factor. It is reasonable to acknowledge in the company’s SEC disclosures the uncertainty regarding ESG matters generally, and DEI matters specifically, concerning federal and state legal, regulatory, and political environments, as well as changes in market perceptions and demands.
- Regulatory Environment – On January 31, 2025, President Trump signed an Executive Order requiring that whenever an agency promulgates a new rule, regulation, or guidance, it must identify at least 10 existing rules, regulations, or guidance documents to be repealed. The Executive Order also requires that, for fiscal year 2025, the total incremental cost of all new regulations (including repealed regulations) must be significantly less than zero. The Executive Order and recent Supreme Court decisions have created uncertainty in the regulatory environment which poses particular risks for highly regulated companies. In addition, with the Administration’s focus on reducing costs and personnel within the federal government, companies may also consider referencing longer review periods for any applicable regulatory approvals. Companies in highly regulated industries should consider these potential risks carefully and determine whether new risk factor disclosure is warranted.
- Geopolitical Considerations – With armed conflicts occurring worldwide, companies should consider revisiting risk factor disclosure about the impact of wars and the overall risks presented by a rapidly changing geopolitical environment. Although many companies included a reference to the Israel-Hamas war last year, companies may have experienced new risks since their disclosure last year that should be highlighted. The potential implications for a company can vary considerably based on the company’s business and the areas in the world in which it operates.
- Review/Update Forward-Looking Statement Disclaimer – Companies should ensure that their forward-looking statement disclaimer includes language regarding global political changes, including as a result of the change in the U.S. presidential administration.
No uniform approach concerning Item 408(b) of Regulation S-K Disclosure
Starting this year for calendar year-end companies, Form 10-K requires the disclosure required by Item 408(b)(1) of Regulation S-K under “Item 10, Directors, Executive Officers and Corporate Governance.” The disclosure requirement can be provided in Form 10-K or incorporated by reference from the company’s definitive proxy statement under General Instruction G(3) on Form 10-K. Companies currently drafting or finalizing their annual reports on Form 10-K are considering whether to include the disclosure as part of their annual report on Form 10-K or to incorporate it by reference from their upcoming definitive proxy statement.
Based on a subset of the largest companies that have filed their annual report, there is no uniform approach to the disclosure required by Item 408(b) of Regulation S-K. Slightly over half of the annual reports on Form 10-K filed by the largest companies by market capitalization incorporated the insider trading policy disclosure by reference from its upcoming proxy statement.
In determining whether to provide the disclosure in their annual report on Form 10-K or to incorporate it by reference from its upcoming proxy statement, companies should consider whether they already have disclosure regarding their insider trading policy in their proxy statement that could be expanded to satisfy the disclosure requirement. As a reminder, the insider trading policy disclosure must be tagged using Inline XBRL, and the company must file its insider trading policy as an exhibit to its annual report on Form 10-K.
For companies that include the insider trading policy disclosure in their annual report on Form 10-K, we have seen two disclosure approaches depending on whether the company’s insider trading policy applies to the company’s trading itself.
Disclosure Example 1: If the Company’s Insider Trading Policy applies to the Company’s trading:
The Company has adopted an insider trading policy that governs the purchase, sale, and/or other transactions of our securities by our directors, officers and employees and the Company itself. A copy of our insider trading policy is filed as Exhibit 19.1 to this Annual Report on Form 10-K for the fiscal year ended December 31, 2024.
Disclosure Example 2: If the Company’s Insider Trading Policy does not apply to the Company’s trading:
The Company has adopted an insider trading policy that governs the purchase, sale, and/or other transactions of our securities by our directors, officers and employees. A copy of our insider trading policy is filed as Exhibit 19.1 to this Annual Report on Form 10-K for the fiscal year ended December 31, 2024. In addition, with regard to the Company’s trading in its own securities, it is the Company’s policy to comply with the federal securities laws and the applicable exchange listing requirements.
DEI Disclosures
Some early filers have streamlined their DEI-related disclosures in light of the Executive Orders titled “Ending Radical and Wasteful Government DEI Programs and Preferencing” and “Ending Illegal Discrimination and Restoring Merit-Based Opportunity.” Companies should consider whether it is appropriate to remove or rephrase references to DEI initiatives from their annual report on Form 10-K. The determination of whether to remove DEI-related disclosures should be based on the company’s specific facts and circumstances, including whether they have any contracts with the government and the composition of their stockholder base, while taking into account the applicable disclosure requirements.
Cybersecurity
Disclosure regarding cybersecurity risk management and strategy was required for the first time during the 2024 reporting season. For the 2025 reporting season, companies should evaluate their disclosure from the last year for accuracy and compliance with Item 106 of Regulation S-K. In particular, based on SEC comment letters released to date, be sure to confirm that the disclosure includes (i) specific language on whether and how a company’s processes for managing risks has been integrated into overall risk management systems or processes, (ii) disclosure on a member of management responsible for overseeing cybersecurity risk management is broken out individually and not aggregated and (iii) disclosure on whether cybersecurity risks have materially affected or are reasonably likely to materially affect the company is included. Additionally, companies should ensure that any cybersecurity risks that have materialized are not described as hypothetical. Companies should take a holistic approach to their cybersecurity disclosures and carefully review their cybersecurity disclosures across all public disclosures to ensure consistency of the disclosure and that any disclosures are not overstated.
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