Morningstar - Q2 2020 - 24

Dispatches

are adept at planning for what is known.

of possible cataclysms that could be visited
on a business.
Holdings

we applied an automated text analysis procedure
to scan 3, 00 10 K
of 2020 through the close of business on March 26.
said

in its 201 report:
March, it looked like stocks had entered the third

will at least be bounded. Within months, not years,
the stock market recovery should begin.

behavior confounds the scientists or because

such a situation. I hope that I never shall.
John Rekenthaler is vice president of research with
Morningstar Research Services.

Most Firms Failed to
Disclose Pandemic Risk
Suddenly, companies have discovered
pandemic risk.

usually boilerplate and formulaic. While these
disclosures are supposed to give investors
something to go on for assessing potential future
criticized as simply defending against
future litigation and meeting compliance
requirements.
Pandemic risk disclosures appear to be a case
in point. Up until the past two months,

The occurrence of one or more natural disasters,
such as hurricanes, fires, floods and earthquakes ...
pandemic outbreaks, terrorist acts or disruptive
global political events ... or similar disruptions
could adversely affect our operations and financial
performance.

algorithm that computes the length and relevance
of disclosures. The score can be read as

Raw scores are converted into normalized integer
scores with values from 0 for no relevant
disclosure to 100, assigned to the most detailed

As the human and economic toll of the global
1
spread of the coronavirus that causes
unfolds, it becomes abundantly clear that
pandemic risk had previously been massively
neglected as a material threat to businesses.

The exhibit shows a daily log of the number

their 2020 business risk language around
pandemics.

that average score rose steadily, from 1 to 40.

2020 pandemic disclosure stretches to more
than 2,000 words, including the following details:

related risk disclosure.

Such events could also significantly impact our
industry and cause us and our franchisees to close
some or all of our stores, which would severely
disrupt our or our franchisees' operations....

at risk from widespread disease outbreaks
than others. Analysis of 201 disclosures using the
same methodology shows that companies in
hospitality and tourism, food and beverages, and
insurance had the most to say about pandemic
risk before the outbreak.

Since the beginning of February, 4 of annual
reference the
1
pandemic. To quantify and examine this trend,

Where companies provide any detail on previous
disease outbreaks, such as SARS in 2002-03, swine
/ 1 1 in 200 , and Zika in 201 -16, it is usually

10 K Filings
pandemic risk as a threat to their businesses until the coronavirus crisis unfolded.
Number of 10-K Filings

Average Normalized Disclosure Indicator

300

40

a business risk in their annual reports to
largest cruise line companies,
and
companies hard hit by the coronavirus.
20 of companies that did
include pandemic as a risk, most mentions were
in the context of a boilerplate enumeration

24

Morningstar 2 2020

40
30

200

20
100

10

0

0
01/2020

Source: Morningstar analysis of U.S

02/10/2020

02/20/2020

03/02/2020

03/26/2020
Morningstar - Q2 2020

Table of Contents for the Digital Edition of Morningstar - Q2 2020
