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Harry Cassin
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Andy Spalding
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Julie DiMauro
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Thomas Fox
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Bill Waite
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Russell A. Stamets
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Eric Carlson
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Should issuers disclose ‘employee depression’ as a new corporate risk factor?

During the past two years, fear of infection and death, and shutting offices and everywhere else people meet, produced what amounts to a second pandemic: depression. While risks from Covid-19-related disruptions now appear in nearly all SEC registration statements and periodic filings, companies aren’t mentioning risks they face from employee depression. Why not?

Look at the numbers.

In the United States during 2020, depression among adults tripled from around nine percent to 27.8 percent. Then, during 2021, depression climbed to 32.8 percent and now impacts one in three adult Americans.

Globally, depression is the leading cause of disability. Following the onset of Covid-19, the World Health Organization found a 25 percent increase in depression. The virus triggered “unprecedented stress” from a combination of social isolation, fear of infection, grief for those who died from the virus, and financial worries.

This year, when Covid-19 concerns seemed to be fading, Russia’s invasion of Ukraine brought another spike in global anxiety.

What’s the impact in the workplace?

According to the CDC, about 80 percent of depression patients report some level of functional impairment, and 27 percent report serious difficulties in their work.

In a three-month period, workers with depression miss an average of 4.8 workdays and suffer 11.5 days of reduced productivity. Before Covid-19, the CDC found that depression was causing an estimated 200 million lost workdays a year in America and costing employers up to $44 billion.

Does it add up to a “material risk”?

SEC Regulation S-K requires issuers to disclose “material risks” in registration statements. “Material” refers to risks “to which reasonable investors would attach importance in making investment or voting decisions.” Quarterly and annual reports also disclose risk factors.

The SEC isn’t looking for long lists of risk factors that might apply to any company, but risks that apply in particular ways to the issuer or its industry.

Covid-19 now appears in most risk disclosures. Other common risk factors are cyber attacks, supply chain disruptions, costs of raw materials, currency fluctuations, weather events, labor shortages, and so on.

So, what about employee depression? Based on the impact it’s having on worker productivity and absenteeism, could it be a material risk? For companies already facing a labor shortage, depression could magnify the shortage. Should investors be concerned?

What about costs? Are health care expenses and insurance premiums rising because of employee depression? Will those rising costs hurt the company’s ability to compete?

Is training impacted? Are workers slower to absorb new information due to depression? Is their performance impairing the company?

Let’s say, then, that employee depression could be a “material risk.” We also know that issuers typically over-disclose risks as a way to inoculate against lawsuits by aggrieved investors.

So, why aren’t public companies disclosing employee depression as a risk factor?

One reason is because no one really knows the size of the problem. Last month, the director general of the World Health Organization, Tedros Adhanom Ghebreyesus, said, “The information we have now about the impact of COVID-19 on the world’s mental health is just the tip of the iceberg.” His warning is consistent with anecdotal evidence. Workers apparently underreport depression because they fear the perceived stigma of mental health disorders.

Another problem is that few companies have a plan to deal with employee depression. As several experts said at the start of the Covid-19 outbreak, despite its “enormous and growing toll, many employers take an ad hoc approach to handling depression among employees.”

Why no plan?

Depression is complex. There are variables such as age, job function, pre-existing factors, work environment, and so on. Although agencies and others are learning more about depression in the general population, there’s still a long way to go. The CDC says, “Depression in working populations is equally complex and the causes are not well understood.”

At the same time, remote and hybrid work — our new normal — might be adding to depression by isolating employees. Without workplace support, depressed workers may sink further.

Even if issuers today want to talk about employee depression, how would they do that? It’s not well understood, is seemingly getting worse, and there’s no immediate solution.

And, of course, no one else is talking about employee depression as a “risk factor,” so who wants to go first?

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