Author: Lenin Lopez
A federal government shutdown is no longer an outlier event. In the last eight years, shutdowns have totaled over 80 days, which is more than five times the duration of the prior eight-year period. As a result, the real surprise isn't necessarily that a shutdown has happened but often how rapidly it can challenge a company's disclosure controls, forecasting assumptions and governance readiness.
From a Directors and Officers (D&O) insurance perspective, shutdowns aren't inherently problematic. The D&O-related risk surfaces when uncertainty related to shutdown risk is communicated inconsistently, when assumptions remain unstated or when impacts materialize faster than investors were led to expect. That's often how an operational disruption becomes a disclosure problem and, in some cases, a D&O claim.
This article explores where shutdown-related D&O risk tends to emerge, how disclosure and governance missteps compound that risk, how companies can frame shutdown-related uncertainty in public communications and what boards should be asking to support disciplined oversight.
Why shutdowns matter for D&O risk
Public company disclosure obligations extend beyond periodic US Securities and Exchange (SEC) filings. Earnings calls, press releases, investor presentations and other public statements all form part of the record investors and analysts rely on — and later scrutinize.
A shutdown can affect companies in different ways, but the pressure points are often similar. Regulatory approvals may be delayed. Agency reviews may pause. Federal procurement cycles may slow. Grant funding or reimbursement determinations may be deferred. Export processing or compliance certifications may be backlogged. In some cases, even the absence of government data used in forecasting can complicate internal modeling and external messaging.
These factors can all hit the bottom line. Think negative impacts on revenue timing, margins, working capital, backlog conversion and long-term growth assumptions.
Ultimately, when performance shifts or guidance slips, the question quickly becomes not just what happened, but what the management team said, what it knew and whether uncertainty was communicated clearly as circumstances evolved. That's where D&O exposure often takes shape.
The disclosure challenge: Managing "known unknowns"
Shutdowns create a familiar but uncomfortable disclosure tension. On the one hand, management teams may understand where the business is exposed to shutdown-related risks but have limited visibility into how long disruptions will last or how severe they may be. On the other hand, investors and analysts often expect more certainty.
When outcomes stray from investor or analyst expectations, share prices may drop, so much so that plaintiffs' firms may argue that the company understated shutdown-related risks or failed to update the market quickly enough.
On earnings calls, companies can address this tension by acknowledging uncertainty while making clear that they're thinking about the topic in a structured way. Consider the following approach:
"We've identified the areas of our business that are most sensitive to [federal agency] operations. While we don't yet have full visibility into timing, we're planning around multiple scenarios and monitoring developments daily."
This kind of framing can help signal discipline and awareness without pretending to have answers that don't exist.
Then there are the company's risk factors. As a reminder, risk factors included in the company's SEC filings are critical for alerting investors to material risks that make an investment in the company speculative or risky. Failure to review these risk factors and update them to account for emerging material risks that may impact the company, like the ongoing risk of shutdowns, can create the vulnerability that plaintiffs' firms seek.
To illustrate what a life science company may want to include in a risk factor to help ensure that investors and analysts understand the risks associated with a shutdown, the company could include a version of the following:
"If a prolonged government shutdown, either full or partial, occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business. Further, the continued government shutdown could impact our ability to access the public markets and obtain additional capital in the future in order to properly capitalize and continue our operations."
Also, in many cases, it's a good idea to carry these concepts over to the company's form of forward-looking statement disclaimers. I'm referring to disclaimers that are included in investor presentations and earnings releases, among others.
I hear all the time, "No one reads these disclaimers." One group that does, however, is the plaintiffs' firms. The reality is that well-crafted forward-looking statement disclaimers can support a strong defense in the face of a securities lawsuit.
Where shutdown risk turns into litigation risk
Shutdown-related securities litigation rarely arises because a company was affected by a shutdown. It typically arises because the impact seems inconsistent with prior messaging.
Certain allegations are common in these cases, like:
- Guidance implied stability without fully explaining assumptions.
- Early messaging minimized impact as a function of not disclosing relevant forward-looking risks.
- Disclosures were inconsistent.
Ultimately, when performance later deteriorates or milestones slip, plaintiffs' firms may frame the narrative as one of avoidable optimism rather than external disruption.
What follows are a few disclosure hot spots that are worth homing in on when it comes to shutdown-related disclosure risk.
Guidance and forecasting under uncertainty
Providing guidance during a shutdown, or reaffirming guidance while one is underway, isn't inherently risky, but if a company chooses to do so, it's critical to build shutdown-related risks into the narrative. Otherwise, problems can arise when guidance implies certainty without explaining the assumptions behind it.
In this spirit, a company could say the following:
"Our outlook assumes [federal agency] review timelines resume in the normal course during the quarter. If the shutdown extends materially beyond that, we expect timing, not demand, to be the primary variable."
Another variation is:
"We haven't adjusted full-year guidance at this stage, as we're modeling a resumption of regulatory and procurement activity consistent with prior short-term disruptions. A prolonged shutdown could shift revenue recognition into subsequent periods."
Or:
"Current guidance reflects the assumption that review and approval timelines normalize within the quarter. If that timing changes, we would reassess accordingly."
Each version identifies the assumption and clarifies what would cause a change, reducing the risk that plaintiffs later characterize reaffirmed guidance as misleading.
Early messaging that minimizes impact
In the early stages of a shutdown, many companies will accurately report that they aren't yet seeing material effects. That message becomes risky when it lacks context.
A more balanced framing might sound like this:
"To date, we haven't seen a material impact on revenue. That said, several approvals currently in process could be delayed if [federal agency] operations remain constrained, and we're monitoring those closely."
This messaging preserves credibility if disruptions later emerge.
Inconsistent messaging
In securities litigation, inconsistency is often as problematic as inaccuracy. Earnings calls that sound confident, paired with disclosures, including forward-looking statement disclaimers that describe meaningful risk, can create the appearance of unrealistic optimism.
Thoughtful companies often bridge this gap explicitly:
"As outlined in our risk disclosures, a prolonged shutdown could affect timing in certain areas. What we're seeing today is consistent with that framework, but I can tell you it's something that we are closely monitoring."
This messaging can help reinforce alignment across the company's disclosure channels.
Operational decisions with secondary effects
Shutdowns frequently force operational adjustments, which may require delaying projects, reallocating resources or reducing headcount. These decisions are often necessary, but they can introduce secondary risks, including employee relations issues or derivative claims alleging inadequate oversight.
When discussed on earnings calls, clarity helps separate execution from strategy. Here is one example:
"We've adjusted our R&D strategy to prioritize programs that are less dependent on near-term [federal agency] action. These steps are tactical and don't reflect a change in our commitment to our pipeline."
Alternative formulations might emphasize flexibility or scenario planning while reinforcing continuity of demand and strategy.
Linking operational adjustments back to previously disclosed risk factors can help strengthen the narrative consistency that courts often scrutinize.
Analyst pressure and the precision trap
Periods of uncertainty invite pressure for specificity. Analysts may ask how long a shutdown can last before results are affected, or what revenue is at risk. Overly precise answers can create unnecessary exposure.
One way that a company can respond is to focus on structure rather than specific numbers, like:
"Rather than anchoring to a single duration, we're planning around a range of scenarios. Across those scenarios, demand remains intact. The variable is timing."
Other responses might emphasize scenario modeling, stress testing and monitoring triggers without attaching specific numerical thresholds or targets.
Precision may feel like the right call in the moment, but that approach can become problematic if things don't turn out the way management anticipated.
What boards should be asking during a government shutdown
Some questions for the board to consider asking may include:
- What shutdown-related assumptions are embedded in our guidance?
- Which regulatory or federal touchpoints represent the greatest timing risk?
- How quickly could a prolonged shutdown affect revenue, liquidity or covenant compliance?
- What could trigger a need to update our disclosures?
- How are we ensuring messaging consistency?
- Have we stress-tested liquidity in the case of an extended shutdown?
Equally important is documenting that the oversight occurred. Board minutes don't need to be verbose, but they should reflect that directors discussed shutdown exposure, scenario planning and disclosure alignment. A concise record demonstrating active board engagement can be valuable if shareholders later challenge oversight.
Where D&O insurance fits
Shutdown-related risk can lead to books and records requests, securities litigation, derivative suits or regulatory inquiries, even when management acted reasonably.
D&O insurance is designed to respond to these scenarios, but it's most effective when paired with disciplined governance and disclosure practices. Periods of uncertainty are an ideal time to reassess limits adequacy, retention structures, Side A protection and claims-reporting readiness.
It's important to remember that insurance is a critical backstop, but it isn't a substitute for thoughtful oversight and good governance.
Parting thoughts
A government shutdown is outside a company's control. The clarity of its disclosures and the discipline of its governance are not.
As discussed, boards and management teams that prioritize clarity over confidence, structure over speculation and consistency over optimism are far better positioned to navigate shutdowns without turning operational disruption into fodder for a D&O claim.
Published March 2026
