Weekly Intelligence for Directors Who Want to See What's Coming

February 25, 2026 | Issue #4

On February 20, the Supreme Court held 6-3 that the International Emergency Economic Powers Act does not authorize the President to impose tariffs. Chief Justice Roberts was unequivocal: "IEEPA contains no reference to tariffs or duties." Within hours, President Trump signed a proclamation invoking Section 122 of the Trade Act of 1974, imposing a 10% temporary import surcharge effective February 24. By February 21, he raised it to 15%, the statutory maximum. Section 232 and Section 301 tariffs remain in full force.

The legal question is settled. The governance question is just beginning.

Every company that imports goods, sources components internationally, or competes with companies that do has just experienced a material change in its operating environment. The tariff architecture that defined supply chain economics for the past year has been replaced, in a single day, by a different structure resting on a different legal foundation with a built-in expiration date. And most boards are not prepared for what that means.

The disclosure problem is immediate

In Issue #3, we noted that over 75% of S&P 500 companies did not update their risk factor disclosures after the April 2025 tariff announcements, despite those tariffs representing the largest tax increase as a percentage of GDP since 1993. That statistic was concerning then. It is potentially actionable now.

The February 20 ruling did not merely adjust tariff rates. It invalidated the legal authority under which roughly half of all import duties were being collected. It created a potential refund liability exceeding $140 billion. It replaced broad, indefinite IEEPA tariffs with a 15% surcharge that expires in 150 days. And it opened questions about the enforceability of bilateral trade deals negotiated under the authority the Court has now struck down.

K&L Gates' 2026 proxy season guidance is direct: companies with international supply chains, substantial import or export exposure, or global sourcing should consider whether tariffs and trade policy changes could meaningfully affect their business. Even where impacts are not currently material, companies should monitor and disclose the risk of future tariff-driven volatility and assess whether existing disclosures appropriately capture exposure.

For boards filing 10-Ks this month (large accelerated filers face a March 2 deadline), the question is urgent: do your risk factors reflect the world as it existed before February 20, or the world as it exists now?

Three scenarios your board should be stress-testing

The post-ruling tariff landscape is not simpler than what came before. It is more complex, because the tariff architecture now rests on multiple legal authorities with different durations, rates, and vulnerabilities.

Scenario 1: Section 122 expires, replacement tariffs are lower. The 15% surcharge expires July 24 unless Congress extends it. If the administration cannot complete Section 232 and Section 301 investigations before expiration, and Congress does not act, the effective tariff rate drops to whatever remains under existing Section 232 and 301 authorities. The Yale Budget Lab estimates this baseline at roughly 6.7 percentage points above pre-2025 levels. Companies with significant import exposure would see meaningful cost relief, but would need to unwind pricing, sourcing, and inventory decisions made under the assumption of higher rates.

Scenario 2: Section 122 is replaced by equivalent tariffs under other authorities. Treasury Secretary Bessent has said the administration expects to achieve "virtually unchanged tariff revenue in 2026" through alternative authorities. If Section 232 and Section 301 investigations are completed before July 24, the rate structure may look similar to pre-ruling levels, but the product and country mix will differ. Some sectors face higher rates (semiconductors, pharmaceuticals, copper already carry Section 232 duties); others face lower rates during the transition. This is the base case for most analysts, but the timing and product-level details remain uncertain.

Scenario 3: Legal challenges to Section 122 succeed. Trade experts have already questioned whether Section 122's statutory requirement of a "balance-of-payments deficit" is met. The United States runs a capital account surplus; a trade deficit is not the same thing. If Section 122 tariffs are challenged and enjoined before the 150-day period expires, the administration loses its bridge authority and faces a gap in tariff coverage until Section 232 and 301 proceedings conclude. This is the tail risk scenario that few organizations are planning for.

The refund question creates its own governance obligation

The government previously stipulated that it would not contest refund orders for IEEPA tariffs following a final and unappealable decision. Penn Wharton Budget Model estimates IEEPA tariff collections through January 2026 at approximately $165 billion. The Court's ruling did not address refund mechanics, and the administration has signaled it does not intend to issue refunds voluntarily.

For companies that paid IEEPA tariffs, the refund question is a material contingency that belongs in board-level discussion. How much did the company pay? Were protective claims filed at the Court of International Trade? What is the expected timeline and likelihood of recovery? And critically: if the company passed tariff costs through to customers, does it have a legal right to recover duties that were never its economic burden? Justice Kavanaugh flagged this pass-through problem in his dissent, calling the refund process likely to be a "mess."

Directors should be asking management three questions this week:

→ "What is our total IEEPA tariff exposure, and have we filed or do we intend to file for refunds?"

→ "Do our current risk factor disclosures reflect the post-February 20 tariff landscape, including the Section 122 expiration risk and refund contingency? If not, what is the timeline for updating them?"

→ "Have we scenario-planned our 2026 financial projections against the three tariff outcomes: Section 122 expiration, replacement under other authorities, and legal challenge to Section 122?"

The D&O dimension

Allianz Commercial's 2026 D&O Insurance Insights report warned that directors and officers can be held accountable for misjudging the impact of geopolitical developments on their company's operations, or failing to adequately adapt to legal and regulatory requirements. Brown & Brown's analysis of tariff-related D&O exposure is more specific: if tariffs negatively impact financial performance and stock value, shareholders may sue for alleged misrepresentations or omissions in public filings.

The SEC's enforcement posture adds another layer. While overall enforcement declined in 2025, the Commission charged Centene's CEO with misleading investors about financial prospects and failing to disclose material facts, resulting in an $11 billion single-day devaluation. Every SEC enforcement case filed in federal court during Q2 2025 alleged fraud. The Cyber and Emerging Technologies Unit remains focused on material misrepresentations in public disclosures.

The pattern is clear: boards that fail to ensure their companies' disclosures reflect material risks, including tariff risks, face exposure from shareholders, regulators, and insurers simultaneously. The February 20 ruling did not reduce that exposure. It increased it, because the tariff landscape just became more complex, less predictable, and subject to a 150-day clock that demands active monitoring.

Questions to ask in your next board meeting:

→ "Walk me through our tariff exposure by authority: what do we pay under Section 232, what under Section 301, what under Section 122, and what changes if Section 122 expires without replacement?"

→ "What is our total IEEPA refund claim, and what is the expected recovery timeline?"

→ "Are our public disclosures current as of February 20? If we are filing a 10-K before March 2, does it reflect the post-ruling reality?"

→ "Have we reviewed our D&O insurance coverage for tariff-related exposure, including securities class actions alleging failure to disclose material tariff risks?"

Five signals board members should track this week

1. Private Credit Liquidity Scare: Blue Owl Halts Redemptions

Blue Owl Capital permanently halted quarterly redemptions at its retail-focused private credit fund OBDC II on February 19, simultaneously selling $1.4 billion in loans at 99.7% of par. Blue Owl shares dropped 10%; Blackstone, Apollo, and Ares declined 5-6%. Economist Mohamed El-Erian compared the situation to the Bear Stearns fund freeze of 2007. Treasury Secretary Bessent expressed concern about risk migration to the regulated financial system. Blue Owl's portfolio is more than 70% software companies, and investor anxiety about AI displacement drove the redemption surge. For directors: if your company's pension, insurance, or treasury investments include private credit allocations, ask whether those vehicles have software-sector concentration and whether redemption gates have been triggered or are at risk.

2. CISA at 38% Capacity as DHS Shutdown Continues

The DHS funding lapse that began February 14 has furloughed 62% of CISA's workforce, leaving only 888 of 2,341 employees working (without pay). Proactive vulnerability scanning, strategic planning, stakeholder training, and CIRCIA cyber incident reporting rulemaking have all been halted. This comes after CISA already lost one-third of its staff through prior workforce reductions. For directors: the government cybersecurity backstop your organization may have assumed existed is not functioning. Audit committees should verify that incident response plans do not depend on CISA coordination and that the company's own detection and response capabilities are operational and tested.

3. AI Supply Chain Attack Targets Developer Infrastructure

A compromised npm publish token was used on February 17 to push a poisoned update to Cline CLI, a popular AI coding assistant, silently installing an autonomous AI agent on approximately 4,000 developer systems. The attack exploited a prompt injection vulnerability in Cline's AI-powered issue triage bot, which an attacker manipulated by opening a GitHub issue containing malicious instructions. For directors: this represents a new category of supply chain risk where AI tools themselves become attack vectors. Boards overseeing technology companies or companies with significant development operations should ask whether AI-integrated development tools have access to publishing credentials or production systems.

4. Q4 GDP at 1.4%: Shutdown Tax on Growth, Inflation Still Sticky

Q4 2025 GDP came in at 1.4%, well below the 2.8% consensus, with the 43-day government shutdown subtracting an estimated 1.0 percentage point. Full-year 2025 GDP was 2.2%, the weakest since 2020. Core PCE inflation firmed at 3.0%, reinforcing the Fed's higher-for-longer stance. J.P. Morgan no longer expects any rate cuts in 2026. For directors: companies that built financial plans around rate cuts should be revising those assumptions. The combination of weak growth and sticky inflation constrains the Fed and creates a challenging environment for capital-intensive businesses, particularly those also navigating tariff uncertainty.

5. Section 122 Legal Vulnerability Already Being Questioned

Multiple trade law experts have flagged that Section 122 of the Trade Act of 1974 requires a "balance-of-payments deficit" to justify temporary tariffs, but the United States runs a capital account surplus. A trade deficit is not the same as a balance-of-payments deficit. The statute has never been invoked before, meaning there is no judicial precedent establishing its boundaries. For directors: the 150-day bridge the administration is relying on may itself be legally vulnerable. Companies should not assume Section 122 tariffs will remain in place for the full 150 days.

Each week, one question worth raising at your next meeting.

"If someone asked our general counsel today whether our public disclosures accurately reflect our tariff exposure as of February 20, what would the answer be?"

This question is deliberately uncomfortable. Most companies' 10-K filings were drafted weeks ago based on the pre-ruling tariff landscape. The IEEPA ruling, the Section 122 replacement, the refund contingency, and the 150-day expiration clock represent material changes that may not be reflected. For companies filing before March 2, this is an immediate action item. For companies that have already filed, it raises the question of whether a subsequent disclosure update is warranted. The question forces a specific, defensible answer from the person responsible for disclosure accuracy, which is exactly the kind of accountability that protects directors.

What's moving in Washington and beyond

IEEPA Refund Proceedings Begin

The Court of International Trade will begin processing refund claims for IEEPA tariffs paid since early 2025. The government stipulated it would not contest refunds following a final decision, but procedural questions remain: documentation requirements, standing for importers who passed costs through, and the timeline for disbursement. Companies that filed protective claims are positioned for faster recovery. Those that did not may face longer timelines and additional procedural hurdles.

Commerce Department AI Review (March 11)

The evaluation of state AI laws remains due March 11. The FTC is also directed to issue a policy statement by the same date on how existing federal law applies to AI. Both publications could reshape the AI compliance landscape in a single week.

10-K Filing Deadlines

Large accelerated filers: March 2. Accelerated filers: March 16. Non-accelerated filers: March 31. Risk factor disclosures should be reviewed against the post-February 20 tariff landscape, particularly for companies with material import exposure.

BlackCat Sentencing (March 12)

Sentencing for the two cybersecurity professionals who pleaded guilty to ransomware conspiracy as BlackCat affiliates. The severity of sentencing will signal judicial attitudes toward insider cyber threats and may influence how boards evaluate third-party security vendor risk.

A note on sequence: we had planned to examine AI committee structures this week, as previewed in Issue #3. The Supreme Court's IEEPA ruling on February 20 and its immediate aftermath created a governance urgency that warranted priority. The AI committee analysis remains on our list and we will revisit it when the topic cycle allows.

Next week: The 150-Day Clock. With Section 122 tariffs set to expire July 24 and the administration racing to build replacement authorities under Section 232 and Section 301, boards face a rare window of structured uncertainty. We will look at what the countdown means for procurement decisions, contract negotiations, and financial planning, and how boards should be governing through a tariff transition with a known expiration date.

Researched, written, and edited in collaboration with Claude by Anthropic.