I saw this in AT&T’s 2007 annual report.

Problem:
Either an adjective was used where an adverb was required, or a comma is missing.

Explanation:
The noun “material” can be used as an adjective to modify another noun, and adding “ly” converts it to an adverb.

The adjective “adverse” is modifying the noun “effect” in this example from the 2007 annual report from AT&T Inc., so the word “material” does not correctly modify the adjective “adverse” in this example.

Instead, we need one of two possible solutions (depending on the desired emphasis):

1. If modifying “adverse” is the desired emphasis, then we need the adverb “materially” as the modifier.
2. If modifying “effect” is the desired emphasis, then we need the adjective “material” as the modifier, but we also need a comma immediately following “material” because a second adjective (“adverse”) modifies “effect” (the noun).

I believe that the use of “material adverse” instead of “materially adverse” or “material, adverse” is consistent with my “Devolution toward Simpler” linguistic hypothesis. It’s simpler to omit the “ly” and the comma than to use one or the other.

Using “material adverse” lets one avoid thinking about whether to use the “ly” or the comma.

Solutions:
“… it could have a materially adverse effect …”
or
“… it could have a material, adverse effect …”