Annual Shareholder Meetings in the Time of COVID-19
Date: April 07, 2020
COVID-19 has created unique challenges for companies that are scheduled to hold their annual shareholder meetings during the pandemic. Statewide stay-at-home restrictions and public gathering bans are forcing many companies to change plans for their annual meetings, including switching to a virtual meeting format. In light of these logistical challenges, it is important for a company to carefully consider how it can hold an effective annual meeting without disenfranchising its shareholder base. The following summary provides some practical considerations for both public and private companies as they decide how to hold an accessible and effective annual meeting in the time of COVID-19.
State Law Considerations
A public or private company contemplating switching to a virtual format (where an annual meeting is conducted via an online platform) or a hybrid format (which has both virtual and physical components) should first review applicable state statutes and its code of regulations or bylaws to determine whether a hybrid or virtual-only meeting is permissible. Some states have adopted emergency legislation permitting a virtual-only format. A company holding a hybrid or in-person annual meeting will also need to review applicable state stay-at-home orders to ensure the meeting format does not violate state restrictions on mass gatherings.
A company electing to switch to a virtual annual meeting format should keep in mind that it will still need to comply with state regulations regarding procedural matters such as quorum requirements, shareholder participation (typically requiring shareholders to hear and be heard), making the stockholder list available for examination and providing confidential voting procedures during the meeting.
Once a revised meeting format is finalized, the company should adjust its annual meeting guidelines and rules of procedure to account for the change in format. For example, shareholders attending a virtual meeting should be instructed on how to ask questions and reminded of restrictions on recording the annual meeting. A company should also confirm whether state law imposes any specific obligations or limitations on crafting these guidelines and procedures, for example, accessibility requirements for disabled shareholders, such as an audio-only streaming option for those who are visually impaired.
While contemplating a change in meeting format, a company should consider which stakeholders normally attend its annual meeting. If a small contingency of shareholders is expected at the meeting (and the gathering would not otherwise be prohibited under any COVID-19 stay-at-home orders), it may be difficult to justify incurring the additional time and expense to convert to a virtual meeting. On the other hand, if the annual meeting is usually well-attended or shareholders are being asked to vote on an important proposal, a virtual-only format may be appropriate to enable those facing travel restrictions to attend. A company facing pressure from activist shareholders should also consider that holding a virtual meeting, which may be necessary due to COVID-19-related restrictions, would open the door for those shareholders to voice their concerns at the meeting.
If a company decides to pursue a virtual or hybrid meeting format, it may need to make special arrangements for a shareholder presenting a proposal at the meeting. In this case, the company should contact the shareholder proponent or its representative ahead of time to coordinate their presentation at the meeting via phone or video or by prerecording.
Companies should also consider offering voting assistance to shareholders who may not be able to mail their proxy cards in time to be counted at the meeting due to COVID-19-related issues.
A company that has not yet decided on the format of its annual meeting prior to distributing any materials to shareholders should include contingency language in its proxy statement or annual meeting materials notifying shareholders that a format and/or date or location change is possible. If a change in format is determined before the materials are finalized, the company should include those details in the materials.
With respect to public companies, on March 13, 2020, the SEC’s Division of Corporation Finance and its Division of Investment Management issued guidance regarding compliance with the federal proxy rules and holding annual meetings in light of COVID-19 concerns. In general, a company that has already filed its proxy materials with the SEC and mailed the materials to shareholders can announce a change to the date, time, location or format of its annual meeting by issuing a press release announcing the change, filing a corresponding announcement as definitive additional soliciting materials on EDGAR, and taking all reasonable steps necessary to inform other intermediaries and market participants of the change. By following these procedures, the company would not need to mail additional soliciting materials (including new proxy cards) to its shareholders.
Under limited relief granted by Delaware Governor John Carney on April 6, 2020, a publicly traded Delaware corporation that decides to switch to a virtual meeting after distributing proxy materials contemplating a physical meeting and that did not include a website for a possible virtual meeting in its initial meeting notice is not required to mail a new meeting notice to shareholders announcing the switch so long as the company provides such notice in a document filed with the SEC and a press release, which must be promptly posted on the company’s website; and the notice and press release are issued at least 10 days in advance of the annual meeting.
In addition to following these recommendations, a public company electing to switch to a hybrid or virtual meeting format should also consider filing a Current Report on Form 8-K explaining that the change was made solely to address the impact of the coronavirus. This disclosure is encouraged in light of guidance issued by proxy advisory firms such as Glass Lewis and ISS.
A private company that is not subject to the federal proxy rules should review applicable state law to determine whether changes to its annual meeting would trigger any specific disclosure obligations to shareholders.
Any logistical change to the annual meeting (e.g., date, location or format) should be approved by a company’s board of directors. The company should also think about contingency planning with respect to its proxyholders, inspector of elections and the designated presiding officer of the annual meeting in case these individuals are unable to attend for health reasons.
Finally, a company should consider whether it would be permitted under state law to convene its annual meeting as scheduled and then immediately adjourn the meeting to a virtual meeting. Depending on applicable state law, a company pursuing this option may not be required to provide notice of the adjournment to shareholders so long as the time, place and means by which shareholders can be present and vote at the adjourned meeting are announced at the meeting. Under the relief issued by Delaware Governor Carney on April 6, a publicly traded Delaware corporation that is unable to convene an annual meeting at a physical location for reasons related to COVID-19 may adjourn the meeting to another date or time, to be held by remote communication, and may provide notice of the adjourned meeting in a document filed with the SEC and a press release. The notice and press release must also be promptly posted on the company’s website.
Unless its state of incorporation has issued specific relief like Delaware, a public company contemplating an adjournment should consider, at a minimum, filing with the SEC a Notice of Adjournment as definitive additional soliciting materials announcing to shareholders that it intends to adjourn the annual meeting immediately and then reconvene virtually. In addition, a company should ensure that the new meeting date is set within the time period permitted under state law to preserve the original record date.
The adjournment options described above enable companies to decide closer to the time of the annual meeting whether or not to go virtual, providing much-needed flexibility in light of the constantly changing COVID-19 landscape.
FOR MORE INFORMATION
For more information, please contact:
Andrea R. McCarthy
Emily A. Farinacci
or any member of our Corporate Transactions & Securities group.
We have assembled a firmwide multidisciplinary task force to address clients’ business and legal concerns and needs related to the COVID-19 pandemic. Please see our COVID-19 Task Force page for additional information and resources.
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