SEC Issues Annual Meeting Guidance Amid COVID-19 Concerns
Date: March 17, 2020
On March 13, 2020, the Securities and Exchange Commission’s Divisions of Corporation Finance and Investment Management issued joint guidance (Guidance) on compliance with the federal proxy rules for upcoming annual meetings in light of health, transportation and other logistical issues raised by the spread of COVID-19. The Guidance applies to annual meetings, but it is reasonable to assume it also will apply to special shareholder meetings.
Change in Meeting Date, Time or Location
The Guidance states that an issuer, including an investment company, that has already mailed and filed its definitive proxy materials can notify shareholders of a change in the date, time or location of its annual meeting without mailing additional soliciting materials or amending its proxy materials if it:
- issues a press release announcing such change;
- files the announcement as definitive additional soliciting material on EDGAR; and
- takes all reasonable steps necessary to inform other intermediaries in the proxy process, such as any proxy solicitor, and other relevant market participants, such as the appropriate national securities exchanges, of such change.
The SEC expects the issuer to take these actions promptly after deciding to change the meeting date, time or location and sufficiently in advance of the meeting, so the market is alerted to the change in a timely manner.
If the definitive proxy statement has not yet been filed and mailed, the Guidance advises issuers to consider including disclosures regarding the possibility that the date, time or location of the annual meeting will change due to COVID-19. Whether to include such a disclosure should be made based on each issuer’s particular facts and circumstances and the reasonable likelihood of such a change.
Virtual and Hybrid Shareholder Meetings
The SEC recognizes that in lieu of an in-person meeting, an issuer may be contemplating conducting a “virtual” shareholder meeting through the internet or other electronic means or a “hybrid” shareholder meeting (i.e., an in-person meeting that also permits shareholder participation through electronic means). The Guidance reminds issuers that the ability to conduct virtual and hybrid meetings is governed by state law and the issuer’s governing documents. The SEC emphasizes that “robust” disclosures that facilitate informed shareholder voting are just as important for a virtual or hybrid meeting as they are for an in-person meeting. If an issuer plans to conduct a virtual or hybrid meeting, the SEC expects it to notify its shareholders, intermediaries in the proxy process and other market participants in a timely manner and disclose clear directions regarding the meeting’s logistical details, including how shareholders can remotely access, participate in and vote at the meeting.
An issuer that has not yet filed and delivered its definitive proxy materials should include such disclosures in its proxy statement and other soliciting materials. An issuer that has already filed and mailed definitive proxy materials would not need to mail additional soliciting materials (including new proxy cards) solely for the purpose of switching to a virtual or hybrid meeting if it follows the steps described above for announcing a change in the meeting date, time or location.
Rule 14a-8(h) under the Securities Exchange Act requires shareholder proponents, or their representatives, to appear and present their proposals at the annual meeting. Travel restrictions and other impediments may make it difficult for shareholder proponents to comply with this requirement. The Guidance encourages issuers, to the extent permitted under state law, to permit shareholder proponents to present their proposals through alternative means, such as by phone, during the 2020 proxy season. If a shareholder proponent is not able to attend the annual meeting and present the proposal due to travel restrictions or other hardships related to COVID-19, the SEC would consider this to be “good cause” under Rule 14a-8(h) should the issuer assert Rule 14a-8(h)(3) as a basis to exclude a proposal submitted by the shareholder proponent for any meetings held in the following two calendar years.
FOR MORE INFORMATION
For more information, please contact:
Andrew J. Davalla
Michael V. Wible
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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 Rule 14a-8(h)(3) provides that an issuer is permitted to exclude a shareholder proposal from its proxy materials for any meetings held in the following two calendar years if the shareholder proponent or its representative fails, without good cause, to appear and present the proposal at the meeting.