In light of the coronavirus-2019 (COVID-19) pandemic, many companies are now having to consider in real-time whether a virtual or hybrid annual shareholders’ meeting as an alternative to an in-person meeting is in the best interests of the company and its shareholders. 

Virtual meetings may be conducted via telephone or webcast and may use a combination of audio and/or video, whereas a hybrid meeting is an in-person meeting that also permits shareholder participation through electronic means. Virtual meetings allow shareholders who are certified to participate in the annual meeting to participate remotely via the Internet or by telephone (a telephonic meeting), read or hear the proceedings of the meeting, pose questions to the board of directors and management team electronically and cast votes regarding any proposals properly brought during the meeting.

When considering whether to hold a virtual or hybrid meeting, a company must comply with applicable state laws, the rules and regulations of the SEC, and the company’s own organizational documents and should consider other pertinent factors.  This Alert discusses such items as well as provides practical information and ISS and Glass Lewis guidance about the use of virtual and hybrid meeting alternatives.

Applicable State Laws

A state’s corporate laws govern the requirements concerning the call and conduct of an annual shareholders’ meeting.  A company should review its state corporate laws to confirm whether those laws allow the company to conduct a virtual or hybrid meeting and, if so, the requirements that must be satisfied for the meeting to be compliant with state law.

State corporate laws will frequently require that an annual shareholders’ meeting be called and conducted in accordance with a company’s bylaws.  Companies should review their bylaws to determine if shareholders may participate in meetings by means of virtual communication.  If so, participation by virtual means is subject to the guidelines and procedures adopted by the board of directors, and each participant must be properly certified as a shareholder before being allowed to participate.

SEC Staff Guidance and Applicable Regulations

On March 13, 2020, the SEC published  to assist companies with their upcoming annual shareholders’ meetings. The guidance is designed to facilitate the ability of a company to hold its annual meeting  through the use of a “virtual” meeting while simultaneously complying with the federal securities laws.

Changing the Date, Time, or Location of an Annual Meeting.

A company that (i) decides to change the date, time, or location of its annual shareholders’ meeting due to concerns related to COVID-19 and (ii) already mailed and filed its definitive proxy materials with the SEC may notify shareholders of the change without having to mail additional soliciting materials or amend its previously filed proxy materials if the company:

  • issues a press release announcing the change in the date, time, or location;
  • files the announcement with the SEC as definitive additional soliciting material; and
  • takes all reasonable steps necessary to inform other intermediaries in the proxy process and other relevant market participants (such as any proxy service provider and the appropriate national securities exchanges) of the change.

A company is expected to take the above actions promptly after deciding to change the date, time, or location of its annual meeting and sufficiently in advance of the meeting so as to timely alert the market and comply with applicable state laws regarding notices of shareholder meetings.  If a company has not yet mailed and filed its definitive proxy statement, it should consider whether to include disclosures regarding the possibility that the date, time, or location of the annual meeting will change due to COVID-19.  This determination should be based upon the particular facts and circumstances applicable to the company and the reasonable likelihood of a change. 

“Virtual” Shareholder Meetings

The SEC’s guidance also provides that, if a company plans to hold a “virtual” or “hybrid” meeting, then the company will be expected to notify its shareholders, intermediaries, and other market participants of such a change in a timely manner and disclose clear directions on the logistical details of the “virtual” or “hybrid” meeting, including how shareholders can remotely access, participate in, and vote at the meeting.  A company should also emphasize that voting at a “virtual” or “hybrid” meeting is just as important as an in-person meeting and that attendees will have the opportunity to fully participate as though it were live.

If a company has not yet mailed and filed its definitive proxy statement, these disclosures should be presented in the company’s proxy materials. Subject to any separate state law requirements,  a company that has already mailed and filed its 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 complies with each of the steps described above for announcing a change in the meeting date, time, or location.

Presentation of Shareholder Proposals

Exchange Act Rule 14a-8(h) requires shareholder proponents, or their representatives, to appear and present their shareholder proposals at an annual meeting. In light of COVID-19, the SEC staff is encouraging companies, to the extent feasible under applicable state law, to provide shareholder proponents or their representatives with the ability to present their proposals through alternative means, such as by telephone, during the 2020 proxy season.

Further, if a shareholder proponent or representative is not able to attend the annual meeting and present the proposal due to the inability to travel or other hardships related to COVID-19, then the SEC will consider this “good cause” under Rule 14a-8(h), which would prevent a company from asserting Rule 14a-8(h)(3) as a basis to exclude a proposal submitted by the shareholder proponent for the next two annual meetings.

Proxy Advisory Firms’ Views

ISS and Glass Lewis have both provided guidance on the use of virtual meetings during the 2020 proxy season in light of COVID-19. Both have indicated that, for this year, they will relax their policies with regard to virtual-only meetings.

ISS

Although ISS has no specific voting policy on the use of virtual meetings, it has indicated that a company that intends to conduct a virtual meeting as a result of COVID-19 concerns should provide full disclosure to ensure the meeting will not limit shareholders’ rights to participate. Specifically, ISS expects transparency and organization in the use of virtual meetings, allowing a company’s shareholders to communicate with the board of directors and management, ask questions and present shareholder proposals.

Glass Lewis

Glass Lewis will provide leniency to companies that clearly disclose that a virtual meeting option was chosen because of the COVID-19 pandemic.  Glass Lewis’ existing voting policies generally recommend voting against governance committee members when a company plans to hold  a virtual-only meeting and the company does not provide robust disclosure in its proxy statement that assures shareholders that they will be afforded the same rights and opportunities to participate as they otherwise would at an in-person meeting. Examples of such disclosure include:

(i) addressing the ability of shareholders to ask questions during the meeting, including time guidelines, rules on permissible topics, and rules for how questions and comments will be recognized and disclosed to meeting participants;

(ii) procedures, if any, for posting appropriate questions received during the meeting and the company’s answers on the investor page of their website;

(iii) addressing technical and logistical issues related to accessing the virtual meeting platform; and

(iv) procedures for accessing technical support to assist in the event of any difficulties accessing the virtual meeting.

For a company that has already filed its definitive proxy materials and later decides to switch to a virtual-only meeting, Glass Lewis indicated that it expects the company to disclose that the reason for the change is due to COVID-19, provide information addressing how shareholders may access the virtual meeting and confirm the ability for shareholders to ask questions during the meeting.

Other Considerations

Companies that are considering a switch from an in-person meeting to a virtual or hybrid meeting should promptly contact a service provider about hosting its annual meeting. Due to COVID-19, the relatively limited number of service providers equipped to host virtual meetings will likely be overwhelmed by the significant increase in the number of companies exploring the use of virtual shareholder meetings this proxy season. Companies should contact possible service providers even prior to making the decision to use a virtual meeting platform to ensure a smooth transition without the need for delay. At least one such provider is recommending that a company make a final decision as to whether to hold a virtual meeting at least three weeks prior to the meeting date.

The circumstances of the COVID-19 pandemic are evolving rapidly, and a company that opts to hold an in-person or hybrid meeting should continue to monitor current developments, including any local regulations on holding gatherings given the risks posed by COVID-19 while continuously evaluating alternatives for its annual shareholders’ meeting this year.

For additional information, please contact any member of Waller’s Capital Markets & Securities practice or your regular Waller contact at (615) 244-6380.