In Short: In response to the growing public health and safety concerns associated with the spread of novel coronavirus disease ("COVID-19"), the U.S. Securities and Exchange Commission ("SEC") released guidance to help issuers and others meet their obligations under the federal proxy rules.
The Result: The SEC staff announced its position that issuers contemplating possible changes in the date, time, or location of their annual meetings (including changing to a virtual shareholder meeting) after mailing and filing their definitive proxy materials may make such changes without mailing additional soliciting materials or amending previously sent proxy materials if certain steps are taken.
Looking Ahead: Issuers should consider and evaluate their options and expectations with respect to the timing and procedures surrounding the annual meeting. Those issuers seeking to change the date, time, or location of their annual meetings should follow the requirements outlined in the SEC guidance to comply with the federal proxy rules. Issuers that have not yet mailed proxy materials should consider including disclosures about potential changes to the date, time, or location of their annual meeting.
On March 13, 2020, the SEC issued guidance to assist public companies, investment companies, shareholders, and other market participants affected by COVID-19 with federal proxy rule compliance in connection with annual shareholder meetings. The guidance follows conditional regulatory relief issued by the SEC in a March 4, 2020, order providing publicly traded companies with an additional 45 days to file certain disclosure reports that would otherwise have been due between March 1 and April 30, 2020.
Among other things, the SEC guidance states that the SEC staff will take the following positions:
Issuers wishing to change the date, time, or location of their annual meeting (including changing to a virtual shareholder meeting) due to difficulties arising from COVID-19 that have already mailed and filed their definitive proxy materials:
- May notify shareholders of such
changes without mailing additional soliciting materials or amending
their proxy materials (including proxy cards) if they promptly and
sufficiently in advance of the annual meeting:
- issue a press release announcing the change;
- file the press release as definitive additional soliciting material on Electronic Data Gathering, Analysis, and Retrieval; and
- take all reasonable steps necessary to inform other intermediaries in the proxy process and other relevant market participants (e.g., relevant national securities exchanges) of the change.
Issuers considering potentially changing the date, time, or location of their annual meeting (including changing to a virtual shareholder meeting) due to difficulties arising from COVID-19 that have not already mailed and filed their definitive proxy materials:
- Should consider including disclosures, based upon their particular facts and circumstances and the likelihood of such a change, regarding the possibility that the date, time, or location of the annual meeting will change.
Issuers contemplating a virtual shareholder meeting must:
- Be timely in notifying their shareholders, intermediaries in the proxy process, and other market participants of such plans.
- Disclose clear directions as to the logistical details of the virtual meeting shareholder meeting, including how shareholders can remotely access, participate in, and vote at such meeting.
- To the extent permitted by state law, provide shareholder proponents or their representatives with the ability to present their proposals at the virtual shareholder meeting by alternative means, such as by phone. (For purposes of Rule 14a-8(h), the SEC staff will consider the inability of a shareholder or representative to present a proposal due to hardships associated with COVID-19 to be "good cause" such that an issuer would not be permitted to exclude on this basis such shareholder's proposals from proxy materials for meetings in the following two calendar years.)
Other Virtual Shareholder Meeting Considerations
Ability to Hold a Virtual Meeting
The ability to conduct a virtual shareholder meeting is governed by state law and the issuer's governing documents, including its certificate of incorporation and bylaws. Delaware and 41 other jurisdictions permit some form of virtual or hybrid meeting. Delaware General Corporation Law ("DGCL") Section 211(a)(1) provides that if, pursuant to the DGCL or the issuer's governing documents, the issuer's board of directors is authorized to determine the place of the annual shareholder meeting, it may, in its sole discretion, determine that the annual shareholder meeting be held virtually, provided certain requirements are met. Before acting to implement a virtual shareholder meeting, issuers should confirm that virtual shareholder meetings are permitted under the state law of their jurisdiction of incorporation and their governing documents.
Access to a Shareholder List
Delaware issuers considering holding a virtual meeting should also plan ahead to fulfill state law requirements for the provision of a shareholder list. DGCL Section 219 requires issuers to prepare and provide a complete list of shareholders entitled to vote at the meeting at least 10 days prior to the annual meeting (in addition to during the meeting itself). Issuers may provide this list on a "reasonably accessible electronic network" so long as they provide information on how to access the list in the notice of the meeting.
Issuers including conditional virtual meeting disclosures in their proxy statements should consider providing information on how to access the shareholder list remotely in their proxy statement or noting (and providing) such information in subsequent disclosures announcing the issuer's pivot to a virtual annual meeting.
Potential Restrictions on Public Gatherings
Issuers should also consider limitations imposed or the possibility of future limitations to be imposed by federal, state, or local authorities that restrict gatherings of individuals in excess of certain numbers when considering having an in-person annual meeting. For example, New York has imposed measures to limit gatherings to fewer than 50 people. Furthermore, on March 16, the Trump administration urged the public to avoid gathering in groups of 10 or more.
Proxy Advisory Firms Considerations
While neither Glass Lewis & Co. ("Glass Lewis") nor Institutional Shareholder Services, Inc. ("ISS") have formally updated their guidelines, shareholder services and advisory firms have reported that Glass Lewis and ISS have acknowledged that they will relax their policies with respect to virtual-only meetings for this year in light of the extraordinary circumstances presented by COVID-19, provided that issuers holding virtual-only meetings provide clear disclosure that the change is related to COVID-19 and that protections are put in place to ensure shareholders retain the same rights and opportunities to participate in the virtual meeting that they would have in an in-person meeting. Based on the feedback from ISS and Glass Lewis, shareholder services and advisory firms have noted that Glass Lewis and ISS will nevertheless scrutinize the adequacy of issuers' disclosures about virtual meeting logistics, the transparency afforded by the virtual meetings, and the effectiveness of accommodations for shareholder participation and communication at virtual meetings. Institutional investors have taken a similar approach—for example, New York City Comptroller Scott Stringer, who oversees New York City's $216 billion pension system, has noted that the NYC pension funds will not take action against boards that conduct virtual-only annual meetings due to COVID-19 where the issuer discloses the rationale for a virtual-only meeting and affirms its commitment to holding in-person meetings in the future.
Three Key Takeaways
- The SEC Guidance is intended to provide flexibility for issuers contemplating changing the date, time, or location of their annual meeting in response to the rapidly evolving concerns posed by COVID-19.
- In light of growing public health concerns related to COVID-19, issuers contemplating changing to a virtual shareholder meeting, either virtual-only or hybrid, should consider applicable state of incorporation rules and regulations and their governing documents, as well as the possibility that governmental regulations may limit their shareholders' ability to assemble, to understand the options available to them.
- Upon making the decision to switch to a virtual or hybrid meeting, issuers should act promptly to notify shareholders and proxy service providers and to arrange and disclose logistical details of the meeting to preserve shareholder access and engagement, including providing information for accessing electronically-posted shareholder lists in the notice of the meeting, as applicable.
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