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E-MailChris Rushton is Lead Analyst, DACH Region; Jeff Jackson is Manager, Asia Research; and Marie Römer is Senior Research Analyst, DACH Region at Glass, Lewis & Co. This post is based on their Glass Lewis memorandum.
As governments, regional authorities, and companies adopt measures to curtail the spread of coronavirus, we are seeing an impact on annual shareholder meetings to be held in the coming months. Coronavirus, a respiratory disease, has been detected in 70 locations internationally and has been deemed “a public health emergency of international concern by the World Health Organization. Here is a review of how some global markets are addressing the situation.
Reporting and Meeting Delays
China
The Shenzhen (“SZSE”) and Shanghai (“SSE”) Stock Exchanges have taken a number of steps in response to the outbreak. They are extending the reporting period for annual results from March 30, 2020 to April 30, 2020; waiving initial an annual listing fees for issuers registered in Hubei province; and encouraging companies to hold their meetings electronically. As of February 16, 2020, the SSE had arranged for more than 70 companies to delay their annual report disclosure. Additionally, in an effort to mollify the economic impact of the virus on the Chinese markets, the China Securities Regulatory Commission (“CSRC”) revised its rules (PDF) on Seasoned Equity Offerings (“SEO”) to allow for a greater discount on offering prices (80% of benchmark price, compared to 90% previously). Moreover, the upper limit of investors for each SEO has been increased to no more than 35 from 10, while the cap of the issuance size has been increased to 30% of the total share outstanding before the issuance.
Singapore
Last week, the Singapore Exchange Regulation (“SGX RegCo”) decided to provide issuers with a two-month extension to hold annual shareholder meetings to approve fiscal year 2019 results, due to feedback expressed by shareholders that are concerned about attending large-group meetings. This extends a waiver that was granted earlier in the month by SGX RegCo to Singapore-listed companies with their principal place of business in China, which had been put in place following concerns raised by audit professionals on the practical difficulties of conducting their work. Should a company seek to extend its annual shareholder meeting from April up until the end of June, they still must submit their annual reports by April 15. The issue is particularly relevant given that Singapore does not allow for e-voting or remote participation in annual shareholder meetings.
Hong Kong
In Hong Kong, where issuers are required to file their annual results by March 31, the Hong Kong Business Accountants Association has petitioned the stock exchange to grant an extension to the reporting deadline. While the Stock Exchange of Hong Kong (the “Exchange”) is permitting companies to issue unaudited results while suggesting views of issuers’ audit committee on the unaudited results shall be considered by the investing public. While companies may continue to trade on a case-by-case basis, a blanket extension has yet to be provided.
South Korea
In South Korea, the Financial Services Commission (FSC) announced measures to allow companies to delay the submission of their audited financial statements and annual reports. The delay would primarily apply to companies with main operations (including subsidiaries) in China or domestic areas of South Korea designated as “COVID-19 affected areas”. Likewise, companies can seek a delay if their auditor was impacted by the outbreak or because of disinfection measures. According to the Korean version of the FSC’s announcement, companies that request a delay will not be subject to fines of not having financial statements at their annual shareholder meeting, but must re-hold their meeting after April. Further, the FSC is encouraging voters to use postal voting and electronic voting systems rather than attending in person.
Thailand
Similarly, Thailand’s Securities and Exchange Commission announced on February 21, 2020, that companies could seek a delay in submitting their financial statements. In addition, a request for delay can be sought if a company’s operations or the travel plans of board of directors has been impacted by the COVID-19 outbreak to the point that the board is unable to hold a meeting to approve its financial statements.
Europe
In Europe, the effects on annual meetings are already tangible. Last week, the Swiss Federal Council decided to ban public and private events with over 1,000 attendees for at least the next two weeks. While Novartis narrowly escaped having to rearrange its annual shareholder meeting, as the ban came into place just after the meeting had started, a number of companies with shareholder meetings in the coming weeks have either postponed or requested shareholders to stay at home and vote through the independent proxy. Across the border in Italy, a one-week ban on public gatherings was put in place in the northern region of Lombardy (which includes Milan), which has since been extended to March 8. This has already led to the postponement of at least one general meeting, for the Milan-based Intek Group.
United States
In the U.S., the Securities and Exchange Commission has issued “conditional” regulatory relief, providing companies impacted by the virus up to 45 extra days to file disclosures due between March 1 and April 30, including quarterly reports. Issuers who delay their disclosures must provide “a summary of why the relief is needed in their particular circumstances.” Additionally, the SEC’s Division of Investment Management has announced that it will not pursue enforcement action against fund boards that do not adhere to in-person voting requirements at upcoming meetings due to emergency circumstances; this position was subsequently extended to cover public accountant appointments, as well as other contractual approvals.
Virtual Proxy Season
One U.S. company took matters into its own hands earlier this week. Starbucks announced (PDF) the cancellation of the in-person component of its annual shareholder meeting scheduled for March 18. The annual shareholder meeting will still proceed, but as a “virtual-only” meeting conducted remotely, with no in-person attendance. The number of U.S. companies adopting either virtual-only or “hybrid” (with both in-person and virtual options) meeting structures has increased in recent years and may spike up further due to concerns regarding COVID-19. While the hybrid approach that includes a remote option is generally viewed positively, investors have raised concerns that the virtual-only structure may reduce access to the board and management, consideration of shareholder proposals, and the overall rights of shareholders.
European regulations also allow for remote attendance at annual shareholder meetings but generally require companies to receive shareholder approval in their articles of association before switching formats. Many FTSE 350 companies have sought and received approval, with at least one hybrid meeting occurring in the UK, however the practice remains nascent.
Communicating Risks to Shareholders
Companies across the globe are currently considering the manner and extent in which they communicate to shareholders on the perceived risks that they face from the outbreak and the potential impact on their operations and supply chains. A number of companies have already specifically addressed COVID-19in their trading statements and financial reporting.
Over the coming months, shareholders will have to carefully consider whether companies have provided sufficient risk reporting and, in cases where declining results or profit warnings are attributed to the virus, whether the explanation provided sufficiently accounts for other factors that may have also impacted on performance—that is, if the accounts, reports and other statements are disclosed, and if the meetings go ahead as scheduled.
