Annual Shareholders Meeting in the Time of COVID-19

Rebecca Grapsas is counsel and Holly J. Gregory and John P. Kelsh are partners at Sidley Austin LLP. This post is based on a Sidley memorandum by Ms. Gregory, Mr. Kelsh, Ms. Holland, Paul Choi, Lindsey Smith, and Thomas J. Kim.

In light of COVID-19, many public companies are considering changes to their upcoming annual shareholder meetings. Several high-profile companies, including Berkshire Hathaway and Starbucks, have announced a switch to virtual-only annual meetings this year, while other companies may consider adding a virtual participation option to an in-person meeting (a “hybrid”). Other companies may consider delaying the annual meeting. Companies with typically well-attended annual meetings should be aware of Centers for Disease Control and Prevention guidance as of March 15, 2020 recommending that for the next 8 weeks, organizers cancel or postpone in-person events that consist of 50 people or more throughout the United States.

Public companies that are considering changing the date, time and/or location of an annual meeting, including a switch from an in-person meeting to a virtual or hybrid meeting, will need to review applicable requirements under state law, stock exchange rules and the company’s charter and bylaws, and should also bear in mind proxy advisory firm viewpoints. These considerations are discussed below.

Companies that change the date, time and/or location of an annual meeting should comply with the March 13, 2020 guidance issued by the Staff of the Division of Corporation Finance and the Division of Investment Management of the Securities and Exchange Commission (SEC), by disclosing the decision as promptly as possible to shareholders, intermediaries in the proxy process and other market participants, as follows:

  • A company that has already mailed and filed its definitive proxy materials can notify shareholders of any such change without mailing additional soliciting materials or amending its proxy materials if the company:
    • Announces the change in a press release;
    • Files the announcement as definitive additional soliciting material on EDGAR and includes, if the meeting will be virtual or a hybrid, how shareholders can remotely access, participate in and vote at such meeting; and
    • Takes all reasonable steps necessary to inform other intermediaries in the proxy process (such as any proxy service provider) and other relevant market participants (such as the appropriate national securities exchanges) of such change.
  • A company that has yet to file its definitive proxy materials should consider including disclosures regarding the possibility that the date, time or location of the annual meeting will change due to COVID-19, including any possible switch to a virtual or hybrid meeting to the extent that has not been decided, or that the company may adopt additional screening procedures for admission to an in-person meeting. Such determination should be made based on each company’s particular facts and circumstances and the reasonable likelihood of such a change. For a company that has decided to switch to a virtual or hybrid meeting, the proxy statement should include information about how shareholders can remotely access, participate in and vote at such meeting.

Companies that are reviewing their annual meeting date, location and procedures should consider the matters set forth below as they decide what to do next, under the following scenarios.

Scenario 1: Switch to a Virtual Annual Meeting

For companies that are considering switching to a virtual annual meeting:

  • Review the company’s charter and bylaws and state law requirements as to whether virtual-only and/or hybrid annual meetings are permitted. For example, under the Delaware General Corporation Law (DGCL), if the charter or bylaw authorizes the board to determine the place of a shareholder meeting, the board may determine that the meeting be held solely by means of remote communication (Section 211(a)). Several states, such as New York, do not currently permit virtual-only annual meetings.
  • If the company has already mailed and filed its definitive proxy materials, promptly after the company has decided to switch to a virtual annual meeting, announce the change in the manner set forth in the SEC Staff guidance discussed above.
  • Determine logistical matters regarding the virtual meeting, including engaging a service provider to host the meeting, whether to use live video as well as audio, how votes will be collected before and during the meeting, how the board and management will participate, how questions will be addressed, how any shareholder proponent or representative can present the proposal, and what website updates are needed. If a shareholder proposal is on the ballot, provide to proponents and their representatives, to the extent feasible under state law, the ability to present their proposals through alternative means, such as by phone. The SEC Staff has announced in the new guidance that failure to present a proposal due to the inability to travel or other hardships related to COVID-19 will be considered a “good cause” under Exchange Act Rule 14a-8(h), should companies 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.
  • Disclose in the proxy statement information regarding the manner in which the virtual meeting may be held, including information regarding how shareholders may participate in the annual meeting, the manner in which questions may be submitted, how questions will be addressed and how shareholders can receive technical assistance before and during the meeting. Glass Lewis has recently indicated that it will continue to apply its 2020 proxy voting policy and recommend voting against governance committee members at companies holding a virtual-only annual meeting where robust disclosure as to these matters is not provided. Institutional Shareholder Services does not have a formal policy on virtual-only annual meetings, but as publicly reported, has indicated that it expects companies holding virtual-only meetings to disclose shareholder opportunities to participate in the meeting, ask questions, provide feedback to the company and present proposals. 
  • Conduct a “dry run” prior to the meeting date to identify and resolve any technical issues and ensure that key people are familiar with the technology they will be using during the meeting.

Scenario 2: Hold an In-Person or Hybrid Annual Meeting

 For companies that are considering holding an in-person annual meeting (with or without a virtual participation option, as discussed under Scenario 1):

  • Consider adding additional named proxies and ensure the proxy card permits full power of substitution of the named proxies, to protect against the risk that one or more of the named proxies are not available (e.g., because of falling ill, quarantine requirements or travel restrictions).
  • Review the company’s bylaws and corporate governance guidelines to determine who will chair the meeting if the chair becomes unavailable.
  • For companies that have stated in the proxy statement that a representative from the independent auditing firm will be present at the meeting and available to answer questions, confirm who is expected to attend the meeting, including a back-up option(s) prepared to answer appropriate questions (e.g., a partner from that firm’s local office who could step in if non-local key audit partners are not available).
  • Confirm who will act as the inspector of election and agree on a back-up plan if the individual inspector is no longer available.
  • Review the company’s bylaws and applicable law to determine whether the chair has authority to exclude a shareholder or proxy from the meeting, for example, to maintain the safety of those present; if not, considering amending the bylaws to specifically authorize this where permitted.
  • Review the company’s process for screening persons for admission to the meeting and consider including additional security personnel and a health expert to monitor attendees for apparent flu like symptoms.
  • Ensure that sufficient proxy cards, ballot papers, hand sanitizer and masks (if needed) are available at the meeting.
  • Review the script before the meeting to announce the health and safety measures in place and request that anyone who is experiencing flu-like symptoms to leave the room and submit a ballot.

Scenario 3: Delay the Annual Meeting

 For companies that are considering delaying the annual meeting:

  • Review the company’s bylaws to determine whether they require annual meetings to be held on a specific day or during a particular month; if so, consider amending the bylaws to permit the board to determine the date, time and place (if any, as discussed under Scenario 1) of the annual meeting.
  • Review the impact of delaying the annual meeting on the applicable deadlines for shareholder proposals under Exchange Act Rule 14a-8, shareholder proposals and director nominations under the company’s advance notice provisions, and director nominations under the company’s proxy access provision.
  • Review state law, New York Stock Exchange (NYSE) and NASDAQ requirements as to annual meeting requirements when determining what the new date will be. For example, the DGCL provides that the Court of Chancery, upon application of a shareholder or director, can summarily order a company to hold an annual meeting for the election of directors if more than 13 months has elapsed since the most recent meeting (Section 211(c)). The NYSE requires listed companies to hold an annual meeting during each fiscal year (NYSE Listed Company Manual Section 302.00) and NASDAQ requires companies to hold an annual meeting no later than one year after the end of the company’s fiscal year-end (NASDAQ Stock Market Rule 5620).
  • Schedule a board meeting to set the new annual meeting date and record date, in line with state law requirements and the company’s For example, Delaware requires the record date for voting and the meeting notice to be between 10 and 60 days before the meeting (DGCL Sections 213(a) and 222(b)).
  • Once the new date has been determined, update the annual meeting checklist and ensure that the company has adequate time to meet various deadlines (e.g., the broker search required by Rule 14a-13, which is required at least 20 business days prior to the record date or otherwise as practicable).
  • Issue a press release announcing and providing notice to shareholders of the new annual meeting date and new shareholder proposal deadline, file with the SEC as additional definitive soliciting materials pursuant to the new SEC Staff guidance discussed above, and on Form 8-K (Item 8.01), and notify the relevant stock exchange as appropriate. For example, the NYSE requires immediate notification of dates set in connection with the calling of any shareholder meeting and notice of at least 10 days prior to the record date, with some exceptions where a full 10 days’ notice is not possible (NYSE Listed Company Manual Sections 21 and 401.02).
  • File an amendment to Form 10-K to include the Part III information, if the proxy statement will be filed more than 120 days after fiscal year-end. For calendar year companies, the 120-day deadline this year falls on April 29. Ensure that the board has had an opportunity to review the information before filing, which may require scheduling one or more additional board and/or committee meetings. We note that while the question is unclear, it may be the case that the relief provided by the SEC Order issued on March 4, 2020 and discussed in our prior Sidley Update may not be available to extend the period by which companies can incorporate Part III information by reference, because April 29 is already more than 45 days past the end of the possible extension period for Form 10-K.
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