Considerations for Annual Shareholder Meetings in the Time of COVID-19

As a practical matter, companies may be forced to change the date and/or location of their annual meetings in light of stay-at-home orders and other restrictions on social interaction that several states have imposed to try to slow the spread of COVID-19.² Also, companies should be mindful of the White House directive to avoid social gatherings in groups of more than 10 people as well as the Centers for Disease Control and Prevention guidance to cancel large, in-person events and certain gatherings of more than 10 people.

Companies that change the date and/or location of an annual meeting should comply with the March 13, 2020 guidance (updated as of April 7, 2020) for conducting shareholder meetings in light of COVID-19 concerns issued by the Staff of the Division of Corporation Finance and the Division of Investment Management of the Securities and Exchange Commission (SEC) 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.³

The SEC Staff expects companies to take these actions promptly after making a decision to change the date or location of the meeting and sufficiently in advance of the meeting so the market is alerted to the change in a timely manner.

• A company that has yet to mail and 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 such switch 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. If a company plans to conduct a virtual or hybrid meeting, the SEC Staff expects the company to notify its shareholders and intermediaries in the proxy process of such plans in a timely manner and disclose in the proxy statement the logistical details of the meeting, including 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 have recently passed emergency legislation or executive orders in light of the COVID-19 pandemic to permit or facilitate virtual-only and hybrid annual meetings as summarized below.
  • California. On March 30, the Governor of California issued an executive order declaring that a California corporation may hold a virtual shareholder meeting if the meeting has already been scheduled or must occur before June 30. The order suspends the California statutes that currently require corporations to (1) obtain shareholder consent to hold a shareholder meeting by electronic transmission or by electronic video screen communication and (2) provide written notice of such meetings, to the extent that a corporation has provided notice to its shareholders that a meeting will occur at a physical location and subsequently provides notice by a press release, website posting and other means reasonably designed to inform shareholders that the meeting will occur by electronic transmission or by electronic video screen communication. 
  • Connecticut. On March 21, the Governor of Connecticut issued an executive order that permits virtual-only shareholder meetings during a state of emergency declared by the Governor, which will be in effect until the Governor determines that the emergency no longer exists. Virtual-only meetings are permitted if the board of directors makes the list of shareholders entitled to vote available for inspection as set forth in the order.
  • Georgia. On March 20, the Governor of Georgia issued an executive order that permits virtual-only shareholder meetings during a state of emergency declared by the Governor, which currently ends on April 13. Virtual-only meetings are permitted if the board establishes procedures to enable shareholder participation and voting on matters submitted at the meeting.
  • Massachusetts. On March 30, the Governor of Massachusetts issued an order that suspends the operation of a law currently prohibiting virtual-only meetings for a period ending 60 days after Massachusetts is no longer under a state of emergency. The order permits Massachusetts corporations that previously sent notice of annual meetings to be held at a physical location to notify shareholders of a change to a virtual-only meeting by (1) issuing a press release announcing the change, (2) emailing notice to shareholders who have provided an email address and (3) taking all other reasonable steps to notify shareholders of the change.
  • New Jersey. In March a bill unanimously passed both houses of the New Jersey legislature that would permit New Jersey corporations to hold shareholder meetings in part or solely by means of remote communication during a state of emergency declared by the Governor, which will be in effect until the Governor determines that the emergency no longer exists. The legislation is subject to certain conditions including (1) board approval of the meeting guidelines and procedures and (2) implementation of reasonable measures to assure shareholder participation in the meeting (e.g., an opportunity to vote and hear the proceedings).
  • New York. On March 20, the Governor of New York issued an executive order that permits virtual-only shareholder meetings until April 19 by suspending the provision of the New York Business Corporation Law that requires meetings of shareholders to be noticed and held at a physical location.
  • North Carolina. On April 1, the Governor of North Carolina issued an executive order that permits virtual-only shareholder meetings during a state of emergency declared by the Governor, provided that shareholders have the opportunity to participate in and vote at such meeting.
• 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 with respect to announcing a change in the meeting date or location without the need to mail additional soliciting materials (including new proxy cards). Delaware corporations should also note that on April 6, the Governor of Delaware issued a modification of Delaware’s declaration of a state of emergency to provide flexibility to SEC-registered Delaware corporations that previously sent notice of annual meetings to be held at a physical location and now wish to switch to a virtual meeting. Under the modification:
  • If a corporation’s board wishes to change a previously noticed meeting with a physical meeting location to a meeting conducted solely by remote communication, it may notify shareholders of the change solely by a document publicly filed by the corporation with the SEC and a press release promptly posted on the corporation’s website; and
  • If it is impracticable to convene a previously noticed meeting of shareholders at its physical location due to the COVID-19 pandemic, the corporation may adjourn the meeting to another date or time, to be held by remote communication, by providing notice of the date and time and the means of remote communication in a document filed by the corporation with the SEC and a press release promptly posted on the corporation’s website.
• Determine logistical matters regarding the virtual meeting, including engaging a service provider to host the meeting, clarifying the procedures for registered and beneficial shareholders to access 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, whether a shareholder list will be made available on the website, what website updates are needed and how questions will be addressed. Typically companies close out the formal portion of the annual meeting before opening up the Q&A session. Check with the service provider how much notice it needs to action a switch to a virtual-only meeting.
• If a shareholder proposal is on the ballot, determine how the proponent or representative can present the proposal. SEC guidance has encouraged, to the extent feasible under state law, that proponents are given the ability to present their proposals through alternative means, such as by phone. We believe that most companies are providing the proponents the ability to present proposals live over the phone, but some may use a pre-recording of the proponents’ presentation of their proposals and play it at the meeting or present the proposals on behalf of the proponents.
  • 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.
• Consider proxy advisory firm policies on virtual meetings that may drive voting recommendations.
  • Institutional Shareholder Services (ISS) does not have a formal policy to recommend votes against companies that hold virtual-only annual meetings. ISS issued new policy guidance on April 8 confirming there will be no change to that approach this proxy season. ISS encourages companies holding virtual-only meetings to provide shareholders with a meaningful opportunity to participate fully in the meeting, including the ability to engage in dialogue with and ask questions of directors and senior management.
  • Under its standard policy, Glass Lewis generally recommends voting against governance committee members at companies that opt to hold virtual-only shareholder meetings without providing specified robust proxy statement disclosures. On March 19, Glass Lewis announced an immediately effective policy update in recognition of the fact that many public companies have resorted to virtual-only meetings in light of the COVID-19 pandemic. Under its updated guidelines, for companies opting to hold a virtual-only meeting during the 2020 proxy season (March 1 through June 30), Glass Lewis will generally refrain from recommending voting against governance committee members provided that a company discloses its rationale for holding a virtual-only meeting and specifically references COVID-19.⁴ Glass Lewis will review these situations on a case-by-case basis and note whether companies disclose their intention to resume holding in-person or hybrid meetings under normal circumstances.
• Consider viewpoints of institutional investors with regard to virtual meetings.
  • On March 16, the Council of Institutional Investors (CII), which has generally opposed virtual-only shareholder meetings, issued a statement acknowledging that many public companies will reasonably move to a virtual-only format this year. CII hopes that companies will make clear that this is a one-time decision in light of the current situation and urges companies to follow best practices for shareholder participation.
  • On March 31, the President and CEO of State Street Global Advisors (SSGA) published a letter urging companies to either postpone their annual meetings or shift to virtual meetings. If shifting to a virtual format, SSGA expects shareholders to have the same rights and opportunities as at a physical meeting including the ability “to have active and robust interactions with management and the board at appropriate times.”
• 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 use 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 whether any company representatives should refrain from attending the annual meeting in person because they are at high risk of contracting COVID-19.
• For hybrid meetings, consider adding disclosure in the proxy statement encouraging shareholders to participate virtually in light of concerns surrounding the COVID-19 pandemic.
• For both in-person and hybrid meetings, consider adding disclosure in the proxy statement encouraging shareholders not to attend in person if they are experiencing any flu-like symptoms or have recently been exposed to a person diagnosed with COVID-19.
• 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 leave the room and submit a ballot.

²A Sidley resource tracking state-issued stay-at-home orders is available here.

³The April 7 update to the SEC’s guidance clarifies that it applies to both annual and special shareholder meetings.

⁴Glass Lewis referred to Starbucks Corporation’s 2020 proxy statement as an example of effective disclosure on this point.

⁵A “full set” of proxy materials would contain (1) a proxy statement or information statement, (2) an annual report if required by Exchange Rule 14a-3(b) or 14c-3(a) and (3) a proxy card or, in the case of a “street name” holder, a request for voting instructions, if proxies are being solicited.