Conducting the Annual Shareholder Meeting during the COVID19 Pandemic

The season for annual shareholder meetings is now well underway, but many states have stay-at-home mandates or suggestions limiting the size of public meetings. So how will corporations safely and legally conduct a shareholder meeting during the pandemic? And what will the changes made this year bode for the future?

In 2000, Delaware amended the General Corporation Law to permit virtual shareholder meetings. Section 211(a)(1) thus provides that:

Meetings of stockholders may be held at such place, either within or without this State as may be designated by or in the manner provided in the certificate of incorporation or bylaws, or if not so designated, as determined by the board of directors. If, pursuant to this paragraph or the certificate of incorporation or the bylaws of the corporation, the board of directors is authorized to determine the place of a meeting of stockholders, the board of directors may, in its sole discretion, determine that the meeting shall not be held at any place, but may instead be held solely by means of remote communication as authorized by paragraph (a)(2) of this section.

Section 211(a)(2) provides an alternative, pursuant to which the board may authorize shareholders who are not present at a physical meeting of the shareholders to participate in such a meeting by "remote communication." Until recently, this sort of hybrid meeting was far more common than a purely virtual meeting. But there was a trend towards virtual meetings: "Broadridge Financial Solutions, Inc. (Broadridge), has reported a dramatic increase in the prevalence of virtual-only meetings, going from hosting just one virtual-only meeting in 2009, to 53 meetings in 2014, and then increasing to 90 and 155 meetings in 2015 and 2016, respectively." Lisa A. Fontenot, Public Company Virtual-Only Annual Meetings, 73 Bus. Law. 35, 35–36 (2018). And, as noted, the novel coronavirus may change all of that.

Delaware Governor John Carney yesterday (4/6/2020) issued an emergeny order intended to substantially facilitate the use of virtual shareholder meetings. The order notes that:

WHEREAS, § 222(c) of Title 8 of the Delaware Code allows for adjournments of stockholder meetings, but does not address the method of adjournment of a meeting noticed for a physical location in the case of a public health threat and concomitant restrictions on personal mobility and travel; and

WHEREAS, § 232 of Title 8 of the Delaware Code provides that notice of stockholder meetings may be given by mail, courier service or electronic mail, but also suggests that there may be other means by which notice may be given effectively to stockholders; and

WHEREAS, during the COVID-19 pandemic, the Securities and Exchange Commission is allowing reporting companies to provide certain notices to stockholders via the companies’ required public filings and a press release.

The order then provides that:

With respect to a corporation subject to the reporting requirements of § 13(a) or § 15(d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder:

i. if, as a result of the public health threat caused by the COVID-19 pandemic or the COVID-19 outbreak in the United States, the board of directors wishes to change a meeting currently noticed for a physical location to a meeting conducted solely by remote communication, it may notify stockholders of the change solely by a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to § 13, § 14 or § 15(d) of such Act and a press release, which shall be promptly posted on the corporation’s website after release; and

ii. if it is impracticable to convene a currently noticed meeting of stockholders at the physical location for which it has been noticed due to the public health threat caused by the COVID-19 pandemic or the COVID- 19 outbreak in the United States, such corporation may adjourn such 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 Securities and Exchange Commission pursuant to § 13, § 14 or § 15(d) of such Act and a press release, which shall be promptly posted on the corporation’s website after release.

As K&L Gates observes, a corporation wishing to take advantage of this option must:

• Implement reasonable measures to verify that each person deemed present and permitted to vote at the virtual meeting is a stockholder or proxyholder;
• Implement reasonable measures to provide stockholders and proxyholders a reasonable opportunity to participate in the virtual meeting and vote on matters, including an opportunity to read or hear the proceedings of the meeting substantially concurrently with such proceedings; and
• Maintain a record of a stockholder or proxyholder’s vote or other action taken at such meeting.

K&L Gates also notes that:

• If the corporation has already mailed the notice of meeting, and the corporation has sufficient time to give its stockholders 10 days’ notice of the virtual meeting, a new notice ordinarily must be distributed to stockholders by a physical mailing or by e-mail [1]. However, pursuant to the Order, any Delaware corporation that is subject to the reporting requirements of §13(a) or §15(d) of the Exchange Act may notify stockholders of the change of the format of the meeting solely by filing a document with the SEC and issuing a press release, which shall be promptly posted on the corporation’s website after release. The notice should contain the information required for a notice of a virtual meeting described above.
• If the corporation has mailed the notice of the annual meeting and there are fewer than 10 days’ before the meeting or it is otherwise impracticable to convene a currently noticed meeting, the meeting could be held but adjourned to another place (i.e., a virtual location). Ordinarily, notice of an adjourned meeting is not required so long as the date, time and place or means of remote communications by which stockholders and proxyholders may be deemed to be present in person and vote at such adjourned meeting are announced at the meeting at which the adjournment is taken and the adjournment is for no more than 30 days. Pursuant to the Order, a public company also may adjourn the meeting by providing notice of the date and time of the virtual meeting and the means of remote communication by which stockholders may participate in the meeting solely by filing a document with the SEC and issuing a press release, which shall be promptly posted on the corporation’s website after release.
• Where there is insufficient time to send out a new notice and/or it is impracticable to adjourn or postpone the meeting, another option for corporations is to simply hold the physical meeting as planned, but to stream the meeting over the internet so that stockholders have the opportunity to hear or view the meeting remotely. Because the meeting is considered a meeting held at a physical place, stockholders, who do not come to the physical meeting but participate in the webcast, must submit their proxies in advance of the meeting according to the instructions set forth in the original proxy materials in order to have their votes count for quorum and voting purposes.

The SEC guidance referred to above is available here.

Some companies have hesitated about moving to virtual meetings, because shareholder advisory service Glass Lewis and some large institutional investors opposed virtual-only meetings. However, Glass Lewis has suspended that policy for the duration (2020 WL 1430493):

The firm, which is the second-largest advising institutional investors on proxy votes, said in a blog post that online-only meetings offer "compelling advantages" to both companies and shareholders given the situation regarding COVID-19. Its approval of the option extends to June 30.

"We do not believe discouraging virtual-only meetings during this time serves the interests of shareholders or companies," Glass Lewis said in the post on its website, noting that moving meetings online will offer certainty and continuity in timing, agendas, and voting.

Some investors, including the Council of Institutional Investors, oppose virtual-only shareholder meetings as lacking the same opportunities to hold management accountable and ask questions as in-person gatherings. ...

Glass Lewis's policy update says the firm will take the pandemic into account during the 2020 proxy season when applying its virtual-only meeting policy and generally refrain from voting against governance committee members for this reason as long as the company says it moved the meeting online because of COVID-19 or similar rationale. Reviews will be case-by-case and note whether companies say they'll return to in-person or hybrid meetings in the future. 

The Council of Institutional Investors (CII) has likewise suspended its opposition to virtual only meetings, albeit only for the current proxy season:

“Given coronavirus concerns,” said CII Executive Director Ken Bertsch, “it is entirely reasonable that some companies will go to virtual-only annual meetings.”

Bertsch added that CII hopes that companies “will make it clear that this decision is a one-off, tailored for current circumstances.” He also urged companies to follow best practices “for making virtual meetings participatory, replicating as much as possible the experience of an in-person meeting.” And he said that “companies that do hold in-person meetings should be flexible with shareholder proponents on presentation of shareholder proposals, accommodating travel restrictions that they may face.”

CII generally has opposed virtual-only shareholder meetings, in favor of a hybrid approach.

How will it work? Broadridge is the principal stockholder service company and had been active in both virtual and hybrid meetings for many years. They provide online platforms for conducting a virtual meeting:

They also provide a useful white paper on best practices for conducting a virtual meeting. Some key best practices are also available from CII:

CII’s October 2017 publication, Build a Better Meeting, offers guidance on creating shareholder-oriented meetings, including virtual components. The publication urged that virtual meetings include:

• • A live audio and video feed of all key company representatives in attendance, including, at a minimum, the chair, CEO, any lead/presiding director, chairs of key board committees and the corporate secretary.
  • A continuously updated list of all shareholder questions submitted both before and during the meeting, accompanied by clear indication of any subsequent deletion or re-ordering in the queue.
  • A comprehensive Q&A tool allowing the shareholder to:
    • Submit a question
    • Track its prioritization in the queue
    • Present the question virtually, including through the use of a shareholder-provided webcam or phone
    • Instructions or a link to written responses to unanswered shareholder questions, made available within 72 hours of the meeting’s conclusion.
    • Basic information about the meeting known to the company, which may include a list of attendees, the number of shares represented at the meeting and preliminary vote counts.

One key issue will be the requirement in Rule 14a-8 that proponents of a shareholder proposal must be present at the meeting. David Hooper and Lynne McMahan explain that 

The SEC guidance also provides direction to companies and shareholders regarding the presentation of shareholder proposals at annual meetings for the 2020 proxy season. Under Exchange Act Rule 14a-8(h), shareholders or their representatives are required to appear in person and present their proposals at the annual meeting. In light of the possible difficulties of appearing in person to present their proposals (whether because of COVID-19-related travel concerns or because of a change to a virtual meeting), the SEC encourages companies, to the extent feasible under state law, to provide shareholders or their representatives with the ability to present their proposals through alternative means, such as by phone, during the 2020 proxy season. Companies in this situation should coordinate and communicate in advance with shareholders regarding the means of presenting their proposals and any necessary technical requirements or limitations.

Furthermore, to the extent a shareholder 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, the SEC considers this to be “good cause” under Rule 14a-8(h), and therefore, issuers cannot assert a shareholders’ absence as a basis under Rule 14a-8(h)(3) to exclude a proposal submitted by the shareholder for any meetings held in the following two calendar years.

Hooper and McMahon also offer some best practices:

• Companies should engage an experienced remote communication services provider (such as Broadridge or Computershare) to host the virtual or hybrid meeting.

• Companies must ensure that the remote communication method allows shareholders to vote, ask questions and make comments, hear answers to questions, and otherwise exercise all of the rights shareholders have under state law for participation in shareholder meetings.

• Companies should develop protocols for facilitating the process for shareholder proposal proponents to present their proposals.

• Companies must also ensure that the technology platform used to conduct the virtual meeting will accommodate all of the shareholders, board members, members of management, and other persons participating in the meeting.

• Companies also should make shareholders aware of the procedures necessary to access and participate in the virtual meeting.

Finally, blog friend Keith Paul Bishop has a useful discussion of the state of the issue in California.