Among the many challenges companies are facing during the COVID-19 pandemic is how to conduct their shareholder meetings. Current social distancing requirements are effectively forcing companies to choose between postponing meetings and conducting them virtually. This requires careful attention to state executive orders, the relevant corporate statute, the company’s certificate of incorporation and by-laws, as well as SEC rules and recent guidance in the case of public companies. Several states, including New York and Delaware, have issued executive orders designed to facilitate virtual meetings, and the SEC has issued virtual meeting proxy guidance, including for companies that mailed proxy materials to shareholders but wish to change to virtual meetings because of social distancing concerns.
State Corporate Law
State corporate statutes dictate how shareholder meetings are to be conducted, including whether and to what extent such meetings may be held virtually.
For corporations incorporated in New York, the Business Corporation Law (the “BCL”) requires that shareholder meetings be held at such place fixed by the company’s by-laws. Although the BCL allows remote shareholders to participate electronically (provided reasonable procedures are in place to enable participation and voting), the statute does not explicitly authorize virtual-only meetings and has generally been understood to require a physical location. On March 20, 2020, however, Governor Cuomo issued Executive Order No. 202.8, which among other COVID-19 emergency measures temporarily suspends the BCL’s meeting requirements “to the extent they require meetings of shareholders to be noticed and held at a physical location” through April 19, 2020, subsequently extended by further executive order to May 7, 2020. Essentially, the order temporarily permits New York corporations to hold annual and special shareholder meetings solely by means of remote communication.
For Delaware corporations, if the organizational documents do not require a physical location, the annual meeting may be held virtually (i.e., telephonically or online). However, Delaware law requires reasonable measures to ensure stockholders may meaningfully participate in the virtual meeting through a secure and verifiable process, which focuses on access to the meeting, voting and access to the stockholder list.
SEC Guidance and Delaware Clarification
On March 13, 2020 (updated as of April 7), the SEC’s Division of Corporation Finance issued guidance on holding virtual shareholders meetings, including guidance on transitioning from a previously noticed in-person meeting to a virtual or hybrid (i.e., in-person meeting that permits electronic shareholder participation) annual meeting format. The guidance requires companies planning to conduct a virtual or hybrid meeting to take the following steps:
- Notify shareholders of such in a timely manner with information on the logistical details of the virtual or hybrid meeting, including how shareholders can remotely access, participate in and vote at the meeting.
- Companies that haven’t yet filed definitive proxy materials should include the above disclosures in the definitive proxy statement and other soliciting materials.
- Companies that have already filed and mailed proxy materials and seek to change to a virtual or hybrid meeting should issue a press release announcing the change, file the press release as definitive additional soliciting material on EDGAR and take all reasonable steps necessary to inform other intermediaries in the proxy process (e.g., proxy service providers) and other relevant market participants (e.g., the relevant national securities exchanges) of the change.
The guidance unintentionally gave rise to concern among Delaware corporations that a press release meeting the above SEC guidance would not necessarily qualify as effective notice under Delaware law. Consequently, Delaware Governor John Carney clarified the ambiguity by issuing an executive order on April 6 that a press release announcing a change from an in-person to a virtual or hybrid meeting due to COVID-19 issues and otherwise in compliance with the SEC’s guidance will constitute effective notice under Delaware law, provided it is promptly posted on the company’s website. The order also provides that if alternatively the meeting is adjourned, the company would not be required to call the meeting to order in order to adjourn, but would permit such adjournment to be announced solely by means of the SEC filing and press release.
There are some best practices emerging for conducting a virtual or hybrid annual meeting, including the following:
- Engaging a remote communication service provider (such as Broadridge or Computershare) to host the virtual or hybrid meeting.
- Ensuring the remote communication method allows shareholders to vote, make comments, ask questions, hear answers and otherwise exercise all of the rights shareholders have under state law for participation in shareholder meetings.
- Ensuring 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.
- Making shareholders aware of the procedures necessary to access and participate in the virtual meeting.