EQ’s Peggy O’Keefe, Managing Director, Corporate Governance, sheds light on this month’s state and SEC updates related to virtual annual meetings, and what it means to public companies.
COVID-19 and your annual meeting
In light of COVID-19 and social distancing requirements, virtual-only meetings are becoming standard for annual shareholder meetings for the 2020 proxy season. This new environment is driving our states and the SEC to temporarily re-evaluate regulations and update policies aimed to help protect the well-being of company stakeholders.
Questions on what a virtual annual meeting looks like?
Read our Annual Meetings and the Coronavirus article for more information.
Understanding the changes
There are a number of states that already allow for a form of virtual annual meeting, as long as the company’s governing documents permit, including Delaware, Ohio, Indiana and Minnesota. Several other states have recently implemented temporary changes for annual meeting requirements and the SEC has provided updated guidance for public companies to quickly adapt to changing needs.
New York: Governor Cuomo signed an executive order, permitting virtual-only meetings for companies incorporated in New York for meeting dates from March 20 through April 19, which may be extended.
New Jersey: Governor Murphy signed into law a bill allowing virtual-only meetings for New Jersey corporations during the virus state of emergency, as long as the company’s governing documents do not object to virtual-only, with no specific end date, as of now.
Georgia: The state of Georgia did not allow virtual or hybrid meetings, but Governor Kemp recently signed an executive order temporarily permitting virtual-only, in light of this emergency situation, as long the corporation’s bylaws do not object. This executive order currently covered meetings through April 13, but may be extended.
Delaware: Governor Carney’s executive order requires a press release to be issued notifying shareholders of the change to virtual-only, due to COVID-19, same as the SEC guidance, but also requires the company to post the press release on its website.
Connecticut: Connecticut’s Governor Lamont issued an executive order (page 7) allowing virtual-only meetings during the Coronavirus emergency – no end date – including that shareholders must be given list of shareholders entitled to vote.
California: On March 30, California’s Governor Newsom, due to COVID-19 State of Emergency, signed an executive order (see page 4) that suspended requirement that shareholders consent to virtual-only meetings; for shareholder meetings to be held through June 30 – requires press release and website posting notification to shareholders of change to virtual-only meeting.
Massachusetts: On March 30, Massachusetts Governor Baker signed an executive order (see page 2) allowing virtual-only shareholder meetings during the COVID-19 crisis. Companies must issue a press release, and email where possible, notifying shareholders of this change.
North Carolina: On April 1, North Carolina’s Governor Cooper signed an executive order temporarily allowing virtual-only shareholder meetings due to COVID-19 emergency. This change currently is valid for meetings held through May 31, unless this order is extended.
In response to COVID-19, the SEC guidance on annual meetings for public companies takes into consideration the concern for the health and safety of all stakeholders. Companies that have already mailed definitive proxy materials, and are considering a change in either the date, time, or location of the meeting (including a switch to virtual-only format), do not need to amend or mail additional proxy soliciting materials notifying shareholders of the change, but instead must:
- Issue a press release announcing the change.
- File this announcement as additional definitive soliciting material on EDGAR.
- Take steps to notify other parties in the proxy process (e.g., securities exchanges) of the change.
The SEC guidance also pointed out that companies considering utilizing a virtual format need to notify shareholders, as well as other proxy process parties, of the logistics involved to ensure shareholders can join the meeting, participate and vote. For companies that have already delivered proxy materials, the three steps above are to be followed; for companies that have not yet filed and delivered proxy materials, they are to include this information in the definitive proxy statement and any other soliciting materials.
For shareholder proposals, the SEC stated that ordinarily proponents must appear at the meeting to introduce their proposal, but with a virtual meeting, the company should allow the proponent a different way to put the proposal forth, for instance, by phone. Read more about the SEC guidance here.
Glass Lewis and ISS Guidance
Proxy advisory firms Glass Lewis (GL) and Institutional Shareholder Services (ISS) have recently posted information on virtual-only annual meetings. While ISS does not have a formal policy on virtual-only meetings, GL does. The GL standard policy looks for detailed disclosure in the proxy statement, designed to encourage shareholder participation in virtual-only meetings; if these policies were not met, GL could decide to recommend a vote against/withhold on the chair of the nominating/governance committee, and governance committee members.
Effective for annual shareholder meeting held from March 1 through June 30, 2020, Glass Lewis issued an update on its virtual-only policy. In this update, GL stated that if a company decides that it is in the best interest of all parties to hold a virtual-only meeting, and discloses its rationale for moving to a virtual-only format, including that it is in light of COVID-19, GL will generally refrain from it’s against/withhold vote policy. After June 30, GL plans to return to its standard policy.
ISS does not have requirements for virtual-only meetings in its policy guidelines, but has issued a survey discussing companies that, due to the COVID-19 pandemic, have decided to adopt this format for their 2020 annual meeting, or are still considering whether to have a virtual meeting. This survey discussion also includes a brief look at whether companies are considering changes to their executive compensation, in light of the Coronavirus, and includes a link to a global overview of meetings that were changed to virtual-only format, or cancelled or postponed due to the virus.
Navigating through the changes
Does your state of incorporation allow for virtual-only meetings?
If ordinarily not, keep watching your state’s executive orders and legal activity for a Coronavirus related change.
What do your company’s governing documents say about where/how shareholder meetings are to be held?
Does the Board need to quickly amend the bylaws, given the current circumstances? Boards that put bylaw amendments to shareholder vote may decide that it is in the best interests of shareholders to adopt a temporary amendment, allowing for virtual-only for this year, in consideration of the health and safety of all stakeholders.
Has your company mailed proxy materials, without a notation that a virtual-only meeting may be necessitated?
If so, and your company now is considering holding a virtual-only meeting, or may change the date or time of the meeting, as the SEC guidance noted above states, an additional mailing of soliciting materials is not necessary; see list above for points the SEC will require.
Has your company mailed or posted its meeting materials?
If your company has not mailed or posted its materials, including a prominent note in the beginning of the proxy statement alerting shareholders that a virtual meeting may be held instead of a physical or hybrid meeting, is a good idea. Several companies have recently done this including Cummins Inc. (CMI), Wells Fargo & Company (WFC) and Entergy Corporation (ETR).
Navigating through these uncharted waters is tough for most companies. EQ is prepared to help whether you have inquiries about virtual annual meeting best practices, or need consultation on your chosen path.
Learn more about how EQ has helped companies reach their goals for more than 30 years.