Today, in light of the spread of COVID-19, the SEC announced new Corp Fin staff guidance regarding annual meetings. Because of limitations on the ability to hold in-person annual meetings as a result of health and travel concerns, the staff guidance "provides regulatory flexibility to companies seeking to change the date and location of the meetings and use new technologies, such as 'virtual' shareholder meetings that avoid the need for in-person shareholder attendance, while at the same time ensuring that shareholders and other market participants are informed of any changes."
Changing the Date, Time or Location of an Annual Meeting. If a company wants to change the date, time or location of its annual meeting (including, as discussed below, changing to a "virtual" annual meeting), but has already filed and mailed its definitive proxy materials to shareholders, the staff will take the position that the company will not be required to mail additional soliciting materials or amend its proxy materials and can simply notify shareholders of the change so long as the company takes the following actions promptly after deciding to make the change so as to alert the market on a timely basis:
- "issues a press release announcing such change;
- files the announcement as definitive additional soliciting material on EDGAR; 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."
The staff advises companies that have not yet mailed and filed their definitive proxy materials to consider whether to include disclosures regarding the possibility that COVID-19 may warrant a change, depending on the facts and circumstances and reasonable likelihood of a change.
"Virtual" Shareholder Meetings. For companies that have not yet filed and mailed their definitive proxy materials and are now contemplating conducting "virtual" or "hybrid" shareholder meetings (meeting conducted electronically through the internet instead of in person or, for hybrid meetings, simultaneously with an in-person meeting), the staff expects those companies to notify their "shareholders, intermediaries in the proxy process, and other market participants of such plans in a timely manner and disclose clear directions as to the logistical details of the 'virtual' or 'hybrid' meeting, including how shareholders can remotely access, participate in, and vote at such meeting" in their definitive proxy materials. However, companies that have already filed and mailed their definitive proxy materials, "would not need to mail additional soliciting materials (including new proxy cards) solely for the purpose of switching to a 'virtual' or 'hybrid' meeting if they follow the steps described above" for announcing other changes.
The staff observed that the ability to conduct a virtual shareholder meeting is governed by state law and the company's governing documents. Note that Delaware, the state of incorporation for the vast majority of public companies, amended its corporation law in May of 2000 to permit Delaware corporations to hold their annual meetings entirely online, allowing large numbers of shareholders to attend meetings on their laptops.
Presentation of Shareholder Proposals
Under Rule 14a-8(h), shareholder proponents, or their representatives, are required to appear at the meeting to present their proposals. Under the circumstances and in light of the potential difficulties of attendance in person, the staff is encouraging companies to be flexible this proxy season, to the extent feasible under state law, by facilitating the ability of shareholder proponents to present their proposals by phone or through other alternatives. What's more, if a proponent was unable to attend "due to the inability to travel or other hardships related to COVID-19, the staff would consider this to be 'good cause' under Rule 14a-8(h)," so, under those circumstances, companies would be wise not to bother to assert Rule 14a-8(h)(3) as a basis to exclude a proposal submitted by the proponent for any meetings held in the following two calendar years.
Under the circumstances, the staff makes a point in the guidance of encouraging all parties and intermediaries involved in the proxy process to be flexible, cooperative and collaborative "to facilitate issuers' obligations to hold annual meetings and disseminate timely, accurate, and clear proxy disclosures under the federal securities laws as well as to allow shareholders to exercise their voting rights under state law."
Of course, as the guidance notes, it represents only the views of the Corp Fin staff "and has no legal force or effect."
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