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Coronavirus prompts SEC to issue guidance for running virtual annual meetings

Mar 26, 2020

It’s time for annual meetings. This year, however, concerns about the spread of COVID-19 are complicating the efforts of companies, issuers, shareholders and other market participants to meet. Many states are restricting nonessential travel to slow the spread of the virus, making in-person meetings impossible. Even so, many companies have already filed proxy materials, necessitating a quick change in strategy.

To help companies comply with federal proxy rules while acknowledging public health and safety concerns, the SEC has issued guidance for conducting annual meetings virtually rather than in-person.

If you already filed your proxy materials

In some instances, companies may already have mailed and filed their proxy materials. In such instances, the SEC is allowing companies to notify shareholders that the date, time or location of the annual meeting will change without mailing any additional materials.

If you go this route, you’ll need to notify all interested parties of any changes. As long as you announce the change quickly and effectively, you will not need to  mail additional materials such as new proxy cards.

If you already filed your materials but need to change the date, time or location of your annual meeting, the SEC instructs you to take the following steps:

  • Issue a press release to announce the change
  • File the announcement as definitive additional soliciting material on EDGAR
  • Inform other intermediaries in the proxy process and market participants of the change

If you have not yet filed your proxy materials

On the flip side, if you have not yet filed your proxy materials, you can plan ahead for a virtual meeting. This means notifying interested parties as quickly as possible.

You can also take additional proactive steps to ensure that the meeting runs well. For example, consider how you will manage technical difficulties should they arise. Be prepared to enforce normal procedure rules. Just because the meeting is  virtual doesn’t mean you shouldn’t still respect rules like time limits for questions.

Prior to the start of the meeting, determine how your shareholders will access and participate, including voting. One thing to consider in this regard is whether you will use audio alone or both audio and video for your virtual meeting. Whatever you choose, ensure that it will work for all participants.

Rule 14a-8(h) and virtual meetings

Exchange Act Rule 14a-8(h)(3) “requires shareholder proponents, or their representatives, to appear and present their proposals at the annual meeting,” according to the SEC.

Obviously, this is complicated by restrictions on nonessential travel. The SEC has announced that limitations and hardships related to the coronavirus pandemic will be considered “good cause,” thus companies will not be permitted to exclude proposals from shareholder proponents or representatives who miss the annual meeting for this reason.

Alternatively, Rule 14a-8(h)(2) allows for shareholder proponents to make their presentations in a virtual meeting, if able.

Companies should consult with legal counsel with respect to state law  regarding virtual meetings. Some states will not allow virtual meetings at all; others will have guidelines for the type of virtual meeting that’s permitted.

For information on shareholder meetings, see our article.

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Sonny MacArthur, CPA, CIA
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