Stay compliant — and healthy — with virtual shareholder meetings
The coronavirus pandemic may have pushed tax filing deadlines into July, but proxy season isn’t going anywhere. The law requires annual shareholder meetings scheduled this spring to proceed for publicly traded companies and investment companies, despite travel disruptions and warnings from health authorities to limit in-person gatherings.
You might find that the best way to balance your legal responsibilities with the health of your officers and shareholders is by holding a virtual shareholder meeting, either on its own or as an adjunct to a physical meeting.
Unlike COVID-19, virtual shareholder meetings have been around for a while, and we know how to manage them. Virtual meetings among Russell 3000 companies grew from 2.9% of meetings in the 2015 proxy season to 8.5% of meetings in the 2019 season, with IT and communications firms leading the way. The vast majority of those meetings in all years were virtual only, without an accompanying physical gathering. If you are considering holding a virtual shareholder meeting this year — either entirely virtual or as a hybrid virtual and in-person meeting —take advantage of these best practices, learned from previous virtual shareholder meetings.
1. Understand legal permissions
The federal government allows virtual meetings, subject to state law, and is actively encouraging them in light of the coronavirus epidemic. The Securities and Exchange Commission (SEC) has issued guidance for companies and shareholders to assist with holding annual meetings virtually. The SEC itself is teleworking and holding virtual meetings.
State authorities are a mixed bag, however. Depending on where your company is incorporated, you might be allowed to conduct virtual-only meetings; hybrid (but not purely virtual) meetings; or only in-person meetings. Where virtual or hybrid meetings are allowed, state law often sets conditions that must be met. It’s important to check your company’s bylaws, wherever it is incorporated. The language of the bylaws will determine whether and how you may hold a virtual meeting.
2. Provide proper notification
If you decide to go ahead with a virtual or hybrid meeting and you haven’t yet mailed proxy statements to your shareholders, you can use the proxy statement to notify them of your intentions. If you haven’t decided yet, you can advise shareholders that you may hold such a meeting. In either case, you can prepare them for a virtual meeting by explaining how it would work and what shareholders can expect.
If you have already mailed a proxy statement that announced plans for an in-person-only meeting, don’t worry. You can still proceed with a virtual or hybrid meeting. Federal law requires that you communicate the change in timing or location of your meeting (from physical only to virtual or hybrid), but you do not need to refile or re-mail your proxy statement. It’s enough to communicate the change in a press release and file the release with the SEC as supplemental proxy material, as confirmed in its new guidance. State laws may also determine how you must communicate changes to the time and place of your meeting, so be sure to check with legal counsel.
3. Anticipate stakeholder objections and ensure full participation
The New York Stock Exchange and Nasdaq don’t have any rules that prohibit virtual meetings, but Nasdaq does require that any meeting allow shareholders to address their concerns with management. This issue is the key sticking point with a wide range of other important stakeholders as well. Institutional investors such as the California Public Employees’ Retirement System and proxy advisory companies such as Glass Lewis have raised objections to virtual-only meetings on the grounds that shareholder participation and engagement would be limited.
It is possible to hold hybrid virtual meetings — and even virtual-only meetings — without raising objections. But it’s important to get out in front of the issue and reassure shareholders that they can exercise all their rights and privileges at a virtual meeting. If you don’t, expect trouble. Shareholders were urged to vote against company officers at this year’s General Motors annual meeting on the grounds that they were using a virtual meeting to hide themselves from accountability for the company’s recent performance.
Meetings matter, so aim to make them work smoothly
Even though massive market volatility has reduced activist investors’ appetite for proxy fights, there is a chance your shareholder meeting will be contentious and complex, so any virtual solution must be robust. This proxy season has already seen more than 400 environmental, social and governance proposals filed, for instance, so your virtual meeting system has to work, and it has to be reliable. The best way to ensure that is to work closely with your virtual meeting technology provider and start planning early. And be sure to establish procedures for questions, answers, comments and votes that will allow all participants to hear and be heard. By following best practices, you can deliver for your shareholders’ bottom lines and protect their personal health.
For information on virtual annual meetings, see our article.
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