Coronavirus: SEC provides guidance for conducting annual meeting (United States)

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Corporate Governance Alert

COVID-19 Alert

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In response to inquiries from companies and other stakeholders regarding the impact of the coronavirus disease (COVID-19) on annual meeting requirements, the US Securities and Exchange Commission provided on March 13 guidance to assist US public companies in satisfying their annual meeting solicitation obligations under the US federal proxy rules.  Specifically, in response to inquiries from companies and shareholders regarding compliance with US proxy rules for annual meetings in light of the ongoing coronavirus outbreak, the SEC provided a process for companies to notify shareholders of a change in the date, time or location of their annual meeting and guidance with respect to the holding of “virtual” or “hybrid” annual meetings and the presentation of shareholder proposals.  The SEC’s release may be found here.  For additional information and considerations with respect to virtual annual meetings, please see our March 6 Client Alert.

Process for changing the date, time or location of an annual meeting

In response to the increasing number of companies considering modifying their annual meeting plans, the SEC stated that companies that have already mailed and filed their definitive proxy materials for an upcoming annual meeting may modify the date, time or location of their meeting without having to mail additional soliciting materials or amend their proxy statements if they take the following steps:

  • issue a press release announcing the change;
  • file the announcement as definitive additional soliciting material on the SEC’s EDGAR site; and
  • take “all reasonable steps necessary” to inform other intermediaries in the proxy process (such as proxy service providers) and other market participants (such as national securities exchanges) of the change.

The SEC also noted that it expects companies to take the above steps promptly after making a decision to change the date, time or location of a meeting and with enough advance notice that the market is alerted to the change in a timely manner.  The SEC also advised companies that have not yet mailed and filed their definitive proxy statements to consider including disclosures regarding the possibility that the company’s annual meeting date, time or location could change.

Companies making changes other than the date, time or location to annual meeting plans or solicitation materials should separately assess their disclosure and notification obligations in light of the specific changes under consideration. The SEC’s guidance does not apply to such other changes.

In addition, US public companies considering changing the date, time or location of their annual meeting should remain mindful of requirements under their governing documents and applicable state laws, including requirements regarding determination of the date, time and location of shareholder meetings by the board of directors, descriptions in the notice of meeting of the remote communications shareholders may use to participate in the meeting, and the provision to shareholders of the notice of meeting and notification of changes.  Listed companies should also consider the notification requirements of the national securities exchanges.

Guidance on virtual shareholder meetings

The SEC provided guidance regarding disclosure obligations in connection with companies holding virtual or hybrid annual meetings.  Meetings that solely occur via remote communication are referred to as “virtual-only” meetings. Meetings that have both a physical place and the ability to participate via remote communication are referred to as “hybrid” meetings. A “virtual” meeting without the “-only” qualification often refers to both virtual-only and hybrid meetings.

The SEC stated that companies planning to conduct a virtual meeting should notify shareholders and other stakeholders in a timely manner and disclose clear directions with respect to the logistical details of the meeting, including how shareholders can remotely access, participate in and vote at the meeting.  Companies that have not yet mailed and filed their definitive proxy materials should specifically consider these disclosures in their proxy solicitation materials.  For companies that have already mailed and filed definitive proxy materials and intend to switch from a physical meeting a virtual meeting, the SEC confirmed that following the steps described above for announcing a change in meeting date, time or location satisfies the notification requirements under the federal proxy rules (although requirements under state laws remain).

Presentation of shareholder proposals

In light of travel restrictions and other difficulties, the SEC encouraged US public companies, to the extent permitted under state law, to provide shareholders that have properly submitted shareholder proposals for vote at the company’s annual meeting with an opportunity to present their proposals through alternative means of communications. 

In addition, the SEC provided interpretive guidance with respect to the exclusion of shareholder proposals in future years based on a shareholder’s failure to appear at a meeting as a result of the COVID-19 outbreak.  Under the SEC’s proxy rules, US public companies must include in their proxy statements proposals submitted by shareholders meeting certain ownership, timing and substance requirements.[1] 

The proxy rules also require that shareholders submitting proposals, or their representatives, appear at the meeting to present their proposal.  If a shareholder or its representative does not appear at the meeting and does not have “good cause” for absence, a company can exclude proposals submitted by the shareholder for any meetings held in the following two years.[2]  In its release, the SEC stated that it would consider “good cause” to be if a shareholder is unable to attend an annual meeting due to the inability to travel or other hardships related to COVID-19, meaning that a company could not use the absence as a basis for omitting future proposals submitted by the shareholder.

Concluding thoughts

The SEC’s guidance is a continuation of its efforts to respond to disclosure and reporting issues facing US public companies in light of the COVID-19 outbreak.  For discussion of the SEC’s prior interpretive guidance and the filing relief it granted impacted companies, please see our March 5 Client Alert.

As the impact of COVID-19 continues to evolve, DLA Piper is available to assist in helping companies manage the various legal implications of the outbreak. Should you have any questions about virtual meetings, related disclosure, or other matters related to the COVID-19 outbreak and related market volatility, please do not hesitate to reach out to your DLA Piper contact.  

Please visit our Coronavirus Resource Center and subscribe to our mailing list to receive alerts, webinar invitations and other publications to help you navigate this challenging time.

 



[1] See Rule 14a-8 under the Securities Exchange Act of 1934 (Rule 14a-8).

[2] See Rule 14a-8(h)(3)