According to Institutional Shareholder Services (ISS), as of March 31, worldwide over 550 annual meetings have been postponed or cancelled due to COVID-19, while the number of virtual-only meetings to be held stood at 560. The majority of these virtual meetings are or will be occurring in North America, with the U.S. and Canada accounting for 298 and 89 meetings, respectively. By contrast, only 10 North American meetings have been postponed as of March 31, all at U.S. companies.
So long as stay at home orders remain in effect in most states, we expect the number of virtual meetings in the U.S. will continue to climb as proxy season progresses. Recognizing the need to prioritize health and safety, most investors are likely to be understanding of a company's choice to hold a virtual meeting in 2020 so long as COVID-19 travel and gathering restrictions remain in place.
Institutional Investor and Proxy Advisor Viewpoints
The Council of Institutional Investors (CII) has historically opposed virtual-only meetings. However, in light of COVID-19 considerations last month it released a statement indicating virtual meetings are acceptable for the current proxy season, so long as companies indicate the decision is a "one-off" occurrence, and follow best practices to allow shareholders to participate in the meeting. Some funds themselves have also released similar statements. For example, New York City Comptroller Scott Stringer – which oversees $216 billion in New York City pension assets and has previously voted against directors at companies that held virtual-only meetings – has indicated that his office will not act against companies holding virtual-only meetings this year if they cite coronavirus concerns and commit to returning to an in-person format for future meetings. We encourage companies to consult the CII's Building a Better Meeting publication for additional information regarding its pre-existing virtual meeting format expectations. If a company does move forward with an in-person meeting, CII also encourages flexibility in allowing shareholders with respect to presentation of their shareholder proposals in light of travel restrictions. See the discussion of recent SEC guidance below for additional information regarding treatment of shareholder proponents.
Large asset managers have also provided public statements addressing expectations in light of the COVID-19 pandemic. Vanguard has explicitly endorsed the transition to virtual-only meetings at this time, and recognizing the need for flexibility in general as companies balance short-term and long-term considerations. In a separate statement, it has encouraged companies to communicate clearly and regularly as needed to provide investors and other stakeholders with current information, and not to lose sight of long-term considerations such as climate change during this time. State Street has similarly endorsed the use of virtual-only meetings under current circumstances. It expects that shareholders be provided the same rights and opportunities as would be available through a physical meeting, including in particular the ability to have "active and robust interactions with management and the board at appropriate times." The balance of State Street's COVID-19 statement focuses on material ESG considerations, noting that while engagement discussions may shift to more immediate topics such as human capital management or supply chain operations, companies should continue to consider long-term material ESG considerations. Boston Trust Walden's ESG Impact Report for the first quarter of 2020 provides several examples of COVID-19-related topics, including employee compensation and workplace safety, corporate continuity and communication plans, and collaborations with health care institutions, governments and vulnerable populations. Boston Trust Walden is also one of more than 250 investors that recently signed on to a coalition statement organized by Domini Impact Investments, the Interfaith Center on Corporate Responsibility and the New York City Comptroller's Office that asks to address similar COVID-19 ESG-related topics.
Proxy advisory firm Glass Lewis will also be making exceptions to its general policy of recommending votes against governance committee members at companies that opt to hold virtual-only meetings without providing sufficiently robust disclosures to shareholders. It's updated guidelines provide that it will refrain from recommending votes against governance committee members for the 2020 proxy season so long as companies disclose, at a minimum, their rationale for holding virtual-only meetings, specifically citing COVID-19 considerations. We note that Glass Lewis will revert to its standard policy on virtual-only meetings for meetings held after June 30th, notwithstanding whether pandemic-related stay-at-home or travel restrictions remain in place. Its rationale is that companies with meeting dates beyond June 30th have sufficient time to prepare robust proxy disclosure assuring shareholders they will have the same rights and opportunities to participate virtually as they would at an in-person meeting.
Glass Lewis's guidelines note that examples of effective disclosure include:
(i) addressing the ability of shareholders to ask questions during the meeting, including time guidelines for shareholder questions, rules around what types of questions are allowed, and rules for how questions and comments will be recognized and disclosed to meeting participants; (ii) procedures, if any, for posting appropriate questions received during the meeting and the company's answers, on the investor page of their website as soon as is practical after the meeting; (iii) addressing technical and logistical issues related to accessing the virtual meeting platform; and (iv) procedures for accessing technical support to assist in the event of any difficulties accessing the virtual meeting.
ISS does not maintain a policy regarding virtual-only meetings in the U.S. or Canada. However, in its recently released Impacts of the Covid-19 Pandemic guidance, ISS reiterates its viewpoint expressed last month that it expects clients in these markets will be understanding of the need for virtual-only meetings this proxy season, notwithstanding investors' general preferences for hybrid or in-person meetings. Like Glass Lewis, it encourages companies to disclose the reason for the virtual-only meeting (i.e. that it is related to the COVID-19 pandemic) and to strive to provide shareholders with a meaningful opportunity (subject to local law) to participate as fully as possible, including being able to ask questions to directors and management and to engage in dialogue if they wish. The guidance also encourages companies to commit to revert to in-person or hybrid meetings (or provide shareholders the opportunity to vote on the use of virtual-only meetings) for future annual meetings. ISS also notes that in markets that do not allow for virtual-only meetings, such as in the states absent from the list below, postponements will likely be necessary. It encourages companies to keep investors and other stakeholders informed of material developments using standard disclosure documents, websites and press releases, as well as through electronic communications.
Not surprisingly, some activist investors' viewpoints represent an exception to the general investor flexibility noted above. In particular, some activists have expressed concern with Delaware's emergency order allowing companies to postpone annual meetings if needed to switch from an in-person to a virtual-only meeting. Such postponement, activists fear, could give management more time to gain support from institutional investors.
Georgeson has conducted extensive outreach to large institutional investors' stewardship teams to discuss any meaningful changes to their engagement activities or procedures during this proxy season. While virtually all teams have converted to remote working environments and as such all engagements are being held telephonically, almost all indicated that their firms intend to continue to conduct engagements and proxy voting as usual. To date, we have not received any indications of considerable COVID-19-related impact on investors' stewardship activities, although in certain limited instances we have observed voting occurring on a somewhat delayed timeline as compared to an investor's historic voting pattern.
SEC Guidance Regarding Annual Meetings
The U.S. Securities and Exchange Commission (the SEC) has published guidance to provide publicly listed companies with additional flexibility with respect to certain annual meeting-related requirements. This guidance was initially published on March 13, and last updated as of April 7, 2020. Current SEC guidance states that, if a company has already mailed and filed its definitive proxy materials, the company can notify its shareholders of a change in the date, time or location of the annual or special meeting (i.e., from a physical location to a virtual location) without mailing additional soliciting materials (including a new proxy card) or amending proxy materials, so long as the company:
- issues a press release announcing such change;
- files the release as definitive additional soliciting material on EDGAR; and
- takes all reasonable steps necessary to inform other intermediaries in the proxy process and other relevant market participants of such change.
The SEC expects such announcements to be made promptly after deciding on the change, and sufficiently in advance of the meeting in order to alert the market in a timely manner. The company will also need to disclose the logistical details of any virtual meeting, including how shareholders can access the meeting, participate and vote.
If a company has not yet mailed and filed its definitive proxy materials, the SEC guidance advises that it consider including disclosures regarding the possibility of COVID-19-related changes to its annual meeting. Alternatively, if the company has already decided to switch to a virtual meeting, its proxy materials should include fulsome disclosure regarding the logistical details for the meeting so that shareholders know exactly how to vote and how to attend the meeting.
While there are a vast number and variety of disclosure examples to draw from, many recently filed proxy materials announcing a decision to hold to a virtual-only meeting address the following:
- A statement noting the company's intention to provide meaningful shareholder participation
- A summary of procedural safeguards implemented to promote participation, including technical support available prior to and during the meeting; formal rules of conduct at the meeting, including Q&A procedures and how shareholders may see/hear management and board members; and
- Information on where questions and answers will be posted after the meeting (typically on the company's website).
For companies that intend to hold a physical meeting but have preserved the option to switch to a virtual meeting in their proxy statement, it is typical for the proxy statement to specify, among other things, the amount of advance notice the issuer intends to provide to shareholders if it decides to make the switch.
The SEC has also provided guidance regarding accommodation of shareholder proposals to be presented at the annual meeting. Considering travel restrictions that may prevent a proponent from attending an in-person meeting, the SEC encourages companies to provide proponents with the ability to present proposals through an alternative means allowable under applicable state law, such as through telephonic participation. If a proponent does fail to present a proposal at a meeting, the guidance indicates that any COVID-19-related hardship will constitute "good cause" under Rule 14a-8(h) of the Securities Exchange Act of 1934, such that the company will not be able to exclude the proposal from a future meeting on the basis that the proponent failed to present the proposal.
Additionally, the SEC's guidance addresses printing and mailing activities delayed by COVID-19. The guidance notes that companies may need to consider postponing their annual meeting under current circumstances. If postponement isn't an option or delay in delivery of materials is unavoidable, the guidance notes the SEC will not object to a company changing from full set delivery to a "notice-only" delivery that does not meet all aspects of the notice and timing requirements of the original rule (e.g., the requirement that the notice be sent at least 40 days in advance of the meeting) provided that:
- shareholders receive the materials "sufficiently in advance of the meeting to review these materials and exercise their voting rights under state law in an informed manner," and
- the company must announce the change in delivery in the same manner as announcing a change in meeting date, time or location, as discussed above.
The guidance also directs companies and their intermediaries to use "best efforts to send paper copies of proxy materials and annual reports to requesting shareholders, even if such deliveries would be delayed." SEC guidance continues to be dynamic and changing in real time. Accordingly, we strongly encourage you to consult with legal counsel and your proxy solicitor prior to finalizing proxy materials and timelines.
State Law and Organizational Document Considerations
In addition to any SEC rules regarding virtual meetings, it is important for companies to consult with local counsel to determine whether the laws of the state of their incorporation allow for virtual shareholder meetings. In addition, applicable state law may dictate the need for additional notice or mailing requirements, notwithstanding the SEC guidance summarized above. The chart below notes states that currently allow for virtual-only meetings. It is important to note that certain of these states are permitting virtual-only meetings on a temporary basis only.
The chart below notes states that currently allow for virtual-only meetings. It is important to note that certain of these states are permitting virtual-only meetings on a temporary basis only
|STATES THAT ALLOW VIRTUAL ONLY MEETINGS
To the extent your state allows for virtual-only shareholder meetings, before changing a meeting time, date or location, companies will want to consider, among other matters:
- How far out you can move your meeting date
- Whether moving the meeting will in turn require a change to the meeting record dat
- How to go about changing the format of your meeting, and
- Where there are any notice requirements and other procedural requirements applicable to virtual-only meetings.
Companies will also want to review their charters, bylaws and other applicable governing documents and internal policies to determine whether a virtual-only meeting is permissible, as well as any applicable advance notice or other requirements.
What To Do Now
Companies considering changing to a virtual-only meeting for a 2020 shareholder meeting, or preserving the option to do so at a later date, should consult with their internal and external advisors to develop an appropriate company-tailored approach. A company's decision making should take into consideration prior meeting and disclosure practices, viewpoints of the company's specific investors and other relevant stakeholders, proxy advisor expectations, and applicable legal and regulatory requirements.
For companies that may be considering a longer-term transition to a hybrid or virtual-only meeting, we strongly encourage those companies to carefully consider the virtual meeting guidelines espoused by Glass Lewis and CII. Shareholders will be much more likely to support a virtual format in the future if their experience in 2020 is positive. In addition, companies may wish to consider bolstering the ability of shareholders to participate in the meeting. Say's SayConnect platform – perhaps best known for its usage by Tesla during its quarterly earnings calls – offers both institutional and retail shareholders the ability to pose questions to the board and management, as well as to support one another by upvoting questions in advance of the meeting that shareholders most want to be answered during the meeting.