Guest post by Lisa R. Stark, Sean M. Jones and Sara M. Kirkpatrick of K&L Gates LLP
As proxy season rapidly approaches and concern over the Coronavirus Disease 2019 (COVID-19) increases, U.S. public companies have been weighing risks associated with holding in-person annual stockholder meetings. While the vast majority of U.S. public companies continue to hold annual stockholder meetings at a physical location, in light of the COVID-19 outbreak, many corporations are now considering whether to hold the meeting solely by means of remote communication or to hold a hybrid meeting whereby stockholders may choose to participate either in person or remotely. Notably, on March 3, 2020, Starbucks changed its annual meeting of stockholders from a meeting held at a physical location to a virtual-only meeting due to concerns over the COVID-19. Additionally, on March 4, 2020,The Bank of New York Mellon Corporation noted that as part of its precautions, it was planning for the possibility that its annual meeting may be held solely by means of remote communications.
If a corporation determines that it should hold its annual meeting either entirely by means of remote communication or both in person and remotely, management should carefully consider applicable state law establishing the procedural requirements for holding a virtual or hybrid meeting as well as the form and timing of the notice that must be sent to stockholders. Special consideration should be given where an annual meeting has already been noticed as a meeting to be held at a physical location and later moved to a virtual location. Considerations for Delaware corporations in connection with the holding of a virtual meeting as well as for corporations incorporated in other states are set forth below.
Virtual Meeting Considerations for Delaware Corporations
Procedural Requirements for Holding a Virtual Meeting under Delaware Law
If a corporation’s organizational documents do not require the annual meeting to be held at a physical location, a corporation’s annual meeting can be held online or telephonically. However, Delaware law requires corporations to implement reasonable measures to ensure that stockholders may meaningfully participate in virtual stockholder meetings through a secure and verifiable process. These measures focus on meeting access and voting as well as access to the stockholder list.
Meeting Access and Voting. In connection with a meeting held solely by means of remote communication, such as a webcast, a Delaware corporation must:
- Implement reasonable measures to verify that each person deemed present and permitted to vote at the virtual meeting is a stockholder or proxyholder;
- Implement reasonable measures to provide stockholders and proxyholders a reasonable opportunity to participate in the virtual meeting and vote on matters, including an opportunity to read or hear the proceedings of the meeting substantially concurrently with such proceedings; and
- Maintain a record of a stockholder or proxyholder’s vote or other action taken at such meeting.
Stockholder List. If an annual meeting of stockholders is held solely by means of remote communication, the list of stockholders entitled to vote at the meeting must be open for examination during the entire meeting on a reasonably accessible electronic network. The information required to access the electronic list of stockholders must be provided with the notice of the annual meeting, and the corporation must take reasonable steps to ensure that the list of stockholders entitled to vote at the meeting is available only to stockholders of the corporation.
Contents and Timing of Notice. Under Delaware law, stockholders must be given between 10 and 60 days’ notice of an annual meeting of stockholders except for meetings held to vote on the adoption of a merger agreement, which require at least 20 days’ notice. Where the meeting is to be held virtually, the notice of meeting must include the date and time of the meeting, as well as:
- The means of remote communications by which stockholders and proxyholders may be deemed present in person and vote at such meeting;
- Instructions on how to join the meeting, vote and verify that such participant is a stockholder or proxy holder; and
- Information required to access the list of stockholders entitled to vote at the meeting.
How it Works. Stockholder services companies, such as Broadridge Financial Solutions, are able to assist in setting up virtual platforms to accommodate Delaware law requirements and ensure that:
- Stockholders receive meeting invitations and instructions for accessing the virtual meeting in their proxy mailings;
- Using a control number, stockholders can conveniently sign into the virtual meeting from their home, office or mobile device;
- A meeting page delivers streaming audio or video of the meeting, and also allows stockholders to access the list of stockholders, cast votes, enter questions, and view messages; and
- Meeting pages are also able to include welcome letters, video bios, call-in numbers or links to other stockholder materials.
Changing from an In-Person Meeting to a Virtual or a Hybrid Meeting.
While some corporations may have determined prior to sending a notice of meeting and proxy statement to hold a virtual meeting of stockholders, others that decide to make change from an in-person meeting will be required to send an additional notice informing their stockholders of the change of location of the meeting and details on how to participate in a virtual meeting.
- If the corporation has already mailed the notice of meeting, and the corporation has sufficient time to give its stockholders 10 days’ notice of the virtual meeting, a new notice should be distributed to stockholders by a physical mailing or by e-mail.  The notice should contain the information required for a notice of a virtual meeting described in Part A above.
- If the corporation has mailed the notice of the annual meeting and there are fewer than 10 days’ before the meeting, the meeting could be held but adjourned to another place (i.e., a virtual location). Ordinarily, notice of an adjourned meeting is not required so long as the date, time and place or means of remote communications by which stockholders and proxyholders may be deemed to be present in person and vote at such adjourned meeting are announced at the meeting at which the adjournment is taken and the adjournment is for no more than 30 days. However, given that Delaware law requires that a notice of a virtual meeting also contain instructions on how to access the list of stockholders, corporations should consider sending a new notice of meeting by a physical mailing or by e-mail.
- Where there is insufficient time to send out a new notice and/or it is impracticable to adjourn the meeting, another option for corporations is to simply hold the physical meeting as planned, but to stream the meeting over the internet so that stockholders have the opportunity to participate in the meeting remotely. Because the meeting is considered a meeting held at a physical place, stockholders, who do not come to the physical meeting but participate in the webcast, must submit their proxies in advance of the meeting according to the instructions set forth in the original proxy materials in order to have their votes count for quorum and voting purposes.
Other Considerations. In addition to concerns about notice, corporations should carefully consider when moving the location of a meeting for which proxy materials have already been mailed whether the original proxy cards sent to stockholders grant the proxyholders sufficient agency to vote the proxy at the corporation’s annual meeting irrespective of its location. Often proxy cards reference a physical location, but the proxyholder’s discretionary authority is broad enough to allow the proxies to vote at a virtual meeting.
Corporations organized in jurisdictions other than Delaware must review relevant state law to determine whether virtual or hybrid meetings are permissible. According to a 2018 white paper published by the Best Practices Committee for Shareowner Participation in Virtual Annual Meetings:
- Virtual-only meetings are allowed in 30 states, including Massachusetts, Minnesota, Ohio, Pennsylvania, Texas, Virginia and Washington (although certain states imposes conditions on virtual-only meetings that make them impractical or unrealistic);
- Forty-two states in total, including New Jersey, North Carolina and Connecticut, as well as the District of Columbia, permit remote participation in stockholder meetings (i.e., hybrid meetings); and
- The remaining fewer than 10 states preclude virtual or hybrid stockholder meetings, and require in-person meetings.
While there is variance from state to state, most states that permit virtual stockholder meetings require that the corporation:
- Verify each person deemed present and permitted to vote at the virtual stockholder meeting is a stockholder or proxyholder;
- Maintain a record of the vote or other action taken at the stockholder meeting; and
- Implement reasonable measures to provide a stockholder participating virtually with the ability to:
- Participate in the meeting and vote on matters submitted at the meeting;
- Maintain a record of the vote or other action taken at the stockholder meeting; and
- Communicate with the other participants of the meeting contemporaneously.
In addition, corporations that conduct virtual stockholder meetings in these other states generally must make their stockholders lists available for examination by stockholders during the meeting.
Recent SEC Guidance
On March 13, 2020, the Securities and Exchange Commission issued guidance describing certain accommodations for public companies that have already mailed proxy materials to stockholders but, in light of worsening COVID-19 conditions, now wish to modify the schedule or format for their annual meetings. Specifically, those public companies may change the date, time or location of their meeting ‒ or change from an in-person meeting to a hybrid or virtual meeting ‒ without mailing additional materials to stockholders if they (1) issue a press release announcing the change, (2) file the announcement as definitive additional soliciting material (i.e., a DEFA14A) on EDGAR, and (3) take reasonable steps to inform other intermediaries in the proxy process and other relevant market participants (such as securities exchanges) of the change. These actions are to be taken “promptly” after a decision to change is made, but no specific deadlines are imposed.
Public companies must of course also continue to comply with state law requirements regarding the timing, content and manner of delivery of proxy solicitation materials, including notices of meetings, as well as state law restrictions on whether meetings may be held virtually. Under Delaware law, proxy solicitation materials and notices must be physically mailed or e-mailed at least 10 days prior to the meeting and contain the information described in Section I above. In addition, as noted in Section I above, the organizational documents of a Delaware corporation must permit the holding of virtual meetings. For Delaware corporations, the SEC’s new guidance means that a change from an in-person meeting to a hybrid or virtual meeting may be accomplished through a press release plus the distribution by a physical mailing or by electronic mail of the updated notice and any additional solicitation materials at least ten days prior to the date of the virtual or hybrid meeting. The corporation must also take reasonable steps to inform other intermediaries in the proxy process and other relevant market participants of the change in location of the meeting.
The SEC encourages public companies that have not yet mailed proxy materials to consider including disclosures regarding the possibility that the date, time or location of their annual meetings will change due to COVID-19.
The SEC guidance acknowledges challenges that may be faced by stockholder proponents that need to attend a meeting in order to present a proposal, as required by Rule 14-8(h) of the Securities Exchange Act of 1934. Public companies are encouraged, to the extent feasible under state law, to provide stockholders with alternative means, such as telephone conferencing, by which to present their proposals. If COVID-19 complications preclude a stockholder proponent from attending an annual meeting, the SEC will consider this to be “good cause” should a public company assert Rule 14a-8(h)(3) as a basis to exclude a proposal made by the stockholder proponent for any meeting held in the next two calendar years.
1. Delaware generally permits the sending of notices by electronic mail. . However, U.S. publicly-traded corporations will also need to comply with the rules of the Securities and Exchange Commission relating to the distribution of proxy materials.
Lisa R. Stark, Partner
P +1.302.416.7066 email@example.com
Lisa Stark is a partner in the firm’s Wilmington office. Ms. Stark has over 15 years of corporate experience in such areas as mergers and acquisitions, strategic investments, initial public offerings, proxy contests, and hostile takeovers. She also has experience advising private and public companies and their boards of directors on corporate governance matters. Ms. Stark also advises private equity and venture capital funds in connection with their investments in Delaware corporations. More…
Sean M. Jones, Partner
P +1.704.331.7406 firstname.lastname@example.org
Sean Jones focuses his practice on securities, mergers and acquisitions, and corporate law. Mr. Jones represents a broad range of public and private companies in a variety of securities, merger and acquisition, and financing matters. His experience extends across a number of industries ranging from traditional manufacturing and distribution businesses to information services and technology companies. He has extensive experience representing public companies in debt and equity capital markets transactions. More…
Sara M. Kirkpatrick, Associate
P +1.302.416.7028 Sara.Kirkpatrick@klgates.com
Sara Kirkpatrick is an associate in the Wilmington office where she focuses on various corporate governance and transactional matters. She provides guidance to boards of directors and board committees on their fiduciary duties and the technical aspects of Delaware corporate law. As a member of the firm’s corporate/M&A practice group, she assists in all phases of a transaction, including diligence, drafting of documents and issuing legal opinions on matters involving Delaware law. More…
K&L Gates LLP
K&L Gates is a fully integrated global law firm with lawyers located across five continents. Our broad global platform allows us to guide clients through the legal challenges inherent in the ever-changing international landscape. The deep latticework of relationships across our offices and practices enables our clients to respond to diverse legal issues and risks through the services of one law firm with a single communication. More…