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COVID-19: SEC Division of Corporation Finance Issues Guidance on Annual Meetings

March 16, 2020

The staff of the Securities and Exchange Commission’s Division of Corporation Finance on March 13 issued guidance designed to assist companies in complying with federal proxy rules in light of the coronavirus (COVID-19) outbreak. The guidance clarifies flexibility under the federal proxy rules for companies wishing to effect changes to annual meetings, including moving from physical locations to virtual or hybrid meetings.

This LawFlash covers common questions and related guidance, as well as select procedural, notice, and other considerations, for annual meetings held during the 2020 proxy season amidst COVID-19 concerns.

My company already mailed and filed our definitive proxy materials. Are we required to mail a new proxy card or amend our proxy statement to change the date, time, or location of our annual meeting (including changing from an in-person to virtual or remote annual meeting)?

No. The Division of Corporation Finance staff (Staff) has confirmed that a company that already has mailed and filed its definitive proxy materials can notify shareholders of a change in the date, time, or location of its annual meeting without mailing additional soliciting materials or amending its proxy materials if, after deciding to make such changes, it “promptly” takes the following actions “sufficiently in advance” of the meeting:

  • The company issues a press release announcing such change;
  • The company files the announcement as definitive additional soliciting material on EDGAR; and
  • The company takes “all reasonable steps” necessary to inform other intermediaries in the proxy process (such as any proxy service provider) and other relevant market participants (such as the exchange on which the company’s securities are listed) of such change.

The guidance also confirms that companies do not need to mail additional soliciting materials (including new proxy cards) solely for the purpose of switching to a “virtual” or “hybrid” meeting if they follow the steps described above.

Practice Tips:

We encourage companies to consider applicable state law requirements when evaluating whether the above actions can be completed “sufficiently in advance” of the annual meeting.[1]

State law and a company’s own governance documents also will dictate whether a company legally may hold a virtual or hybrid annual meeting.[2] In particular, bylaws should be reviewed carefully, even if the company is incorporated in a state that permits virtual or hybrid meetings.

Nasdaq-listed companies should note that while Nasdaq permits the use of webcasts instead of, or in addition to, a physical meeting, Nasdaq underscores the importance of shareholders having the opportunity to ask management questions.[3]


If my company has not yet mailed and filed our definitive proxy materials, should we consider including disclosure that the date, time, or location of the annual meeting may change due to COVID-19?

Yes. The guidance indicates that companies should consider providing such disclosure based on a company’s particular facts and circumstances and the reasonable likelihood that the date, time, or location of the annual meeting may change.

Practice Tip:

We encourage companies to include this precautionary disclosure in the event that a company believes it may hold its annual meeting remotely due to COVID-19 concerns.


My company has not yet mailed and filed our definitive proxy materials, and we are planning to conduct a virtual or hybrid annual meeting (whether due to COVID-19 or otherwise). What disclosures must we consider?

The guidance calls for companies that are planning to hold a virtual or hybrid annual meeting to include “[r]obust disclosures that facilitate informed shareholder voting.” The Staff expects companies to (1) provide timely notification of any plans to hold a virtual or hybrid meeting to its shareholders, proxy intermediaries, and other market participants and (2) clearly disclose all relevant logistics, including how shareholders can remotely access, participate in, and vote at the meeting.

Practice Tip:

Companies should coordinate with third-party service providers on logistical components associated with virtual or hybrid annual meetings as soon as possible—particularly if this is the first time that they will be holding a virtual or hybrid meeting—and work with internal and external counsel to develop formal rules of conduct and other procedures specific to virtual and hybrid meetings.


How are shareholder proposals submitted under Rule 14a-8 impacted?

Rule 14a-8(h) promulgated under the Securities Exchange Act of 1934, as amended, requires shareholder proponents, or their representatives, to appear and present their proposals at the annual meeting. The Staff is encouraging all companies to give proponents the option to present their proposals by phone or via another alternative to appearing in person. The guidance also clarifies that companies cannot rely on Rule 14a-8(h)(3) to exclude shareholder proposals from its future proxy materials (i.e., the 2021 and 2022 proxy statements) if a proponent fails to appear at a meeting due to COVID-19 related concerns.[4]

Practice Tip:

Companies should maintain careful records of all communication and correspondence with shareholder proponents during the 2020 proxy season, including details as to accommodations made for proponents who wish to remotely present their proposal(s).

Contacts

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:

Boston
Laurie Cerveny
Michael Conza
Bryan Keighery
Carl Valenstein
Julio Vega

Frankfurt
Torsten Schwarze

Hong Kong
June Chan
Rosita Chu
Eli Gao
Louise Liu
Edwin Luk
Billy Wong

London
Thomas J. Cartwright
Timothy J. Corbett
Iain Wright

Moscow/London
Carter Brod

New York
Thomas P. Giblin, Jr.
John T. Hood
Christopher T. Jensen
Howard A. Kenny
Jeffrey A. Letalien
Christina Melendi
Finnbarr D. Murphy
David W. Pollak
Kimberly M. Reisler

Palo Alto
Albert Lung

Philadelphia
Justin W. Chairman
James W. McKenzie
Joanne R. Soslow

Pittsburgh
Celia Soehner

Princeton
David C. Schwartz

Singapore
Bernard Lui
Joo Khin Ng

Washington, DC
Sean Donahue
Keith E. Gottfried
Linda L. Griggs
David A. Sirignano
George G. Yearsich



[1] For example, Delaware law requires that notice of an annual meeting be provided at least 10 days prior to an annual meeting. See Section 222 of the Delaware General Corporation Law (DGCL). Pennsylvania law requires that such notice be provided at least five days prior to an annual meeting, unless shareholders will be voting on a “fundamental change” (i.e., an amendment to the company’s articles of incorporation), in which case a minimum of 10 days’ notice is required. See Section 1704(b) of the Pennsylvania Business Corporation Law (PBCL).

[2] Most states, including Delaware and Pennsylvania, permit virtual annual meetings. Section 211 of the DGCL provides that if the board of directors of a Delaware corporation is authorized by its charter or bylaws to determine the place of a shareholders’ meeting, the board of directors may, in its sole discretion, determine that the meeting be held “solely by means of remote communication.” Section 211 of the DGCL also permits shareholders to participate in and be present and vote at a virtual annual meeting if the company (1) takes certain reasonable measures, including verifying that each person deemed present and permitted to vote is either a shareholder or a valid proxy holder, and giving such shareholders and proxy holders the reasonable opportunity to participate in and vote at the meeting (i.e., the opportunity to read or hear the proceedings of the meeting substantially concurrently with such proceedings), and (2) maintains a record of votes and other actions taken at the meeting. Section 1704(a) of the PBCL provides that shareholder meetings may be held virtually provided that shareholders have the opportunity to read or hear the proceedings substantially concurrently with their occurrence, vote on matters submitted to the shareholders, pose questions to the directors, and make appropriate motions and comment on the business of the meeting.

[3] See Nasdaq Listing FAQ No. 84. Note that the New York Stock Exchange (NYSE) does not impose any requirements or restrictions on NYSE-listed companies holding virtual annual meetings.

[4] Rule 14a-8(h) requires each person submitting a shareholder proposal under Rule 14a-8, or such person’s representative “who is qualified under state law to present the proposal on [the proponent’s] behalf,” to attend the shareholder meeting in order to present the proposal. If such proponent or representative fails to appear and present the proposal, Rule 14a-8(h)(3) permits companies to exclude all of the proponent’s proposals from its proxy materials for the following two calendar years, unless such failure to appear is due to “good cause.” The March 13 guidance provides that failure to appear due to “inability to travel or other hardships related to COVID-19” constitutes “good cause.”