Shareholder Meetings in the PandemicMarch 20, 2020
The coronavirus (COVID-19) pandemic and the response by federal, state, and local authorities have severely affected, and will continue to affect, virtually all businesses. These effects extend to even relatively mundane matters of corporate governance, such as shareholder meetings.
Most state corporation laws, as well as the stock exchanges (for companies that list on them), require that corporations hold an annual meeting of shareholders. However, the public health restrictions imposed by federal, state, and local authorities in response to the pandemic that limit or prohibit travel and public gatherings will make in-person shareholder meetings difficult, if not impossible. As a result, public companies, as well as other companies with more than a handful of shareholders, will want to consider holding shareholder meetings via remote communication.
While it is well established that meetings of the board of directors of a corporation can be conducted via teleconference or other remote means, it has historically been less clear as to how shareholder meetings can be conducted if not in person. Fortunately, the corporation laws of many states, including Missouri and Illinois, expressly authorize shareholders meetings to be held using remote communications either in conjunction with an in-person meeting or exclusively “virtual” via remote communications.
Under section 351.225(2) of the Missouri General and Business Corporation Law, a Missouri corporation’s board may authorize, and adopt guidelines and procedures that permit, shareholders (and their proxies) who are not physically present at a shareholder meeting to participate in the meeting by means of remote communication and to be deemed present in person and eligible to vote at the meeting, whether such meeting is to be held at a designated place or solely by means of remote communication. To utilize this authority, the corporation must implement reasonable measures to verify that each person deemed present and permitted to vote at the meeting by means of remote communication is a shareholder or proxyholder. In addition, the corporation must provide shareholders and proxyholders a reasonable opportunity to participate in the meeting and to vote on matters submitted to the shareholders, including an opportunity to read or hear the proceedings of the meeting substantially concurrently with such proceedings. If any shareholder or proxyholder votes or takes other action at the meeting by means of remote communication, a record of such vote or other action must be maintained by the corporation.
Section 7.05 of the Illinois Business Corporation Act provides that unless otherwise provided in the articles of incorporation or bylaws, shareholders may participate in, and act at, any meeting of shareholders through the use of conference telephones or interactive technology, including without limitation electronic transmissions, Internet usage, or other means of remote communications through which all persons participating in the meeting can communicate with each other.
The measures a corporation will need to take to permit remote communications for its shareholder meeting will depend on factors such as whether its shareholder records contain a large number of shareholders who hold in “street name” through brokers, banks, or other intermediaries and whether it generally has a large number of shareholders participate in its meetings. A corporation all of whose shares are held of record by its shareholders (that is, not through intermediaries) may be able to institute procedures as simple as a teleconference dial-in and roll-call voting. A corporation with a number of street name holders, especially if it has a history of significant attendance at meetings, will likely need to utilize the services of a third-party provider who can host the meeting via teleconference or “virtually” and coordinate the distribution of security codes or other identifiers for purposes of shareholder verification and voting.
As a final matter, the Securities and Exchange Commission has provided guidance for public companies that are planning an in-person shareholder meeting but that may wish to change the time, date, location or other arrangements for the meeting due to the COVID-19 pandemic, including moving to a virtual only meeting. Such companies will need to notify shareholders of the change by:
- issuing a press release announcing such change;
- filing the announcement as definitive additional soliciting material on EDGAR; and
- taking 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 appropriate national securities exchanges) of such change.
If the company has not yet distributed its proxy statement to shareholders, it should disclose in the proxy statement that it may change the meeting arrangements and identify how shareholders will be notified of the change.
The Securities and Exchange Commission’s Staff Guidance for Conducting Annual Meetings in Light of COVID-19 Concerns is available here.
Despite the very serious disruptions in their operations created by COVID-19, all businesses will continue to be subject to legal obligations relating to their governance and dealings with their shareholders and should be proactive in considering how they will address these matters.
In response to the coronavirus (COVID-19) pandemic, Lewis Rice has formed a COVID-19 Task Force which brings together subject matter authorities from various practice areas within the Firm who stand ready to assist our clients as they navigate these challenging and evolving issues. We will continue to monitor the myriad legal and other developments that may impact our clients.
If you have legal questions related to COVID-19, please reach out to one of the authors above or another member of the Task Force.