As the Coronavirus (COVID-19) pandemic forces continued restrictions on travel and large gatherings, corporations are starting to make alternative plans for their annual shareholders’ meetings. Thankfully, regulators are also taking steps to facilitate virtual annual meetings.
As discussed in earlier articles, state laws require companies to hold annual meetings of their shareholders to elect directors and to allow their shareholders to vote on matters in which a vote by shareholders is required for approval. Many states have relaxed their laws to authorize two types of virtual shareholder meetings. In a true virtual meeting, the meeting of shareholders is held exclusively via the Internet. In the hybrid form, some shareholders participate remotely and communicate with others who are present at a physical meeting.
In New Jersey, Gov. Phil Murphy recently signed into law (N.J. Pub. Law 2020, ch. 15) legislation (A-3861) that authorizes corporations to hold shareholders' meetings in part or solely by means of remote communication during a state of emergency declared by the Governor. Other states, including Delaware, already allow corporations to hold shareholder meetings by means of “remote communication.”
New Jersey Greenlights Virtual Shareholders’ Meetings in Response to COVID-19
Under existing New Jersey law, corporations can allow shareholders to participate in shareholders’ meetings by means of remote communication; however, the meetings must still be held at a physical location. Under A-3861, during a state of emergency declared by the Governor, a meeting of shareholders may be held by means of remote communication to the extent the board authorizes and adopts guidelines and procedures governing such a meeting.
A-3861 further provides that shareholders participating in a meeting of shareholders by means of remote communication are deemed to be present in person and are entitled to vote at the meeting, regardless of whether the meeting is held at a designated place or solely by means of remote communication. In any shareholder meeting conducted in part or solely by means of remote communication, the corporation must implement reasonable measures to:
- Verify that each person participating remotely is a shareholder or a proxy of a shareholder;
- Provide each shareholder participating remotely with a reasonable opportunity to participate in the meeting, including an opportunity to vote on matters submitted to the shareholders, and to read or hear the proceedings of the meeting substantially concurrently with those proceedings; and
- Record and maintain a record of any shareholder votes or other actions taken by remote communication at the meeting.
Best Practices for Virtual Shareholders’ Meetings
As set forth in the statement accompanying A-3861, the new law will give corporations greater flexibility in how they hold their shareholders’ meetings during the ongoing pandemic. Before moving to virtual meetings, companies should communicate clearly with their shareowners in order to ensure that they understand what a virtual meeting is and how they can meaningfully participate. Below are several other practices recommended by the Virtual Annual Shareowner Meetings Study Group, which consists of 17 executives representing retail and institutional investors, public companies, and proxy and legal service providers:
- Ensure equal access: Companies should allow shareholder proponents to present their proposals on a virtual basis, i.e., by telephone or a prerecorded or online video presentation. Prior to the meeting, shareowners should be able to test their access to verify they will be able to participate in the meeting.
- Create formal rules of conduct: Companies should establish formal rules of conduct that govern participation in shareholders’ meetings: “The rules should allow sufficient opportunities for shareowners to ask questions or make brief comments about each proposal that is up for a vote, while being respectful of the time of all meeting participants”. The rules of conduct should be available to in-person and virtual attendees before and during the meeting.
- Establish rules to promote transparency: Companies should implement procedural rules that will promote transparency about how shareholder concerns will be recognized and should publish those rules prior to the meeting: “Where there is a virtual component to the meeting, companies should seek to avoid the appearance of, or potential for, manipulation with respect to the way they might screen, organize, combine, prioritize and answer, or fail to answer, their shareowners’ questions received in advance or via the web”.
- Provide technical support: Technology is never foolproof. Companies should provide a technical support line for shareowners who may need assistance accessing the webcast.
- Make meeting content available for future viewing: Companies should archive the meeting on a publicly available website for a specific and reasonable period of time (preferably, for at least one year). Companies that allow virtual interaction during their meetings, or that solicit questions prior to the meetings, should also consider sharing all appropriate questions they have received, as well as the company’s responses, e.g., by posting these questions and responses on the investor page of their websites as soon as practicable after the meetings.
SEC Guidance on Virtual Shareholder Meetings
The Securities and Exchange Commission (SEC) has also issued guidance regarding companies’ need to make adjustments to annual shareholder meetings in light of COVID-19. With regard to “virtual” shareholder meetings, the SEC emphasizes the importance of making shareholders and other market participants aware of any changes. It states:
To the extent an issuer plans to conduct a “virtual” or “hybrid” meeting, the staff expects the issuer to notify its shareholders, intermediaries in the proxy process, and other market participants of such plans in a timely manner and disclose clear directions as to the logistical details of the “virtual” or “hybrid” meeting, including how shareholders can remotely access, participate in, and vote at such meeting. For issuers that have not yet filed and delivered their definitive proxy materials, such disclosures should be in the definitive proxy statement and other soliciting materials. Issuers that have already filed and mailed their definitive proxy materials would 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 for announcing a change in the meeting date, time, or location.
The guidance also encourages companies to provide shareholder proponents with alternative means, such as by telephone, to present their proposals at the annual meetings in light of the difficulties that shareholder proponents face due to COVID-19.
As COVID-19 creates new challenges, technology has the potential to provide solutions. For businesses considering a virtual shareholder meeting, we encourage companies to work with an experienced New Jersey business attorney to make the meeting a success and ensure compliance with state and federal law.
If you have questions, please contact us
If you have any questions or if you would like to discuss the matter further, please contact me, Charles Friedrich, or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.