SEC Updates Its Guidance on Shareholder Meetings in Light of COVID-19
On April 7, 2020, the Securities & Exchange Commission’s staff updated its previously issued guidance on shareholder meetings in light of the COVID-19 pandemic. The original guidance provided companies with assistance regarding: (1) how to change the date, time or location of a shareholder meeting; (2) how to notify shareholders if a company desires to switch from an in-person shareholder meeting to a “virtual” or “hybrid” meeting; and (3) how to treat the presentation of shareholder proposals when shareholder proponents may not be able to attend shareholder meetings in person. The updated guidance, among other things, adds a new section that discusses how companies can deal with delays in printing and mailing of full sets of proxy materials and also clarifies that the original guidance regarding how to change the date, time or location of a shareholder meeting also applies to special meetings. The SEC staff guidance is available here.
For public companies contemplating changing the date, time or location of an annual or special shareholder meeting after mailing and filing their proxy materials, additional soliciting materials do not need to be mailed nor do the proxy materials need to be amended, so long as the company takes the following steps to announce the change(s):
- issues a press release announcing the change;
- files the announcement as additional soliciting material on EDGAR; and
- takes reasonable steps to inform other intermediaries in the proxy process and other market participants of the change.
For any company that has not yet mailed and filed its proxy materials, such company should include a disclosure in its proxy statement contemplating a possible future change in date, time or location of the meeting that occurs after the filing or delivery of the proxy materials due to COVID-19.
We note that, while the SEC guidance provides relief with respect to the federal proxy rules, a company would still need to comply with applicable notice requirements for the meeting under state law and its governing documents (which could entail amending such documents to allow notice to be delivered through these more permissive rules, if permitted under state law).
The original SEC guidance also clarifies that, if a company desires to change from an in-person meeting to a virtual meeting, it should follow the same process as it would for announcing a change in the date, time or location of the meeting, as discussed above, if virtual meetings are permitted under applicable state law and the company’s governing documents.
Shareholder proposal proponents are generally required to present their proposals in person to comply with Rule 14a-8(h). However, in light of COVID-19, the SEC staff is now encouraging companies to provide shareholder proponents with an alternative method of presenting their proposals at the meeting, such as by telephone, to the extent feasible and also permitted by state law. However, if a shareholder proponent is not able to attend the meeting due to COVID-19 related reasons, the SEC staff will consider this to qualify as “good cause” under Rule 14a-8(h)(3) should a company assert such absence as a basis to exclude the proposal for any future shareholder meeting held in the following two years.
In a new section added to the original SEC staff guidance, the SEC staff has acknowledged the logistical challenges that many companies that historically have chosen to print and physically mail their “full set” proxy materials may be facing due to COVID-19 related vendor facility closures and staffing shortages. The SEC staff further acknowledged that some of these companies have expressed a desire to switch to the “notice only” method of proxy material delivery (because it results in a smaller and thus more easily-managed physical mailing). These companies, however, may already be out of time to comply with all of the rule requirements for “notice only” delivery (such as the requirement that a company send its notice of internet availability of proxy materials at least 40 calendar days before the meeting).
In the new guidance, the SEC staff has advised companies to use “all reasonable efforts” to comply with the notice requirements for shareholder meetings under the federal proxy rules. Where delays are unavoidable due to COVID-19 difficulties, the SEC staff has confirmed that they will not object if a company uses the “notice-only” delivery option for proxy materials, as permitted by Rule 14a-16, even if the company cannot meet all the notice and timing requirements of the rule, so long as they provide shareholders with enough time to review the proxy materials and exercise their voting rights. It is not clear if the staff is encouraging no-action submissions or if it intends for this statement to eliminate the need to do so. A company would also need to announce any such change in the manner discussed above for announcing a change in the date, time or location of a meeting. Additionally, companies and intermediaries are still required to use their best efforts to provide shareholders with physical copies of the proxy materials upon shareholder request.
This blog post is an update to a previous post regarding general insight on contingency plans for annual meetings in the light of the COVID-19 pandemic, which can be found here, as updated by another blog post regarding Georgia temporarily allowing virtual meetings, which can be found here.
We invite you to contact us if you have any questions regarding the SEC’s guidance with respect to shareholder meetings in light of COVID-19. For general legal information on COVID-19, please reference our COVID-19 task force resource page, which can be found here.
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