The Future of Corporate Annual Meetings in the Face of COVID-19: Navigating New SEC Guidance
As COVID-19 disruptions persist, the US Securities and Exchange Commission (SEC) recently issued comprehensive guidance for companies planning their annual meetings, acknowledging the practical challenges raised by the pandemic. As we enter the third year of interrupted annual meeting seasons, it seems clear that virtual and hybrid meetings are a permanent feature of corporate America's future.
In light of this, on January 19, 2022, the SEC Divisions of Corporation Finance and Investment Management offered practical advice for companies wrestling with federal proxy rules amid ongoing COVID-19-related issues. Encouraging flexibility and collaboration between all market participants, the SEC aims to facilitate the essential corporate function of annual meetings.
Corporate law regulation primarily falls under state jurisdiction, but for public companies, the federal government imposes mandates, including those pertaining to corporate governance. Among these is Section 14 of the Securities Exchange Act of 1934 and related rules, which govern the proxy process for public companies.
Recent SEC guidance specifically addresses logistical challenges imposed by the pandemic. Companies needing to change the date, time, or location of their annual meeting to accommodate COVID-19 concerns are permitted to notify shareholders of these changes without mailing additional soliciting materials, provided they promptly announce the change through a press release, file the announcement on EDGAR, and inform relevant market participants and intermediaries in the proxy process.
In the context of virtual meetings, state law and the issuer’s governing documents primarily determine their conduct. All meetings—whether in-person, virtual, or hybrid—require disclosures facilitating informed shareholder voting. If a company decides to host a virtual or hybrid meeting, the SEC requires timely notification and clear instruction for shareholders on how to access, participate in, and vote remotely.
The pandemic also brings unique challenges for shareholder proponents presenting proposals at annual meetings. Acknowledging potential difficulties in attending in-person meetings, the SEC advises companies to facilitate remote presentation methods like phone calls where possible.
Printing and mailing proxy materials for meetings have also been impacted by the pandemic, with delays posing significant challenges for companies. Though the SEC urges adherence to standard rules, it accepts non-compliance with “notice only” provisions if the delays are unavoidable due to COVID-19. However, companies are still expected to provide shareholders with materials in time for an informed vote.
The landscape for virtual and hybrid meetings continues to evolve, with varying opinions on their efficacy. While some shareholders appreciate the convenience of virtual meetings, others miss the face-to-face interaction of traditional meetings. Critics have expressed concerns over safeguarding shareholder rights and participation in virtual formats, though steps have been taken to address these issues.
It’s important to note that the majority of Cracker Barrel shareholders voted for a virtual-only annual meeting, signaling a possible shift in shareholder preferences. Prominent fund manager Vanguard and proxy advisor Glass Lewis have also voiced their support for virtual and hybrid meetings, provided they ensure transparency, facilitate shareholder communication, and protect shareholder rights.
Though hybrid meetings offer a balanced approach, they demand intricate planning for both in-person and virtual components. Besides, companies must also consider state law requirements, as many corporate statutes necessitate in-person meetings. However, states like Delaware, a popular choice for corporate domicile, offer flexibility for various meeting formats, including virtual meetings.
In conclusion, the new normal of annual meetings involves navigating an evolving landscape marked by ongoing pandemic disruptions and shifting shareholder preferences. Companies will need to be agile, proactive, and attentive to their shareholders' needs, while closely adhering to the SEC's guidance in this uncertain time.