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Conducting (Virtual) Annual Meetings in Light of COVID-19

24 March 2020 Brian Matt

With rising concerns around the spread of corona-virus globally, many public companies have already postponed their annual meetings over the course of last week, due to health concerns or partial lockdowns often prohibiting public gatherings.

Numerous companies as Daimler, Deutsche Telekom and others have postponed their meetings, while others such as Schindler or Berkshire Hathaway will hold their meetings without the public and only with proxy representatives. Numerous other issuers on the Continent are considering adding a virtual component to the format of their annual shareholder meetings in order to mitigate health risks ("hybrid") meetings. While the general meetings of the Spanish banks Santander or BBVA are set to go ahead, the banks are encouraging shareholders to participate remotely, to protect the wellbeing of the investors. HSBC in the UK has already warned its shareholders of the potential COVID-impact on its shareholder meeting, recommending to vote via proxy.

Depending on the country, AGMs may be a needed precursor for operational items; some countries require shareholder approval to make dividend payments. Shareholder associations1 across different jurisdictions are asking governments for forbearances that will allow them to pay dividends even if a general meeting is postponed. Other jurisdictions, as France, Spain or Netherlands already allow for interim dividend payments.

Postponing the Meeting
It is clear that globally, issuers are putting in contingency plans in order to prepare for a potential delay of their meetings or to find hybrid solutions in order to fulfill legal requirements while mitigating risk. The most obvious of these is delaying the meeting date. Generally, in most jurisdictions AGM's can be delayed up to 8 months (or 6 months for European SE's), but the question on dividend-payments is often not resolved, similar to the fact that delaying into September, might conflict with newly to be implemented regulation around the EU-Shareholder Rights Directive II (SRD II).

In the UK, it is anticipated that most meetings will go ahead as planned in some sort of hybrid-version, as voting by proxy is mostly standard and the quorum requirement to be binding is very low. In the UK the use of virtual meetings is already minimal impact is expected in this jurisdiction.

As many other developed markets, France has urged shareholders to stay at home and use digital tools, vote by proxy and make sure that AGMs are streamed online if allowed by the respective statutes, indicating the likelihood of many general meetings to take place behind closed doors. Companies as Schneider Electric asked shareholders to vote before the AGM and to prepare written questions in the leadup, as online voting will not be permitted during the GM. COVID also is impacting retail shareholders, with many companies shutting down organized travel, as shuttle buses, as well as cutting handing out goodies or food at on site meetings.

Asian regulators appear to have a head start, with most meetings scheduled to take place as planned; in Singapore, the regulator stepped in gave issuers several months of extension to hold their AGMs, suggesting alternative arrangements to ensure shareholder participation. In Japan, the Ministry of Economy, Trade and Industry of Japan recently announced a guidance to carry out hybrid-virtual AGMs. Several companies conducted their meetings by giving shareholders the chance to participate via an app, after the government urged companies to cancel big gatherings. While fully virtual meetings are also not accepted in most parts of Asia, on-site participation remained low, with meetings being webcasted and the few participants being checked and often rejected based on fears of fever.

For US companies, there is less of a concern of operational risk from delaying a meeting. In a separate note, the SEC put out a regulatory relief and guidance document, allowing companies to delay their annual reporting requirements up to 45 days, if they were scheduled between March 1 and April 30. The SEC does require that companies must convey "why relief is needed" and detail the relevant circumstances. Separate guidance released on March 13 noted referred to this prior relief, and clarified to include that companies may change the dates of their AGMs, but do need to give sufficient notice to shareholders of the change. That said, many US company bylaws require an AGM to take place within 15 months of the prior AGM, and depending on state regulations and company charters this summer may serve as a limit for postponement in many cases.

Virtual Meetings: Legal Concerns & Regulatory Guidance
Not every country is as prepared to hold virtual meetings, due to legal challenges, companies lacking the required adjustments of their articles of association or simply lack of experience and limited practicality. In other markets, online AGMs are not tested, and of limited practicability, especially with bearer shares in many countries, resulting in legal risks of not being able to engage, communicate and enable shareholders to properly register for the meetings. Interactive AGMs that allow a debate, or simultaneous webcast of the proceedings to provide shareholders with a forum to ask questions and engage with management and the Board of Directors, are mostly untested. Hence, while national laws generally govern2 the availability of a virtual meeting format, no direct guidance has been issued by several European governments with respect to hosting annual meetings in a changed environment and crucial legal questions remain unanswered.

Physical meetings also remain favored in the US, but the nation has seen a significant rise in virtual meetings over the last years, between 15-20% uptick over the last year3, depending also on the local state legislation, which often create legislative hurdles to hold virtual AGMs. This year, Starbucks led the way, notifying its shareholders that the company intends to hold an online meeting. The SEC's March 13 guidance did discuss "virtual-only" and hybrid AGMs and reminds companies that are considering them to give clear instructions to shareholders; it mentions that those that have already mailed a proxy card do not necessarily need to mail a second if public disclosure of the change is made in other formats.

Investors and Proxy Advisors with Additional Context
Several investors4 and proxy advisors already addressed the issue and raised concerns over feared restrictions of access to companies' board and management, as well as limited ways for shareholders to ask questions or raise shareholder proposals. At the same time, they believe that investors will be more accommodating to virtual meetings this year, in light of the latest COVID-19 crisis. In the US, The Council of Institutional Investors (CII) has weighed in with support for virtual-only meetings, but has clearly tilted its statement toward encouraging companies to resume in-person or hybrid meetings in subsequent years.

Shareholder-sponsored proposals are most common in the US, with social and climate-focused issues reaching an increasing amount of proxies over the last several years, and the rights of proponents do require protection to avoid shareholder outcry. The SEC's guidance release added an interesting treatment of shareholder proposals. It states that companies should offer shareholder proponents the ability to present their proposals by phone in a virtual-only or hybrid meeting, but it gives companies the option to exclude the proposal if the proponent "is unable to travel" or has other COVID-related hardships. While this opens a potential loophole for issuers to get out of critical situations, one could hope that companies show good corporate citizenship, which otherwise likely will be punished by investors the following year.

In light of these developments around the pandemic's influence on the global general meeting season, both proxy advisors ISS and Glass Lewis, added context to their voting positions on virtual meetings. Glass Lewis has pointed to its guidelines, but also mentioned they will watch the season very closely. In the context of the COVID-19 situation, Glass Lewis stated that companies that have already filed their proxy statements and provided information for an in-person meeting but are moving to a virtual-only meeting should provide public disclosure explaining the rationale. Such disclosure should specifically state that the change is due to the coronavirus outbreak, include complete information about accessing the meeting and confirm shareholders will have the same opportunities to participate - as they would have had at an in-person meeting.

Glass Lewis also issued a special report on "Coronavirus Fears Impacting Annual Shareholder Meetings5" listing the actions taken by various governments. Based on intermediate results, at this stage the proxy advisor has not taken any issue with any of the virtual US AGMs so far this year.

Existing Proxy Advisor guidelines:
Glass Lewis
indicated that it will continue to review companies' proxy materials regarding virtual meetings. Generally, the proxy advisor will recommend voting against governance committee members where the board is planning to hold a virtual-only shareholder meeting and the company does not provide disclosure in their proxy statement assuring shareholders that they will be afforded the same rights and opportunities to participate as they would at an in-person meeting.

Glass Lewis provided the following examples of "effective disclosure" about shareholder participation rights at a virtual-only shareholder meeting:

  • Addressing the ability of shareholders to ask questions during the meeting, including time guidelines for shareholder questions, rules around what types of questions are allowed, and rules for how questions and comments will be recognized and disclosed to meeting participants;
  • Procedures, if any, for posting appropriate questions received during the meeting, and the company's answers, on the investor page of the company's website as soon as practical after the meeting;
  • Addressing technical and logistical issues related to accessing the virtual meeting platform; and
  • Procedures for accessing technical support to assist in the event of any difficulties accessing the virtual meeting.

ISS also expects shareholders to be more accommodating of virtual meetings this year, in light of COVID-19. Similar to Glass Lewis, ISS6 stated that it will require companies to provide comprehensive disclosure affirming that a virtual meeting will provide full opportunities for shareholders to participate, ask questions, provide feedback to the company and present shareholder proposals. ISS also indicated that it anticipates the way in which companies manage virtual meetings this year will impact its future position on virtual shareholder meetings.

Based on their current guidelines, ISS generally supports hybrid shareholder meetings (hybrid refers to an in-person, or physical, meeting in which shareholders are permitted to participate online) if it is clear that it is not the intention to hold virtual-only AGMs. In the 2018 ISS Governance Principles Survey, investor respondents were largely supportive of hybrid meetings, where companies employ technological means to allow for virtual participation as a supplement to the physical shareholder meeting. Investor respondents were less supportive of virtual-only meetings however, with a majority indicating that virtual-only meetings merited support if they provided the same shareholder rights as a physical meeting.

International Sample Disclosure:
Many companies face new challenges and unfaced territory with general meetings going virtual or hybrid. Hence, we listed some international sample disclosure, mostly from the US, pointing to pre-cautionary measures in light of COVID-19 or detail the means of remote communications as well as instructions for shareholders. We will continue to update our clients on new developments.

No matter what, management has to be proactive in communicating to the markets with a clear rationale and legal obligation to have analysed the situation in relation to the risk-assessment of conducting onsite-, hybrid- or virtual AGMs. Since communication and transparency are key in times of uncertainty, our global Corporate Governance Advisory Teams stands ready and happily supports you in all matters of shareholder engagement, outreach or sample materials and examples of companies who have experience in hybrid/online meetings, including their disclosures.

Julia Heitzenberger
Senior Associate, EMEA Governance Advisory

Andreas Posavac
Executive Director, Head of ESG, Governance & M&A Advisory

Brian Matt, CFA
Director, Head of ESG Americas

1 Deutsche Schutzvereinigung für Wertpapierbesitz (DSW), 11 March 2020
2 E.g. German Stock Corporations Act para 118 or the Austrian Stock Corporations Act para 102
3 Corporate Secretary, 16 March 2020

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