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Conducting (Virtual) Annual Meetings in Light of COVID-19
24 March 2020
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
advisorsISS 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 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 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.
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