SEC Announces Relief in Light of COVID-19 for Annual Meetings & Proxies
The SEC is beginning to address relief from existing rules due to the unprecedented effects of coronavirus disease 2019 (COVID-19). This announcement addresses annual meetings and proxy logistics.
“We remind all parties to consider their own specific facts and circumstances in determining the need for any additional measures beyond the actions discussed below. We strongly encourage all parties and intermediaries involved in the proxy voting process – including broker-dealers, transfer agents, and proxy service providers – to be flexible and work collaboratively with one another. We expect all market participants to cooperate with one another to facilitate issuers’ obligations to hold annual meetings and disseminate timely, accurate, and clear proxy disclosures under the federal securities laws as well as to allow shareholders to exercise their voting rights under state law.”
Issuers are generally required to hold annual meetings of security holders under state law. Federal proxy rules apply to issuers with securities registered under Exchange Act Section 12. These issuers solicit proxy authority from their shareholders for the annual meeting, and specific rules apply to the delivery of proxy materials, e.g., definitive proxy statements and proxy cards.
Changing an Annual Meeting’s Date, Time or Location
Some issuers are contemplating possible changes in the date, time or location of their annual meetings due to the difficulties arising from COVID-19. SEC staff will take the position that an issuer that already mailed and filed its definitive proxy materials can notify shareholders of a change in its annual meeting’s date, time or location without mailing additional soliciting materials or amending its proxy materials if it:
- Issues a press release announcing such change
- Files the announcement as definitive additional soliciting material on the EDGAR database
- Takes all reasonable steps necessary to inform other intermediaries in the proxy process (such as any proxy service provider) and other relevant market participants (such as the appropriate national securities exchanges) of such change
These actions must be done promptly after making the change decision and sufficiently in advance of the meeting so the market is alerted to the change in a timely manner. If issuers have not yet mailed and filed their definitive proxy materials, they should consider whether to include disclosures regarding the possibility that the annual meeting’s date, time or location will change due to COVID-19. Such determination should be made based on each issuer’s particular facts and circumstances and the reasonable likelihood of such a change.
“Virtual” Shareholder Meetings
Some issuers are contemplating the possibility of conducting a “virtual” shareholder meeting through the internet or other electronic means in lieu of an in-person meeting. The ability to conduct a “virtual” meeting is governed by state law, where permitted, and the issuer’s governing documents. Robust disclosures that facilitate informed shareholder voting are just as important for a “virtual” meeting or “hybrid” meeting, i.e., an in-person meeting that also permits shareholder participation through electronic means, as they are for an in-person meeting.
If an issuer plans to conduct a “virtual” or “hybrid” meeting, SEC staff expects the issuer to notify its shareholders, proxy intermediaries 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 a switch to a “virtual” or “hybrid” meeting if they follow the steps above for announcing annual meeting changes.
Presentation of Shareholder Proposals
Exchange Act Rule 14a-8(h) requires shareholder proponents—or their representatives—to appear and present their proposals at the annual meeting. SEC staff encourages issuers—to the extent feasible under state law—to provide shareholder proponents or their representatives with the ability to present their proposals through alternative means, such as by phone, during the 2020 proxy season.
If a shareholder proponent or representative is unable to attend the annual meeting and present the proposal due to the inability to travel or other hardships related to COVID-19, SEC staff would consider this to be “good cause” under Rule 14a-8(h) should issuers assert Rule 14a-8(h)(3) as a basis to exclude a proposal submitted by the shareholder proponent for any meetings held in the following two calendar years.
BKD will continue to follow this developing situation. Visit our website to learn more. If you have questions about these changes, contact your BKD Trusted Advisor™.