Shareholder Distancing

Shareholder Meetings in the Age of “Social Distancing” and COVID-19

Written by Blake Baron

Background

On March 13, 2020, the U.S. Securities and Exchange Commission (the “SEC”) published guidance to assist public companies, investment companies, shareholders and other market participants affected by COVID-19 in connection with their upcoming shareholder meetings. The SEC explained that this guidance was designed to allow these companies to continue to hold their meetings, including through the use of technology, and engage with shareholders under social distancing circumstances, while still complying with the federal securities laws.

Shareholder Meetings – The Impact of COVID-19 and the Natural Transition to Virtual Meetings

Generally, public companies and investment companies are required to hold annual meetings of security holders, with the federal securities laws requiring the delivery of proxy materials to the voting shareholders.  Over the past few years, more and more companies have been transitioning to either complete “virtual” shareholder meetings or “hybrid” meetings, which avoid the need for in-person shareholder attendance.

In connection with the spread of COVID-19 around the world, including the United States, the U.S. federal government and many state and local governments have either prohibited or recommended that people avoid gatherings of large groups and employ “social distancing” to mitigate the further spread of this virus. As a result of this new “normal,” it is expected that most companies, to the extent permitted by applicable law, will transition their meetings to virtual meetings in order to safeguard their stakeholders’ health while furthering their corporate objectives and requirements.

Under the SEC guidance, the affected parties can announce in SEC filings the changes in the meeting date or location or the use of virtual meetings without incurring the cost of additional physical mailing of proxy materials.  The guidance also encourages companies to allow shareholders to present their proposals at the annual meetings through alternative means, including by telephone.      

Our Thoughts

Public companies should assume that “social distancing” is here to stay for the short-term and should plan to hold their annual meetings virtually to avoid any potential delays. While the SEC guidance is helpful for those companies that may have already filed their proxy materials, we believe that companies should be proactive and disclose in their initial proxy statements that their meetings will be held virtually.  This proper planning and disclosure will avoid the need to distribute and file updated announcements regarding meeting changes.

When considering if the transition to a virtual meeting is advisable or whether a meeting date or location needs to change, companies will need to review relevant state law and SEC regulations to ensure full compliance.

If you have any questions, please contact the MSK Corporate & Business Transactions Department to discuss how we can help you navigate these challenges.

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