May 6, 2020

Virtual Annual Meetings: CII Weighs In With Investor Concerns

A number of companies have transitioned to virtual annual meetings as a result of the Covid-19 crisis, and according to the CII’s recent letter to the SEC’s Investor Advisory Committee, it has been kind of a bumpy ride from an investor perspective. Companies that are looking for ways to make their own virtual meetings more investor friendly should take a look at the CII’s letter. Here’s an excerpt summarizing some of the anecdotal concerns that the CII has heard from investors about the virtual meeting process:

– Shareholders struggling to log in for meetings.

– Inability to ask questions in some cases if the shareholder has voted in advance by proxy. We understand that one virtual meeting platform provides that for a beneficial owner to ask questions, the record holder must transfer a legal proxy to the beneficial owner. This would require the record holder to withdraw its vote if it already had voted before executing the required legal proxy because the voting would transfer to the beneficial holder. These rules unnecessarily hamper the ability of beneficial owners to participate in meetings, even at companies that use effective technology and rules for participation by shareholders who get into the meeting.

– Shareholders unable to ask questions during the meeting. In some cases, questions are limited to those that can be submitted in writing in advance, which interferes with the potential for interplay between meeting content and questions or comments.

– Lack of transparency on questions asked by shareholders, making it possible that company officials cherry-pick questions to which to respond. This obviously is an issue if time limits for a meeting prevent responses to all questions. At one large company at which shareholder questions went unanswered, we understand the company provided only 10 minutes for Q&A.

– Conflicting channels for shareholder participation, with shareholder resolution proponents required to be on a line that is different than that used for general shareholder Q&A.

– At least one company prohibiting a shareholder proponent from speaking on behalf of their proposal.

– Snafus with control numbers not working to permit shareholders to log into a meeting.

The CII acknowledges that some of these problems may be attributable in part to the speed with which many companies have shifted to virtual-only meetings, but it is concerned about the precedents that may be set this year.

Virtual Annual Meetings: Delaware’s Relief Order Leaves Some Companies Uncovered

Last month, I blogged about Delaware Gov. John Carney’s order permitting public companies that had previously noticed physical annual meetings to switch to virtual annual meetings simply by complying with the SEC’s guidance, without the need to provide further notice under applicable provisions of the DGCL. That order was extremely helpful for companies covered by it, but it turns out that a number of companies weren’t – and some of them find themselves in a bind.

As this Morris Nichols memo points out, the order only applies to companies that provided notice of a physical meeting prior to the April 7th date of the order. Companies that first mailed their proxy materials after that date apparently are not covered by it. One of our members recently posted a comment in our Q&A forum about a tragic situation that’s compounding the problems companies that aren’t covered by the order face:

This is really unfortunate. I understand that Broadridge is struggling right now to get materials mailed to shareholders. If reports are to be believed, they had an outbreak at a warehouse in NY resulting in several deaths. Their staffing levels have been drastically reduced as they are trying to comply with social distancing efforts. And they are notifying clients of delays in mailings of material and fulfilling requests for hard copy materials. Requiring notices of changes to a virtual meeting format (rather than just press release/SEC filing) will only compound the problem.

One workaround that’s been suggested to handle mailing delays resulting from the critical need to prioritize worker safety is to bypass Broadridge and mail any new notice to record holders only. Since only those holders are entitled to receive notice under state law, it seems to me that this may be a viable solution for companies that don’t have large numbers of record holders.

On the other hand, many of the orders issued by other states permitting deviations from statutory practice due to Covid-19 are prospective in nature, while Delaware’s applied only to actions taken prior to the order. Perhaps Delaware’s order could be revised to take the same approach?

Virtual Annual Meetings: Doug Chia’s Attending Them So You Don’t Have To. . .

Soundboard Governance’s Doug Chia attended Wells Fargo’s virtual annual meeting and posted a detailed summary that’s a must read for anyone considering going virtual this year. His write-up provides plenty of insights into how the meeting was conducted – including commentary on the virtual meeting platform, the manner in which the Q&A was conducted, and how shareholder proposals were presented.

Doug’s attending other meetings and posting similar summaries (here’s one about Berkshire Hathaway’s meeting that he posted earlier this week), so stay tuned.

John Jenkins