Taking the Meeting Out of Annual Meetings: Exploring Virtual Meeting Options in the Age of Coronavirus

Before switching to a virtual or hybrid meeting, make sure it is permitted by:

• Your state of incorporation. Some states (including Delaware and Texas) allow virtual-only annual meetings; others (including New York) permit virtual only in combination with physical annual meetings; other states do not permit any form of virtual participation
• Your corporate governing documents (articles of incorporation or association, bylaws and board resolutions may require physical annual meetings)
• Any stock exchange on which your stock is listed (NYSE and Nasdaq permit VSMs)

This article outlines the benefits and challenges of each of these options, summarizes some technical details regarding the VSM, hybrid and flex options, and offers some answers to frequently asked questions about VSMs.

We note that — much like the supply of hand sanitizer at your local grocery store— it is possible that the service providers that host virtual meetings may run out of capacity at some point. For that reason, for companies that are considering whether to hold a VSM or hybrid meeting or wish to have the option to switch at a later date, we recommend making a decision as soon as possible and, at a minimum, a month before the meeting is scheduled to take place.

Key Practical and Legal Considerations of VSM, Hybrid and Flex Options

Frequently Asked Questions about Virtual Stockholder Meetings (VSMs):

What is the public perception of VSMs?

Public perception of VSMs is mixed. While the use of VSMs has increased significantly over the past ten years, they are still the exception rather than the rule. Critics are concerned that VSMs may limit stockholders’ ability to participate in meetings and confront management and directors. Technology may also be a barrier for certain stockholders who are accustomed to attending stockholder meetings in person. Supporters highlight the benefits of greater accessibility and lower meeting costs. In light of the COVID-19 outbreak and the SEC’s encouragement for companies to offer remote participation options, stockholders are likely to be more amenable to switching to a VSM or hybrid meeting this year, particularly if the proxy statement contains disclosure assuring stockholders that they will be afforded the same rights and opportunities to participate as they would at an in-person meeting and indicating the company’s intent to resume physical annual meetings in the future.

How can stockholders participate in a VSM or online during a hybrid meeting?

State laws that permit virtual or hybrid annual meetings generally require companies to implement reasonable measures to provide stockholders the opportunity to participate in the meeting. In some cases, participation must include the ability for stockholders to communicate with other participants. VSM providers offer various options to enable stockholder participation during the meeting. These options may include submitting questions online prior to and during the meeting or providing dedicated phone lines for stockholders to call in and ask questions verbally. Talk to your VSM provider for available options based on your investor base and local state law for VSMs.

How can stockholders vote during a VSM or online during a hybrid meeting?

VSM providers offer simple ways for stockholders to submit their votes online using their control number. Votes can usually be submitted prior to or during the VSM. Talk to your VSM provider to review the voting platform stockholders will see when they log in to the VSM.

How are votes tabulated in a VSM or hybrid format?

If your VSM provider is also providing your distribution and tabulation services, all votes can be consolidated and reported together in real time. If you are using a separate tabulation agent or proxy service, work with your VSM provider and your tabulation agent to coordinate consolidation of votes before and during the annual meeting. Coordinate with your VSM provider to set up appropriate access for your inspector of elections to observe online voting and review the final vote reconciliation before certification.

Do stockholders need to be tech geniuses to participate in a VSM?

VSM software varies among providers but is designed to be very user friendly. Typically, the only requirements are an internet connection and a standard media player. VSM providers may also offer an option for stockholders to dial in to the meeting from their phones. Investors who have participated in quarterly earnings calls may find the experience to be quite familiar other than the more robust registration process. In order for participants in a VSM to be able to vote or to be considered present at the meeting for quorum purposes, the VSM provider must verify their identity. Stockholders can register for a VSM online by providing their control number and certain personal information to verify their identity. Some VSM providers require stockholders to register several days in advance to participate in the VSM. Check with your VSM provider for more details regarding required technology and the registration process.

Do directors need to be tech geniuses to participate in a virtual annual meeting?

No. Depending on the anticipated level of director participation in the annual meeting, directors may be given a standard stockholder login to access the meeting or a dedicated dial in to present or respond to questions. Talk to your VSM provider about your needs and how you wish the dedicated lines to be moderated.

Can stockholder proponents present at a VSM? Can their access be limited?

If a stockholder proponent will be presenting at the annual meeting, the VSM provider can set up a dedicated phone line and open the line only when the stockholder proponent is speaking. Talk to your VSM provider about any specific requirements or restrictions.

Can non-stockholders access the VSM?

VSM providers may offer options for guests to register for the meeting without a control number. Guests would not be considered present at the meeting or permitted to vote in the proceedings. Talk to your VSM provider about including or blocking this option.

What information about the VSM do we need to include in our proxy and notice to stockholders?

Besides including detailed instructions on how to access the VSM platform, companies should describe procedures for stockholder participation and voting during the VSM to assure stockholders that they will have the same participation rights as they would in a physical meeting. Providing rules of conduct for the VSM in advance of the meeting is also considered a best practice and can help stockholders participate in the meeting. Check state law for any additional disclosure requirements for notice of a VSM. Your VSM provider may have language you can adapt for your proxy statement and notice.

When do we need to decide whether to switch to a VSM?

If you have not already filed your proxy statement, deciding to switch to a VSM or hybrid meeting prior to filing your proxy could result in lower costs and less disruption than deciding to switch later in the process.

However, if you have already filed your proxy statement announcing a physical meeting or if you prefer to keep your options open without switching to a VSM or hybrid meeting now, the timing of your decision will be governed by relevant notice provisions and the deadlines set by your VSM provider. Check state laws and company bylaws to identify the deadline to provide notice of the date, time and location of the annual stockholder meeting. In most cases this will be at least 10 days prior to the meeting, but it may be longer. Keep in mind that if you are switching from a physical meeting to a virtual-only meeting, stockholders may appreciate additional notice to adjust travel plans and register for the VSM, if necessary. Your VSM provider will also need sufficient time to set up the meeting. Talk to your VSM provider to determine the exact time required, but providers will likely require up to 4 to 5 weeks to set up the meeting. If you are considering this option, talk to your VSM provider early to reserve your date and discuss options and deadlines.

If you have already passed these deadlines and a physical meeting has become impracticable, you may be able to adjourn the meeting and hold a physical meeting or VSM or hybrid meeting on a later date. Check state law and bylaws to determine applicable adjournment rules. If possible, provide notice to stockholders in advance of your plan to adjourn the meeting and the new date for the physical meeting or VSM or hybrid meeting. Also comply with SEC requirements if you advance or delay your annual meeting, including those in Rule 14a-5(f) (substituting Item 8.01 for the reference to Item 5 in that rule).

Under what circumstances would we need to file a proxy supplement?

The proxy statement for a meeting of stockholders must identify the date, time and location of the meeting. If one of these changes, a proxy supplement would need to be filed and distributed to stockholders within the relevant notice period. Adding a virtual component to a previously announced physical meeting would not necessarily trigger the requirement to file a proxy supplement as long as the original date, time and location have not changed. However, state law or company governing documents may include additional notice requirements if a virtual option is added, even if the physical venue is not changed.

If we change from a physical meeting to a virtual or hybrid meeting, do we need to redistribute proxy materials by mail?

On March 13, 2020, the SEC provided relief for companies changing the date and/or location of a previously announced physical meeting, including switching to a VSM or adding a virtual component to the physical meeting. The SEC announced that companies may change the date or location or the use of virtual technology by making the appropriate filings with the SEC but would not be required to physically mail revised proxy materials to stockholders. For more information, see the SEC’s full release here.

Note that the SEC relief applies only to SEC requirements for notice and mailing. It did not change notice deadlines or procedures under state law or company bylaws, so physical mailing of a supplement or notice may still be required.

Do we need to set up a formal virtual meeting with a VSM provider? Can’t we just webcast the physical meeting to stockholders?

Providing a video or audio feed of the annual meeting to stockholders is certainly an option to allow stockholders who are unable to attend in person to view or listen to the meeting remotely. This solution may be sufficient to allow directors, auditors and other third parties to participate in the meeting remotely or to allow stockholders to listen in if a quorum will be met by the individuals attending the meeting in person. However, for stockholders to be considered legally present at the meeting for quorum purposes or to be able to vote remotely during the meeting, their identity must be verified and there must be a way for them to participate in the meeting in keeping with state law. VSM providers offer the technology to verify the identity of stockholders attending remotely and to allow them to participate in and to vote during the meeting.

For any Coronavirus-related legal questions, please contact a member of V&E’s Coronavirus Taskforce or visit our Coronavirus: Preparation & Response site for a list of contacts and additional resources we hope will be helpful.