California Governor Suspends Consent Requirement For Virtual-Only Shareholder Meetings, But Gubernatorial Authority Is Questionable
On Monday, March 30, 2020, Governor Gavin Newsom issued another order addressing the State of Emergency existing in California as a result of the threat of COVID-19. The order addresses a variety of issues intended to provide tax, regulatory and licensing extensions for businesses. Of interest to California corporations, the Governor's order provides relief to California corporations that have annual meetings scheduled or that must occur before June 30, 2020:
For any shareholder meetings that already have been scheduled, or must occur before June 30, 2020, the requirements in Corporations Code sections 20 and 600 to request and receive the consent of shareholders for meetings of shareholders to be held by electronic transmission or by electronic video screen communication are hereby suspended, and the requirement in Corporations Code section 601 to provide written notice of such meetings is hereby suspended, to the extent that a corporation has provided notice to its shareholders that a meeting will occur at a physical location and subsequently provides notice by a press release, website posting and other means reasonably designed to inform shareholders that the meeting will occur by electronic transmission or by electronic video screen communication.
"Virtual only" shareholder meetings are meetings that are held solely by remote communication without any physical meeting location. Section 600(e) of the California Corporations Code allows meetings of shareholders to be conducted in whole or in part by "electronic transmission by and to the corporation" or by "electronic video screen communication" if:
- The corporation implements reasonable measures to provide shareholders (in person or by proxy) a reasonable opportunity to participate in the meeting and to vote on matters submitted to shareholders, including an opportunity to read or hear the proceedings of the meeting concurrently with those proceedings, and
- Any shareholder votes or takes other action at the meeting by either means, the corporation maintains a record of that vote or other action.
Sections 20 and 21 of the Corporations Code defines the terms "electronic transmission by the corporation" and "electronic transmission to the corporation". In the case of electronic transmission by the corporation, Section 20(b) requires that the recipient of the communication provide an unrevoked consent to the use of those means of transmission. Section 600(e) provides that any request by the corporation pursuant to Section 20(b) for consent to conduct a meeting by electronic transmission by and to the corporation must include a notice that absent consent of the shareholder pursuant to Section 20(b), the meeting will be held at a physical location. The difficulty of obtaining consent of all shareholders has made "virtual only" meetings impracticable for widely held corporations, although it is unclear whether the consent requirement applies to meetings held by "electronic video screen communication."
The Governor's order was issued under California's Emergency Services Act, Government Code Sections 8567 and 8571. Those statutes allow the Governor to suspend any regulatory statute, or statute prescribing the procedure for conduct of state business, or the orders, rules, or regulations of any state agency, including Section 1253(d) of the Unemployment Insurance Code when the Governor determines and declares that strict compliance with any statute, order, rule, or regulation would in any way prevent, hinder, or delay the mitigation of the effects of the emergency. These statutes do not define what constitutes a "regulatory statute" and it is unclear whether the suspended provisions of the Corporations Code qualify as regulatory statutes within the meaning the Emergency Services Act.