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Guidance from the SEC, Proxy Advisory Firms, and Institutional Investors Continues to Encourage Virtual Shareholder Meetings and COVID-19 Specific Disclosure

As the global pandemic caused by COVID-19 evolves, the Securities Exchange Commission (SEC), proxy advisory firms (Institutional Shareholder Services (ISS) and Glass Lewis), and institutional investors (including State Street Global Advisors and The Vanguard Group) continue to provide updates and new guidance to issuers on a regular basis. Issuers need to continue to monitor the most recent guidance from these sources, among others (including the stock exchanges), as they prepare for the upcoming first quarter 2020 earnings season and upcoming annual meetings. 

Specifically, in recent weeks, additional guidance has been provided relating to expectations on upcoming first-quarter 2020 disclosure and conducting virtual shareholder meetings. Notably, the SEC, proxy advisory firms, and institutional investors continue to be supportive of a virtual format for any upcoming shareholder meetings and encourage issuers to provide clear, specific, and regular disclosure specific to COVID-19. 

SEC Updates

On April 8, 2020, and April 7, 2020, respectively, the SEC (i) released a statement urging robust disclosure and engagement by public companies in the upcoming first-quarter 2020 earnings release process, and (ii) provided updates to previously issued guidance relating to conducting virtual annual meetings.

Upcoming First Quarter Disclosure

As we previously reported here, the SEC issued public statements in early April encouraging public companies to provide material information to investors as soon as practicable. In its recent statement on April 8, 2020, the SEC reiterated the importance of companies providing as much information as is practicable regarding their current financial and operating status, as well as their future operational and financial planning, when issuing upcoming earnings releases and conducting analyst and investor calls in the coming weeks. The SEC stated that company disclosure should, in particular, respond to investor interest in (i) where the company stands today; (ii) how the company’s COVID-19 response, including its efforts to protect the health and well-being of its workforce and its customers, is progressing; and (iii) how its operations and financial condition may change as efforts to fight COVID-19 progress.

The SEC noted that historical information may be relatively less significant at this time. It also noted that while providing detailed information regarding future conditions and needs is challenging, especially because response strategies are likely to change, updating and refining these estimates is important on many levels and should become less difficult over time. Finally, the SEC stated that companies are encouraged to avail themselves of the safe-harbors for such forward-looking disclosure and should not expect the SEC to second-guess good faith attempts to provide appropriately framed forward-looking information.

Virtual Annual Meetings of Shareholders

On April 7, 2020, the SEC updated its guidance on annual meetings, previously discussed here. The SEC updated the section on changes in date, time, and location of a shareholder meeting to, among other things, clarify that it applies to special meetings.

In addition, the SEC added a new section permitting issuers to use the notice-only delivery option if they are experiencing delays in printing and mailing of full sets of proxy materials when those delays are “unavoidable due to COVID-19”, despite an issuer’s inability to meet the Rule 14a-16 requirement to mail the notice 40 calendar days before the meeting. In any event, issuers must still provide shareholders with proxy materials sufficiently in advance for their review. To rely on this guidance, the issuer must issue a press release announcing the change in the delivery method and file the press release with the SEC. However, note that the issuer must still use best efforts to send a full set of proxy materials to any shareholder that requests a set.

Additional Guidance from Proxy Advisory Firms and Institutional Investors

Beginning in mid-March, the proxy advisory firms and certain institutional investors have provided guidance to issuers relating to conducting a virtual annual meeting and disclosure regarding the impact of COVID-19, among related other topics.

Proxy Advisory Firms

On April 9, 2020, ISS issued guidance on how it will apply its benchmarking and voting policies to specified corporate governance, capital structure and compensation matters in light of COVID-19. Specifically, with respect to virtual-only meetings, ISS provided that it will not recommend votes against companies that hold virtual-only meetings during the current proxy season; however, ISS encourages issuers that hold virtual-only meetings to disclose clearly the reason for the decision and to aim to provide shareholders with a meaningful opportunity to participate. In addition, ISS also addresses meeting postponement, board composition, director attendance, adoption of shareholder rights plans, policies implicated by changes in board and senior management composition, compensation-related changes/actions (such as changes in metrics, goals, and targets of short-term and long-term plans and option repricing), and capital structure and management (such as reductions or suspensions in dividend payments, stock buybacks and capital-raising activities). However, ISS maintains flexibility, stating that it will apply the appropriate discretion on a case-by-case basis, which will allow ISS to adapt as the situation unfolds and to account for company-specific, among other, situations.

Issuers should also be aware that previously, on March 19, 2020, Glass Lewis issued a policy update on virtual-only meetings, stating that such meetings “provide compelling advantages for both companies and shareholders” at this time. Glass Lewis stated that it will generally refrain from recommending voting against members of the governance committee if they hold virtual-only shareholder meetings between March 1, 2020 and June 30, 2020, provided that companies disclose, at a minimum, their rationales for doing so, including citing COVID-19. However, for all shareholder meetings occurring after June 30, 2020, Glass Lewis’ standard policy on virtual shareholder meetings will apply, even if COVID-19 continues well beyond this date, as companies will have been given sufficient time to address shareholder concerns as outlined in Glass Lewis’ standard policy.

In addition, on March 26, 2020, Glass Lewis released guidance on issues of governance and ESG issues in light of COVID-19. In this guidance, Glass Lewis emphasized that effective disclosure and rationales provided by companies will be “particularly critical to our exercise of discretion in making judgments about whether changes made as a result of this crisis are justified and address material shareholder concerns.”

Institutional Investors

State Street Global Advisors and The Vanguard Group also recently issued statements encouraging the use of a virtual meeting format for upcoming shareholder meetings and emphasizing the importance of disclosure by issuers in light of COVID-19.

State Street’s Stewardship Engagement Guidance encourages companies to refrain from undertaking undue risks that are beneficial only in the short term; to communicate to investors the potential impact of COVID-19 on the business, overall operations, and supply chains; and to articulate how COVID-19 might impact or influence the company’s approach to material ESG issues as part of its long-term business strategy. Most notably, the guidance encourages companies to follow guidance from government authorities to either postpone annual shareholder meetings or shift to virtual meetings, while preserving all rights and opportunities afforded to shareholders at physical meetings.

On March 19, 2020, Vanguard similarly welcomed the use of virtual meetings or other options that “ensure that shareholders’ voices are heard.” Further, in its statement on investment stewardship, issued on April 1, 2020, Vanguard acknowledged that companies will have to exercise judgment and flexibility while also balancing short and long-term considerations, including with respect to shareholder meetings and changing capitalization strategies to meet immediate business needs. Vanguard also emphasized the importance of clear and regular communication from companies in this time of crisis.

© 2021 Jones Walker LLPNational Law Review, Volume X, Number 106



About this Author

Alexandra Clark Layfield Corporate Attorney Jones Walker Law Firm

Alexandra Layfield joined Jones Walker's Corporate & Securities Practice Group in 2008. Ms. Layfield's practice is exclusively transactional, concentrating principally on the areas of securities law, mergers and acquisitions, general corporate law and corporate governance matters. Alexandra Layfield is a partner in the Corporate Practice Group.

At Jones Walker, she leads the firm’s corporate, securities and executive compensation team. Alex serves as outside corporate and securities counsel for public companies, including acting as boardroom...