Companies are well advised to consider contingency plans for their upcoming annual meetings in light of concerns over the ever-growing threat posed by the Coronavirus (COVID-19). Many U.S. public companies have already begun to take such precautions, including The Bank of New York Mellon Corporation, Regions Financial Corporation, SVB Financial Group, and Bank of America, all of which included language in their proxy statements filed in the last week or so advising shareholders that they were considering holding the annual meeting by means of remote communications and, in some cases, describing how this decision would be conveyed. One such company also advised that it reserved the right to change the date or time of the annual meeting.
In considering such contingency plans, companies should turn to the law of their states of incorporation for guidance as to whether virtual meetings are permitted and for other procedural requirements associated with them.
A large majority of states provide for some form of virtual participation in meetings, whether by way of “virtual-only” meetings, which exclusively occur via remote communication, or by way of “hybrid meetings” where virtual participation is allowed in a physical, in-person meeting. A notable exception is Georgia, which is silent on the permissibility of holding annual meetings by means of remote communications. However, given that Section 14-2-701 of the Georgia Business Corporation Code requires a “place” for meetings to be held, it would suggest that virtual meetings are not permitted. Federal securities laws are also silent on such means of holding an annual meeting, except with respect to the proxy solicitation rules.
Delaware, where more than half of U.S. public companies are incorporated, permits both virtual-only and hybrid meetings (Section 211 of the Delaware General Corporation Law (DGCL)). While California and Maryland also allow for both virtual-only and hybrid meetings, virtual-only meetings are subject to onerous conditions that severely limit their usage. In particular, pursuant to Section 600 of the California General Corporation Law (CGCL), California requires shareholders’ consent to a virtual-only shareholder meeting, making it impractical in the context of a late decision to change to a virtual-only meeting. Additionally, Section 2-503 of the Maryland General Corporation Law (MGCL) requires that a corporation provide a place for an in-person meeting if requested by the shareholder, effectively giving any shareholder the right to veto a virtual-only meeting.
Companies are also advised to factor in considerations of timing for their decision as to whether to hold a virtual-only or hybrid meeting. Section 222 of the DGCL, Section 2-504 of the MGCL, and Section 601 of the CGCL each requires that 10 days’ advance notice of a meeting be provided to shareholders and the notice must include the means of remote communications if that method is to be used.
While the number of companies that have turned to virtual meetings has grown in recent years, it should be expected that even more U.S. public companies will look to virtual meetings in light of concerns to contain the spread of the Coronavirus.