As has become increasingly apparent over the past several years, the costs of holding an in-person annual stockholders meeting, including space, security and management and staff time, have increased. We are also reminded of how few stockholders actually attend annual meetings in person. To address these issues, many companies in the last few years have begun to hold virtual annual meetings, a practice which facilitates participation by stockholders and reduces some costs.
The Maryland General Corporation Law (the "MGCL") was amended in 2003 to provide that, if the board is authorized by the charter or bylaws to determine the place of annual meetings (which is typically the case), it may determine that "the meeting not be held at any place, but instead may be held solely by means of remote communication."
A White Paper issued last month by the Best Practices Committee for Shareowner Participation in Virtual Annual Meetings, a committee of interested constituents, retail and institutional investors, public company representatives, proxy service providers and law firms (the "White Paper"), discusses the advantages and disadvantages of holding an annual meeting virtually. The White Paper notes that virtual annual meetings allow stockholders unable to travel "to more easily attend" the meeting, but could, if run improperly, "diminish the ability of shareowners to fully participate." Indeed, in discussing best practices, the White Paper states that companies holding virtual annual meetings should, among other things, (a) create formal rules of conduct, (b) ensure equal access and (c) determine whether an in-person meeting is more appropriate given the issues being considered and voted upon.
We agree with the principles and best practices enunciated in the White Paper and have incorporated them into virtual annual meetings for our clients. Unfortunately, the White Paper states that Maryland law imposes "conditions that make [virtual annual meetings] impractical or unrealistic." This has not been our experience, as we have several clients that have held virtual meetings without any legal or practical issue.
We understand the potentially "impractical or unrealistic" condition mentioned in the White Paper is the MGCL requirement that the board of directors, at the request of a stockholder, "provide a place for a meeting of the stockholders." We further understand that this provision was construed by the Best Practices Committee to require a Maryland corporation holding a virtual annual meeting to switch the meeting, upon stockholder request, to an exclusively in-person meeting, effectively "cancelling" the virtual component of the meeting.
We have interpreted this provision of the MGCL as requiring only that the board of directors provide a physical place where stockholders may access the virtual meeting (i.e., a location where a stockholder may log into a website and be able to participate in a manner similar to other holders participating in the virtual meeting). Indeed, the legislative history surrounding the enactment of this provision of the MGCL in 2003 indicates that a stockholder-requested physical location would be in addition to, rather than in lieu of, a virtual annual meeting.
Accordingly, we have recommended to clients holding virtual meetings that they disclose in their proxy statements a physical location (no more than one is required) where a stockholder may access the meeting but be clear that (a) stockholders must register in advance to so attend and (b) directors and management will not be present at the location. Often clients will use our office as the location, and we work with them to be prepared, if a stockholder registers to attend (which has not yet occurred), to verify that each person attending the virtual meeting at the specified physical location is a stockholder of record or a beneficial owner entitled to attend and is provided an opportunity to participate and vote (and otherwise be present) at the meeting.