Remote Participation in Shareholder Meetings in the Age of CoronavirusMarch 27, 2020 | Harvey S. Epstein |
After this article was published, New York Governor Andrew Cuomo issued an executive order clarifying this issue. According to the order, due to the coronavirus pandemic, until April 19, 2020, companies incorporated in New York are permitted to hold virtual-only shareholder meetings. The executive order temporarily provides relief from the portions of subsection (a) of Section 602 and subsections (a) and (b) of Section 605 of the New York Business Corporation Law (NYBCL) that require shareholders’ meetings to be noticed and held at a physical location.
Although the executive order suspends certain aspects of the meeting notice requirements under Section 605(a) of the NYBCL relating to a physical meeting location, companies incorporated in New York remain subject to all applicable shareholder notification and disclosure requirements under their governance documents, federal securities laws and stock exchange listing rules.
The ability of shareholders of New York corporations to participate remotely in shareholders’ meetings has frequently been a topic of interest for both management and shareholders, and the issue has taken on increased importance due to the coronavirus outbreak and the corresponding social distancing recommendation.
Amendments to the Business Corporation Law (BCL), which became effective in October 2019, now permit New York corporations to conduct a “hybrid” shareholders’ meeting – an in-person meeting attended by company representatives and shareholders that is also broadcast simultaneously to shareholders not in attendance who can log in or call in to a webcast or teleconference to attend and vote at the hybrid meeting.
Certain states, including Delaware, permit “virtual only” shareholders’ meetings – no in-person attendance is available to shareholders. Increasing numbers of publicly traded Delaware corporations were availing themselves of the virtual-only option even before the coronavirus outbreak. New York, however, declined to adopt the virtual only format.
The recent amendments to the BCL allow the board of directors to “implement reasonable measures to provide shareholders not physically present at a shareholders’ meeting a reasonable opportunity to participate in the proceedings …” (such as by “audio webcast or other broadcast”) and to “enable shareholders to vote or grant proxies … by means of electronic communication” (such as by “telephonic and internet voting”). In other words, shareholders must have a way to hear what is happening and to send in a contemporaneous vote. Boards implementing means for electronic participation must also (a) verify that participants are in fact shareholders of record, and (b) keep records of votes and other actions by shareholders participating by electronic means. In addition, the board needs to confirm shareholder attendance and voting.
If desirable, the verification function can be delegated to a third-party service provider. Each shareholder’s proxy materials can contain a unique verification code that the shareholder can use to log in to a meeting website. Alternatively, the corporation might hold the virtual portion of its meeting via conference call and circulate the dial-in number to each shareholder, who can confirm his or her identify when joining the call.
Question and answer sessions give most shareholders their only opportunity to engage directly with a corporation’s directors and officers. For the virtual portion of hybrid shareholder meetings, corporations have a number of options regarding how and whether shareholder questions can be presented, including live questions via telephone, live questions via text and pre-submitted questions.
There are numerous other issues that need to be considered before holding a hybrid meeting:
- How to structure the agenda of the meeting in order to conclude the formal business as soon as possible;
- What contingency plans to adopt to prepare to address a technological failure, including contingency plans for a network outage;
- Whether a recording of the meeting will be available after the meeting and, if so, for how long;
- How shareholders can ask questions, including in advance, by text or “live,” and if “live,” how to deal with disruptive or otherwise inappropriate behavior;
- How to decide which shareholder questions will be answered, including how to handle duplicate or inappropriate questions, how to respond to questions submitted by text or in advance if there is not enough time to answer them during the meeting, and the level of transparency to provide to explain how questions will be chosen;
- How to maintain the required record of any vote or action taken by remote communication.
Although coronavirus concerns may not have been the driving force for the adoption of the BCL amendments permitting hybrid shareholder meetings, they are certainly on everyone’s radar now. If you are interested in adopting measures permitting the conduct of hybrid shareholder meetings, you need to ascertain whether any amendments to your certificate of incorporation or by-laws are required, and take the requisite board action.
Rivkin Radler attorneys are available to discuss these options with you.
- Harvey S. Epstein