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Mar 16, 2020

Issuers explore virtual AGMs amid Covid-19 uncertainty

More companies than ever considering virtual options, Broadridge says

Many issuers are putting a contingency plan into their proxy materials to allow them to host a virtual shareholder meeting if in-person events can’t go ahead, according to Broadridge.

In-person shareholder meetings have traditionally been favored by many listed firms and investors in the US but virtual AGMs have been gaining in popularity in recent years. The spread of Covid-19 could lead to a surge in their numbers this year, according to Broadridge vice president of issuer strategy Cathy Conlon.

‘The norm is that public companies [in the US] hold physical AGM meetings,’ she says. ‘What we are seeing in the upcoming annual shareholder meetings season is that many more companies and their legal advisers are inquiring about what they can do if they need to make a switch to virtual meetings. Many more companies than before are considering having an option to go virtual.’

In 2019 Broadridge hosted 326 virtual shareholder meetings for companies, from a total of about 5,000 issuers incorporated in the US. Although this is still a fraction of the overall pool of listed companies, it represents a 15 percent rise compared to the tally in 2018. ‘I think the volume of clients going virtual will be significantly higher this year than in 2019,’ Conlon says.

Starbucks was the first high-profile company to cancel its in-person proxy meeting, scheduled for March 18. The company filed documents with the SEC on March 4, notifying the regulator that it intended to proceed with a virtual-only meeting.

Glass Lewis published a blog post on March 6 saying investors had raised concerns that virtual-only meetings might reduce access to companies’ board and management, consideration of shareholder proposals and the overall rights of shareholders.

In response to these concerns, Conlon says: ‘The virtual meeting gives a lot more access to board and management for shareholders than a physical meeting would,’ adding that shareholders can fully participate, ask their questions of management, get the answers they need and cast their votes.

Shareholder meetings are governed by each state’s Business Corporation Act, which creates legislative hurdles in some jurisdictions when it comes to holding a virtual-only meeting.

Under current state corporation laws, virtual-only meetings are allowed in 30 US states including Delaware, which means more than half of all US companies are able to choose that option. Thirteen states allow hybrid meetings, requiring a physical component to a virtual meeting. Seven US states – including Wisconsin, South Carolina, New York and Alaska – still require a physical shareholder meeting.

Despite the spread of the virus in the US coupled with a growing concern about attending public gatherings, Conlon has not heard any suggestions that there could be an amendment to the Business Corporation Act of these states.

In a separate development, the SEC has issued regulatory relief for issuers affected by Covid-19, allowing them a 45-day delay for disclosures – including quarterly reports – that were scheduled for release between March 1 and April 30. ‘Companies must convey… a summary of why the relief is needed in their particular circumstances,’ the agency says in a statement.

The SEC on Friday issued guidance designed to help companies, shareholders and other market participants affected by Covid-19 hold their upcoming AGMs, 'including through the use of technology, and engage with shareholders while complying with the federal securities laws,' the agency states.

'The SEC staff recognizes that many public companies and other market participants are transitioning to teleworking, virtual meetings and other contingency measures to address health concerns,'  agency chair Jay Claytonsays in a statement. 'Our staff stands ready to facilitate these transitions and we encourage market participants to contact us with requests for guidance or relief. The SEC has itself moved to teleworking and virtual meetings and remains fully operational.'