By Tristan Smith
While the world continues to reel from the continued impact of COVID-19, the corporate world has also had to make substantial adjustments in how individual corporations conduct business on both a day-to-day and long-term level.[1] Although corporate work life may be in upheaval as a result of the pandemic, profit margins continue to flourish on Wall St., much to the delight of both c-suite executives and shareholders across industries.[2] For corporations, the challenges in organizing and conducting in-person work present unique challenges when executives begin planning required annual shareholder meetings to discuss pertinent topics that require shareholder approval. Recently, we have seen corporations introduce new models to conduct shareholder meetings in response to COVID-19; by analyzing these approaches, it will be possible for legal and business leaders to assess the viability of further changes to in-person meetings on the corporate level as the world hopefully begins to recover.
Prior to the pandemic, shareholder meetings were conducted based on a series of corporate policies, industry norms, and state and federal statutes.[3] A shareholder meeting must be called on a regularly scheduled basis; if a shareholder meeting has not been held within a fifteen month timeframe, any shareholder who holds voting stock has the power to require the corporation to call an annual meeting.[4] At the annual shareholder meeting, the only required matter of discussion is the election of new directors for the company; however, a number of other issues may also be raised for shareholder approval.[5] Shareholders can either choose to vote in person or by sending a proxy to vote in their place to the shareholder meeting.[6] One of the most important elements of the shareholder meeting is the need for the meeting to meet quorum in order for any votes to be taken.[7] Under most statutes, a quorum is established when at least a majority of shares (50% plus one) is present, although the quorum requirement may be increased or decreased based on individual company’s bylaws.[8]
Because of both the importance and the requirement of annual shareholder meetings, corporations have had to adapt in a timely fashion to new models of gathering; indeed, prior to the pandemic, very few companies had any policies or guidelines for hosting virtual shareholder meetings in lieu of in-person gatherings.[9] Generally, there have been three different models proposed to replace traditional all-in person meetings: 1) switching to a completely virtual meeting, 2) hold an in-person or hybrid form of an annual meeting, or 3) delay the annual meeting.[10] For the option of switching to an entirely virtual format, corporations will need to review both the company’s charter and bylaws as well as the state law in which the company is incorporated.[11] For the large number of companies incorporated in Delaware, the Delaware General Corporation Law (DGCL) grants the board authority to institute a virtual shareholder meeting in the place of an in-person gathering.[12] Additionally, California, Connecticut, Georgia, Massachusetts, New Jersey, New York, and North Carolina have issued either executive orders or passed emergency legislation permitting the implementation of virtual shareholder meetings during the state of emergency in their respective states or simply allowing for them with no definite end date.[13] Several issues arise when converting to an all virtual setting, including selecting a service platform, coordinating presentations of shareholder proposals, and most importantly, determining how votes for directors and proposals will be collected before and during the meeting.[14] The challenges for hybrid meetings include deciding what representatives from the c-suite and other executives will be physically present versus attending remotely, how to properly screen in-person attendees to ensure the safety of everyone present, and finding host buildings or locations that are equipped to conduct the shareholder meeting in a socially responsible manner.[15] Finally, for companies who choose to simply delay their annual meeting, it is important for them to consult the bylaws to ensure that they are not bound to hold the meeting on a specific day; if so, a bylaw amendment may be required to allow for a delay to take place.[16]
However, the decision to move shareholder meetings to a virtual format has not been without drawbacks. Meetings on average are lasting seven minutes shorter when contrasted with in-person shareholder meetings conducted in 2019; while not a significant amount of time, the reduction has left shareholders with less time to pose questions to corporate executives before taking votes on important issues for the company.[17] Furthermore, only about 80% of United Kingdom companies were implementing electronic options for shareholders to be able to ask questions at all.[18] These kind of restrictions continue to raise questions about the long-term viability of virtual meetings replacing in-person shareholder gatherings.
[1] Lynn S. Paine, COVID-19 is Rewriting the Rules of Corporate Governance, Harvard Business Review (Oct. 6, 2020), https://hbr.org/2020/10/covid-19-is-rewriting-the-rules-of-corporate-governance.
[2] See generally Liz Hoffman, Goldman’s Pandemic Hot Streak Continues in Third Quarter, The Wall St. Journal ( last updated Oct. 14, 2020, 4:07 PM), https://www.wsj.com/articles/goldman-sachss-third-quarter-profit-nearly-doubles-11602675770?mod=hp_lead_pos1; see generally Hugh Son, JPMorgan Beats Analysts’ Profit Estimate as the Bank Sets Aside Less for Loan Losses, CNBC ( last updated Oct. 13, 2020, 12:20 PM), https://www.cnbc.com/2020/10/13/jpm-.html
[3] Alan Palmiter et al., Business Organizations: A Contemporary Approach 400 (West Academic Publishing, 3RD ed. 2019).
[4] Id.
[5] Id.
[6] Id. at 401.
[7] Id.
[8] Id.
[9] Lynn S. Paine, COVID-19 is Rewriting the Rules of Corporate Governance, Harvard Business Review (Oct. 6, 2020), https://hbr.org/2020/10/covid-19-is-rewriting-the-rules-of-corporate-governance.
[10] Holly Gregory Et al., Considerations for Annual Shareholder Meetings in the Time of COVID-19, Sidley-Austin LLP (April 8, 2020), https://www.sidley.com/en/insights/newsupdates/2020/03/annual-shareholder-meetings-in-the-time-of-covid19.
[11] Id.
[12] Del. Gen. Corp. Law § 211(a)(2) (2020).
[13] Gregory, supra note 11.
[14] Id.
[15] Id.
[16] Id.
[17] U.K. Regulator Finds Companies Often Mute Shareholders in Remote Meetings, The Wall Street Journal (October 7, 2020, 5:30 AM) https:wsj.com/articles/u-k-regulator-finds-companies-often-mute-shareholders-in-remote-meetings-11602063000.
[18] Id.
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