The Latest 2020 Proxy Season Developments Relating to COVID-19

As the COVID-19 pandemic continues to evolve, public companies are grappling with its implications for their 2020 annual shareholder meetings and related matters. As a follow-up to our Sidley Update titled Annual Shareholder Meetings in the Time of COVID-19, this Sidley Update highlights the most recent developments that impact virtual shareholder meetings and proxy statement filings during the 2020 proxy season. Also see our recent Sidley Update titled BlackRock Releases 2020 Engagement Priorities with a Focus on Sustainability and ISS Issues New Climate Voting Policy.

More States Will Permit Virtual-Only and Hybrid Meetings in 2020

Some states do not currently permit virtual-only annual meetings. In light of the COVID-19 pandemic, certain states have passed emergency legislation or executive orders permitting virtual-only and hybrid meetings:

• Connecticut. On March 21, 2020, the Governor of Connecticut issued an executive order that permits virtual-only shareholder meetings during a state of emergency declared by the Governor, which will be in effect until the Governor determines that the emergency no longer exists. Virtual-only meetings are permitted if the board of directors makes the list of shareholders entitled to vote available for inspection as set forth in the order.
• Georgia. On March 20, the Governor of Georgia issued an executive order that permits virtual-only shareholder meetings during a state of emergency declared by the Governor, which currently ends on April 13. Virtual-only meetings are permitted if the board establishes procedures to enable shareholder participation and voting on matters submitted at the meeting.
• New Jersey. Last week a bill unanimously passed both houses of the New Jersey legislature that would permit New Jersey corporations to hold shareholder meetings in part or solely by means of remote communication during a state of emergency declared by the Governor, which will be in effect until the Governor determines that the emergency no longer exists. The legislation is subject to certain conditions including (1) board approval of the meeting guidelines and procedures and (2) implementation of reasonable measures to assure shareholder participation in the meeting (e.g., an opportunity to vote and hear the proceedings). 
• New York. On March 20, the Governor of New York issued an executive order that permits virtual-only shareholder meetings until April 19 by suspending the provision of the New York Business Corporation Law that requires meetings of shareholders to be noticed and held at a physical location.

We understand that similar initiatives to permit virtual-only annual meetings or to relax conditions that make virtual-only meetings impractical or unrealistic are underway in a few other states.

Proxy Advisor Policies for Virtual-Only Meetings in the 2020 Proxy Season

As companies address the need for alternative means of convening shareholders for their 2020 annual meetings, they should consider the policies that will drive voting recommendations from proxy advisors. While Institutional Shareholder Services (ISS) has not announced a formal policy regarding virtual-only annual meetings (refer to our previous Sidley Update for a discussion of its position, as publicly reported), Glass Lewis has announced a change in its policy for the 2020 proxy season.

Under its standard policy, Glass Lewis generally recommends voting against governance committee members at companies that opt to hold virtual-only shareholder meetings without providing specified robust proxy statement disclosures. On March 19, Glass Lewis announced an immediately effective policy update in recognition of the fact that many public companies have resorted to virtual-only meetings in light of the COVID-19 pandemic. 

Under its updated guidelines, for companies opting to hold a virtual-only meeting during the 2020 proxy season (March 1 through June 30), Glass Lewis will generally refrain from recommending voting against governance committee members provided that a company discloses its rationale for holding a virtual-only meeting, and specifically referencing COVID-19.¹ Glass Lewis will review these situations on a case-by-case basis and note whether companies disclose their intention to resume holding in-person or hybrid meetings under normal circumstances.

Glass Lewis will apply its standard policy on virtual-only meetings to shareholder meetings held after June 30, 2020. Glass Lewis has stated that this will be the case even if the pandemic continues beyond this date, because Glass Lewis has given companies sufficient time to address shareholder concerns as described in its policy. To avoid a negative vote recommendation against governance committee members in the future, Glass Lewis expects robust proxy statement disclosure assuring shareholders that they will have the same participation rights they would have at an in-person meeting as described under Glass Lewis’ guidelines.

On March 16, the Council of Institutional Investors (CII), which has generally opposed virtual-only shareholder meetings, issued a statement acknowledging that many public companies will reasonably move to a virtual-only format this year. CII hopes that companies will make clear that this is a one-time decision in light of the current situation and urges companies to follow best practices for shareholder participation.

SEC’s 45-Day Extension Can Apply to Proxy Statements That Include Form 10-K Part III Information

As discussed in our previous Sidley Update titled SEC Provides Conditional Filing Relief to Companies Affected by Coronavirus, earlier this month the SEC issued an order providing conditional relief to public companies that are unable to timely comply with their filing obligations as a result of the COVID-19 outbreak. The order provides an additional 45 days to file Exchange Act reports due between March 1 and April 30, 2020, subject to specified conditions, including the filing of a Form 8-K or Form 6-K by the later of March 16 or the report’s original filing deadline.

A company does not need to provide information responsive to Part III of Form 10-K if it discloses that information in a proxy statement filed within 120 days of the company’s fiscal year end. For calendar-year companies, the 120-day deadline this year falls on April 29. There was uncertainty as to whether the conditional relief provided by the SEC’s order would be available to extend the period by which a company can incorporate Part III information by reference because April 29 is more than 45 days past the end of the possible extension period for Form 10-K.

We received confirmation from the SEC Staff that the 45-day extension can be used to extend the 120-day deadline for filing Part III information so long as a company complies with the requirements set forth in the SEC’s order (e.g., filing a Form 8-K or 6-K). Therefore, a calendar-year company may incorporate by reference Part III information into its Form 10-K so long as it files its proxy statement disclosing that information by June 13 (45 days after the original April 29 deadline). Companies that anticipate requiring until May or June to file the proxy statement may need to delay the annual meeting because notice and proxy solicitation requirements continue to apply; see our Sidley Update that discusses considerations for delaying the annual meeting.

Our COVID-19 landing page will continue to be updated as these matters develop.

¹Glass Lewis referred to Starbucks Corporation’s 2020 proxy statement as an example of effective disclosure on this point.