Please Mute Your Line: Delaware Streamlines Procedures for Virtual Stockholder Meetings
Delaware Governor John Carney issued an amendment to Delaware’s State of Emergency Order late Monday evening (the “DE Order”) granting Delaware corporations new flexibility to hold annual and special meetings during the COVID-19 pandemic.1
Delaware corporations that have already provided notice to their stockholders of a physical annual or special meeting can now change the location of such meeting to be virtual or remote by (i) publicly filing a notice of the change of location with the Securities and Exchange Commission and (ii) issuing a public press release, provided that such press release is also promptly posted on the corporation’s website after release. The DE Order also permits Delaware corporations to adjourn already scheduled physical meetings by following the same procedure. Stockholders should closely monitor the public filings of the companies in which they are invested and their press releases to ensure they have all the latest information concerning a corporation’s upcoming annual or special meeting.
The DE Order is similar to guidance issued by the Securities and Exchange Commission in late March, which provided relief from the requirement to mail additional proxy materials to a public corporation’s stockholders if certain actions (including issuing a public press release) related to the change of meeting location were taken.
Many Delaware corporations have already announced a change to a virtual meeting since Monday’s DE Order, including among others, GNC Holdings, Inc. (NYSE: GNC), Coca Cola Co. (NYSE: KO) and Marriott International Inc. (NASDAQ: MAR). More are expected to follow.
Considerations for Stockholders
Delaware corporations have a powerful new tool to conduct business during the COVID-19 pandemic. When properly exercised, it will preserve accountability to stockholders and uphold social distancing. However, stockholders and the media should be watchful that Delaware corporations and their boards of directors do not misuse these regulations for their own entrenchment or improper purposes—such as delaying an annual or special meeting to buy more time for a company to shore up support for its proposals under the cover of being motivated by health concerns, or limiting permitted questions to only those that do not challenge sitting directors. It is critical that the use of virtual meetings to the exclusion of in-person meetings be limited to this proxy season and not extend beyond the current coronavirus crisis, as long experience has shown that physical meetings give investors an irreplaceable and non-fungible opportunity to confront their fiduciaries directly and indelibly make directors and officers aware of their hopes and opinions.
Given the ease with which virtual meetings can be arranged in the digital age, Delaware corporations should utilize this option responsibly: to help stem the spread of COVID-19 and not improperly delay or manipulate their shareholder meetings. Investors and proxy advisory firms will be watching for potential abuse.
1 Tenth Modification of the Declaration of a State of Emergency for the State of Delaware due to a Public Health Threat, Gov. John Carney, April 6, 2020 (https://governor.delaware.gov/wp-content/uploads/sites/24/2020/04/Tenth-Modification-to-State-of-Emergency-04062020.pdf).