Addressing the Impact of COVID-19 in the 2020 Proxy Statement

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As companies prepare to file their proxy statements for the 2020 annual meeting, the question arises as to where, if at all, to address the impact of COVID-19. Proxy statements filed in late February and early March addressed COVID-19 only in the context of meeting logistics, with some companies switching for the first time to virtual-only meetings and others disclosing the possibility of changing to a virtual-only meeting as circumstances might warrant as the meeting date drew closer. More recently, as the impact of COVID-19 has become much more severe, companies are including substantive disclosure about COVID-19 in governance and compensation sections of their proxy statements, as well as in letters from the company’s CEO, board chair or lead independent director. To assist companies that are now finalizing their proxy statements, we provide below COVID-19-related disclosure considerations.

  • Notice/Q&As/Cover Letter:
    • For companies planning a virtual-only meeting or disclosing the contingency of a virtual-only meeting
      • Whether disclosing a virtual-only meeting or a contingency plan for a virtual-only meeting in the proxy statement or a supplemental proxy filing, companies typically should address:
        • if this is a change from a company’s usual practice, an explanation for why it is switching to a virtual-only meeting and whether the company plans to revert back to an in-person or hybrid annual meeting under “normal circumstances”;
        • how and when shareholders can access the virtual meetings, including log-in instructions;
        • the effect (if any) that virtual attendance would have on quorum and voting requirements;
        • the ability of shareholders to, and the process for, asking questions prior to or at the annual meeting;
        • rules of conduct;
        • technical assistance for shareholders;
        • if a proxy card already has been sent, whether the company will be sending an updated proxy card;
        • where a list of shareholders may be inspected; and
        • location of the replay of the webcast and for how long the webcast will be available.
      • For our alert discussing Glass Lewis’ updated policy on virtual meetings, see here; for our alert on Institutional Shareholder Services (ISS) and Glass Lewis’ policy updates related to COVID-19, see here; and for our discussion of the Securities and Exchange Commission’s position on the mechanics of shareholder proposals at annual meetings during the 2020 proxy season, see here.
  • CEO / Chair / Lead Independent Director Letters: Introductory letters from the CEO and/or the chair or lead independent director are an opportunity to present a personalized message on COVID-19.
    • Though uncertainty remains, consider addressing, among other things, the impact of the pandemic on the company and its industry, and the company’s values and commitment to ensuring the safety of employees and to continue working on behalf of customers and communities.
    • This is also an opportunity to describe current views about how the company is positioned for the future and challenges that remain ahead.
  • Board Oversight of Risk: Consider disclosing how the company has been addressing risks related to COVID-19. More specifically, consider disclosing whether the full board or a particular committee have overseen management’s response to the crisis and/or whether the board has established a crisis management team to oversee efforts to mitigate risks, including financial, business continuity and human capital risks.
  • Corporate Governance / Environmental, Social & Governance / Corporate Social Responsibility / Human Capital Management: Review current Corporate Governance / ESG / CSR / Human Capital Management disclosure and consider updating, as appropriate, for any steps taken in response to the COVID-19 crisis. Some companies are announcing the establishment of a task force to monitor the virus, steps taken to ensure the health and safety of the company’s employees and the donation of resources to support non-profit and community efforts. Disclose whether the board delegated any of its duties to a board committee or established a special board committee to provide exigent action in response to COVID-19.
  • Compensation Discussion and Analysis: Consider clarifying the impact of COVID-19, if any, on the executive compensation program.
    • If there has been no impact on the company’s performance in 2019, consider affirmatively stating that the description of the executive compensation program does not reflect the impact of the coronavirus, which impact will be described in next year’s proxy statement.
      • Any uncertainty and potential negative impact of COVID-19 on decisions regarding 2020 compensation should also be disclosed if relevant to the understanding of 2019 compensation. Even if unrelated to 2019 compensation, many companies have been expressly addressing uncertainties relating to 2020 executive compensation decisions and setting the stage for changes that may need to be made to 2020 compensation.
    • Consider disclosing any reductions in named executive officer salaries in 2020 as a result of COVID-19. Some companies have included holistic disclosure of compensation decisions in the context of other business decisions in response to the pandemic, such as reductions in capital expenditures, suspension of share buybacks and entering into or drawing down on financing facilities.
    • Proxy advisors Glass Lewis and ISS have recently issued updated policies here and here, which address how they will evaluate changes in performance metrics as a result of COVID-19, as we discussed here.
  • Director Compensation: Any board determinations to reduce, forego or delay non-employee director compensation for a period of time should be discussed in the director compensation section of the proxy statement.
  • Equity Plan Amendment Proposals: Consider the need to present a management proposal for shareholder approval of an amended equity compensation plan to increase the share reserve, or if such a plan was already anticipated to be on the ballot, consider whether the share reserve or request for additional shares is still appropriate. Consider also whether it is important to note that in light of the COVID-19 pandemic, the board expects to review and consider the company’s compensation programs, which may have an impact on the share reserve under the plan. If applicable, consider whether any additional disclosure or changes to planned disclosure are needed regarding the participants in the plan given any layoffs or furloughs that have had to take place.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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