Coronavirus (COVID-19) is having an unprecedented impact on the world’s economy, including historic stock market declines, a virtual standstill in business and leisure travel, closures of schools and businesses and a focus on “social distancing” through remote working (or not working at all). These shocks are being felt acutely by public company boards of directors and management as they carefully consider how to navigate a business and risk environment of first impression while continuing to comply with their obligations to their shareholders under federal securities laws and regulations and state corporate law. This client alert highlights some of the key issues that public companies should be considering during these challenging times.
The COVID-19 pandemic is occurring in the middle of proxy season, when many public companies have already mailed or will shortly be mailing proxy statements to their shareholders for their upcoming annual meetings. However, particularly with multiple states having already banned large group meetings and the White House issuing guidelines recommending Americans avoid gathering in groups of more than 10 people, many public companies are appropriately concerned regarding their ability to hold in-person annual meetings and public perception if online options are not made available.
Options for Public Companies
Public companies have a number of options if they determine that holding an in-person-only meeting in the near term is not an appropriate approach. All of these approaches will require review of applicable state corporate law (we have highlighted Delaware and North Carolina implications below) and the company’s organizational documents.
SEC Staff Guidance
The Staff of the SEC’s Division of Corporation Finance issued guidance on March 13, 2020, reminding companies of their disclosure obligations with respect to the holding of annual meetings and to assist public companies (particularly those that have already filed their definitive proxy materials) in complying with the federal securities laws. The Staff acknowledged that many companies that have already filed their definitive proxy materials may now wish to change the date, time or location of their meetings. The March 13, 2020, guidance permits companies to do so without mailing additional soliciting materials to shareholders so long as they (i) issue a press release announcing such change, (ii) file the announcement as definitive additional soliciting material on EDGAR and (iii) take all reasonable steps necessary to inform intermediaries in the proxy process and other relevant market participants (including the appropriate national securities exchanges) of the change. Compliance with these requirements will likely be sufficient from a state law notice standpoint unless there is a particularly controversial measure on the agenda (although this should be examined carefully). If possible, though, companies should consider sending an updated notice to shareholders notifying them of the change.
If You Have Not Already Filed Your Proxy Materials
For public companies that have not already filed their proxy materials, we recommend that boards and senior management:
Many calendar year-end public companies have already filed their annual reports on Form 10-K for 2019, with the deadlines for accelerated and large accelerated filers having already passed. However, a number of companies have yet to file their Form 10-Ks and need to consider the impact of the pandemic on their disclosures. Given the dynamic situation with this pandemic, we expect that all issuers will need to continuously revisit their disclosures for each Form 10-Q filing during 2020 and in many cases more frequently. Key disclosure considerations include the following:
The impact of the COVID-19 pandemic on businesses and the economy is of a nature and magnitude not seen at least since the 2008 recession and that will continue to test the ability of boards and management to identify, respond to and overcome numerous business, operational and disclosure challenges. Directors should especially remain mindful of their obligation to set the tone at the top with respect to risk management, work closely with senior executives to identify all material risks arising from COVID-19 and develop a game plan to seek to preserve and hopefully enhance shareholder value during this difficult time while remaining a good corporate citizen. Companies should especially consider not only the financial and operational risks of COVID-19, but also the reputational risks of a misstep in how the company is perceived to be responding to these risks. As always, companies should fall back on their corporate disclosure policies, carefully vetting all messages related to COVID-19, ensuring only designated company personnel speak for the company and providing consistent, compassionate and achievable messages to all stakeholders and regulators.