Shareholder Distancing: Virtual Shareholder MeetingsMonday, March 23, 2020
In light of the rapidly evolving circumstances concerning the COVID-19 outbreak, publicly traded corporations are considering alternatives to traditional in-person shareholder meetings to minimize the health risks to employees and shareholders, as well as to the general public. Potential solutions that balance a corporation’s legal obligations with its ethical obligations include: (i) holding virtual-only shareholder meetings; (ii) holding “hybrid” shareholder meetings; and/or (iii) providing virtual access to shareholder meetings via webcasts.
A virtual-only shareholder meeting is one held wholly over a teleconference or internet platform, whereas a hybrid meeting involves holding a meeting at a physical location but also enabling shareholders to participate electronically. While not technically a type of virtual shareholder meeting, a third route to consider is to hold a traditional meeting at a physical location but permit shareholders to view (but not participate) in the meeting via a webcast.
Prior to the outbreak of COVID-19, virtual-only meetings were rare in Canada. However, as the COVID-19 crisis continues to unfold, several prominent publicly traded Canadian corporations have announced plans to hold their meetings electronically, including Rogers Communications Inc., Canadian National Railway Co., Telus Corp. and Enbridge Inc. As we approach proxy season more are likely to follow suit, particularly as governments and public health officials dissuade or, in some cases, prohibit, public gatherings.
Can my corporation hold a virtual shareholder meeting?
The answer depends on the corporation’s constating documents as well as the corporate statute of its jurisdiction of incorporation. Consideration should also be given to the availability and cost of the technology required to facilitate a virtual meeting that still complies with statutory requirements.
Corporations governed by the Business Corporations Act (Ontario) (“OBCA”) have substantial flexibility to hold virtual shareholder meetings. Unless the corporation’s constating documents provide otherwise, a shareholder of an Ontario corporation who establishes a communications link to the meeting by electronic means is deemed to be present at the meeting. As such, Ontario corporations can satisfy quorum requirements through teleconference or internet platforms that provide for electronic participation at shareholder meetings.
CBCA and ABCA Corporations
A corporation governed by either the Canada Business Corporations Act (“CBCA”) or the Business Corporations Act (Alberta) (“ABCA”) can only hold virtual-only meetings if its by-laws expressly permit it to do so. In addition, a shareholder who participates at a meeting of an Alberta or a federally incorporated corporation by electronic means is deemed to be present at the meeting only so long as each participant can “communicate adequately” with each other during the meeting. While limited guidance is available on what constitutes adequate communication, if the technology used to facilitate the meeting enables shareholders to see or hear the conduct of the meeting, pose questions to management, and see or hear one another’s questions, this would likely suffice as adequate communication. However, if the technology fails to allow participants to communicate adequately with one another, participants, including the corporation’s proxy nominees, will not be deemed present at the meeting and the corporation will not meet its quorum requirements.
The Business Corporations Act (British Columbia) (“BCBCA”) does not expressly permit virtual shareholder meetings. However, unless the corporation’s articles provide otherwise, as long as all shareholders are able to communicate with one another, by electronic means or otherwise, a shareholder who participates in the meeting by electronic means is deemed present at the meeting and the meeting is deemed to be held at the location specified in the notice of meeting. The statute is ambiguous as to whether a meeting might be completely virtual or require a physical location in addition to facilitating electronic participation (i.e., a hybrid meeting); as such, corporations should consult with legal counsel in these cases.
If the applicable corporate statute or the corporation’s constating documents do not permit virtual shareholder meetings, a corporation might apply for a court order to conduct a virtual meeting. Among others, the OBCA, CBCA, ABCA, and BCBCA permit these applications. On March 11, 2020, the British Columbia Supreme Court granted a court order allowing Telus Corp. to hold its 2020 annual general shareholder meeting entirely electronically. On March 20, 2020, some of Canada’s largest banks and insurance companies jointly obtained a court order from the Ontario Superior Court of Justice that allows them to hold annual meetings in whole, or in part, using electronic means. However, other corporations interested in seeking a court order should note possible delays due to recent announcements regarding court closures in connection with COVID-19.
Statutory requirements for virtual meetings in Canada vary and, depending on the jurisdiction of incorporation, a corporation must ensure that it uses technology that enables it to meet these requirements. So far, Broadridge Financial Solutions and Lumi have facilitated virtual shareholder meetings for Canadian public corporations. The Canadian Securities Administrators (“CSA”) are also aware that some public corporations are considering virtual securityholder meetings as a result of social distancing measures. The CSA are supportive of measures public corporations are taking to mitigate the risk of transmission. On March 20, 2020, in the wake of the court order obtained by Canada’s largest banks and insurance companies, the CSA published guidance in connection with all business transacted at shareholder meetings. Such guidance will be highlighted throughout this update; however, the guidance rightly notes that the conduct of shareholder meetings is primarily subject to the applicable corporate statute and a corporation’s constating documents.
My corporation can hold a virtual meeting, but should it?
Once a corporation determines that it is permitted to have an electronic shareholder meeting, it must decide whether it should have a virtual shareholder meeting in the circumstances. If a matter being put before shareholders at the meeting may be contentious, a virtual meeting might create unforeseen issues or obstacles for the corporation to respond as events unfold. In addition, a contentious meeting raises the possibility that a shareholder might challenge the validity of some aspect of the meeting. For the purposes of uncontested meetings (e.g., election of directors), we anticipate virtual meetings to be more likely, as the risk of legal challenge is minimal.
What about holding a “hybrid” meeting or a webcast?
A hybrid shareholder meeting involves holding the meeting at a physical location but also enabling shareholders and proxyholders to participate in the meeting electronically. A shareholder meeting that broadcasts its proceedings via a webcast (or via a conference call or any other method which does not facilitate for shareholder communication) is a traditional in-person shareholder meeting, that also allows shareholders to view or listen to, but not participate in, the proceedings. These options alleviate concerns with meeting quorum requirements as they still provide a physical forum for the meeting at which management’s recommended proxyholders will be present. Thus, corporations can be less concerned about whether the technology used at the meeting allows shareholders to “communicate adequately” with one another. Depending on the corporate statute, a shareholder may be able to vote electronically at the meeting even if the meeting participants are not able to “communicate adequately” and thus are not deemed to be present.
In either case, in light of recent public health concerns, a corporation might strongly discourage shareholders from attending the meeting in person and, in the case of a traditional meeting broadcast via webcast, strongly encourage the shareholders to vote in advance of the meeting using its proxy materials.
If a corporation has not yet distributed its proxy materials to shareholders, the CSA recommend that corporations consider disclosing in their proxy-related materials the possibility of meeting changes due to the steps being taken to slow the spread of COVID-19. Corporations should provide detailed disclosure as to the type of meeting being conducted, how shareholders might attend, participate in, or view the meeting, and whether the corporation might change the type of meeting after mailing of the proxy materials. If the corporation plans to decide on the type of meeting as events related to COVID-19 unfold, the corporation should clearly state this intention and advise shareholders how it plans to communicate future changes, such as via a press release posted on the corporation’s SEDAR profile. Lack of clear communication and timely notice could result in impairing shareholder relations or possible legal challenges.
If a corporation has already distributed its proxy materials, it is the CSA’s view that, if the corporation has decided to change the date, time, or location of its in-person shareholder meeting due to COVID-19, the corporation may notify shareholders of the change(s) without sending additional soliciting material or updating its proxy-related materials, provided the corporation: (i) issues a news release announcing the change in the date, time, or location; (ii) files the news release on SEDAR; and (iii) takes all reasonable steps necessary to inform all the parties involved in the proxy voting infrastructure (such as intermediaries, transfer agents, and proxy service providers) of the changes. The corporation should take such actions promptly after making a decision to change the date, time, or location of a shareholder meeting, and sufficiently in advance of the shareholder meeting to alert the market in a timely manner. It may be required, depending on its corporate statute, to notify shareholders of any changes to the location or type of meeting by mail or personal delivery at least 21 days prior to the meeting. Corporations that have already mailed proxy materials in connection with a shareholder meeting but wish to change the location or type of meeting should consult legal counsel.
The CSA also issued guidance with respect to the application of section 2.15 of National Instrument 54-101 Communication with Beneficial Owners of Securities of a Reporting Issuer. Pursuant to section 2.15, a corporation that sends a notice of adjournment or other change related to a shareholder meeting to registered holders is required to concurrently send the notice to its beneficial owners. The CSA take the view that no exemptive relief from section 2.15 is required by a corporation that is considering changes or alternatives to its shareholder meeting, provided the corporation’s registered holders and beneficial owners are treated equally and receive the same information.
Proxy advisory firms have generally opposed virtual-only shareholder meetings, suggesting that they might reduce directors’ accountability to shareholders. Glass Lewis indicated in its 2020 guidelines that it would recommend voting against members of a corporation’s governance committee where the board plans to hold a virtual-only shareholder meeting and the corporation does not provide sufficient instructions in its proxy materials to facilitate shareholder participation. However, Glass Lewis has advised that for corporations opting to hold a virtual shareholder meeting due to COVID-19 between March 1, 2020 and June 30, 2020, it would generally refrain from recommending to vote against members of the governance committee on this basis, provided that the corporation discloses, at a minimum, its rationale for doing so, including citing COVID-19.
Virtual and Hybrid Shareholder Meetings Checklist
- Check your corporate statute to determine whether it allows virtual meetings or electronic participation of shareholders at meetings (i.e., hybrid meetings).
- Check your constating documents to determine whether they allow virtual meetings or electronic participation of shareholders at meetings. Depending on the jurisdiction of incorporation, the constating documents might be required to explicitly permit electronic attendance and participation.
- Consider whether a virtual meeting is appropriate in the circumstances, noting that a virtual meeting might be less appropriate for a contentious meeting.
- Contact your principal regulator and consult with legal counsel if your corporation is involved in a proxy contest, or holding a special meeting in connection with a merger and acquisition transaction, or obtaining approval to protect minority shareholders in a special transaction.
- Consult legal counsel and your transfer agent to coordinate holding a virtual or hybrid meeting.
- Consult a service provider for technology to facilitate the virtual or hybrid meeting and ensure that the technology enables your corporation to meet applicable statutory requirements, especially in the case of a virtual meeting.
- Ensure shareholders receive adequate information as to how to access, participate in and vote at the meeting electronically. Consider providing help for shareholders to access or participate in the meeting in real time.
- Monitor the CSA website (www.securities-administrators.ca) for further guidance and updates.
- Refer to the Principles and Best Practices for Virtual Shareholder Meetings issued in 2018 by the Best Practices Committee for Shareowner Participation in Virtual Annual Meetings. (1)
- In light of the COVID-19 outbreak, continue to monitor and consider any applicable governmental or public health pronouncements, advisory warnings, and any other regulatory, legislative, or judicial information, which may be released to the public with great frequency.
If you have any questions with respect to this legal update, please contact Troy Pocaluyko (email@example.com), Al Wiens (firstname.lastname@example.org), Peter Volk (email@example.com), Michael Rennie (firstname.lastname@example.org), Jeff Bookman (email@example.com), Melissa Smith (firstname.lastname@example.org), or any other member of our Corporate Governance practice group.
This update is intended as a summary only and should not be regarded or relied upon as advice to any specific client or regarding any specific situation.