We’ve received a number of calls from clients asking how they should handle their annual shareholders’ meeting in light of the COVID-19 Pandemic. Not surprisingly, a large segment of those who typically attend shareholders’ meetings are over age 60 and, therefore, particularly vulnerable to the virus. The social distancing recommended by federal and state authorities really doesn’t play well with the typical annual meeting format.
We’ve identified three basic options that balance the company’s requirement and need for shareholder approval of certain actions with compliance with government recommendations to limit the spread of the virus. (The following recommendations are based upon Arkansas law; however, most states have similar if not identical provisions. Please check with your legal counsel to determine if these options are available under your particular state statutes.)
1. Hold a Limited Attendance Meeting
The annual shareholders meeting can be held as scheduled but with attendance limited to 10 or fewer shareholders (the current limitation for gatherings recommended by the CDC). A quorum of eligible shares must be present in person or by proxy with a majority of those shares voting in favor for any action to be authorized at the meeting (while some states’ corporate statutes specifically allow “virtual” or “remote” shareholders meetings, Arkansas statutes do not.)
Each company’s shareholder situation is unique. For some companies, a quorum can be achieved with just a few shareholders, for others it might be dozens or more. For purposes of containing the spread of the virus, the fewer the better. This approach allows you to use your standard proxy statement with a cover letter explaining the limited attendance decision. Clearly, if you have a number of shareholders, this may not work.
If you do conduct an in-person shareholder meeting, please make sure you are aware of and practice the most up-to-date requirements and recommendations for social distancing. As of this writing, those recommendations limit gatherings to no more than 10 people for any indoor (or enclosed) meeting with participants maintaining at least 6 feet of distance between them. Additionally, many health experts now recommend wearing a protective mask over your nose and mouth to prevent the spreading of the coronavirus.
2. Written Consent for Action Without a Meeting
A second option is to cancel the meeting but use a written consent of the shareholders in lieu of voting at an actual meeting to authorize any needed actions. This approach is authorized by the Arkansas Business Corporation Act (Section 4-27-704) and provides that any action required to be taken at a meeting of the shareholders may be taken without a meeting if a consent in writing, setting forth the action so taken. Of course, the number of shareholders consenting to the actions should own a number of shares equal to or greater than the minimum number of votes that would be necessary to authorize the action at a meeting at which all shares entitled to vote were present and voted. A quick check of your company’s bylaws should confirm that you have similar language in the Shareholders section.
The Written Consent is a separate document that must be signed by shareholders representing the minimum number of shares needed to authorize action if all the shares were present. In most cases a simple majority is all that is needed to authorize most actions. From a practical standpoint, this approach requires the same number of shareholders as it would take to have a quorum at the shareholders meetings. And like the first option, you would use a cover letter to all shareholders explaining the cancellation and use of written consent along with a copy of the unexecuted Written Consent. You should consider identifying the specific number of shareholders’ votes needed to reach the majority in advance and arrange for them to execute and return the written consent.
3. Postpone the Annual Meeting
The final option is to postpone the annual meeting (and thereby delay shareholder action) until a later date when the major threat of COVID-19 has passed and an unlimited in-person meeting is safer. A major issue with this approach is that we simply have no idea when things may return to normal – weeks, months, or longer?
Most companies use the annual shareholders meeting to connect with their shareholders on a personal basis. One of the few actions that must be taken at that meeting is the election of the directors. If that is your case, we would recommend limiting the proxy or the written consent to that action alone. Important operational decisions/actions should be left to committee and board meetings. To overcome the lack of relational opportunity, you might consider an informal shareholder meeting to be scheduled once some form of normalcy returns.
Could we hold a virtual shareholders’ meeting by telephone or the web?
Virtual shareholders meetings are not allowed under Arkansas law. Arkansas remains one of less than a dozen states that does not allow virtual meetings.
What about our Board of Directors’ Meetings?
Unlike the limitations on shareholders’ meetings, board of directors’ meetings are allowed to be held virtually under Arkansas law. The Arkansas Business Corporation Act (Section 4-27-820) provides that, unless the articles or bylaws provide otherwise, a board may permit any or all directors to participate in a regular or special meeting by, or conduct the meeting through the use of, any means of communication by which all directors participating may simultaneously hear each other during the meeting. A director participating in a meeting by this means is deemed to be present in person at the meeting.
Double-check your articles and bylaws to confirm, but we strongly recommend that you continue to hold regular board meetings virtually to provide stable governance of your institution during these uncertain times. While most day-to-day operational activities are delegated by the board to the executive team, overall oversight through full board and committee meetings are vital to ensure the continued safety and soundness of your financial institution.
If you would like to discuss any of these options and which might be the best fit for your situation, please reach out, we’re glad to help.