Impacts of COVID-19 on Shareholder Meeting Season and Reporting

The coronavirus (COVID-19) pandemic continues to disrupt life as we know it across the globe, and it has upended all facets of business. Securing the confidence of stakeholders – particularly during times of crisis – is paramount. Boards and those charged with responsibility for corporate governance and compliance need to be working closely with their management teams and their advisors to understand the facts, protect their workforce, evaluate risks and form meaningful responses. This includes taking advantage of new and emerging forms of regulatory relief for financial reporting, considering additional disclosures to address the current environment, and pursuing different forms of stakeholder engagement.

Takeaways from 2020 Shareholder Meeting Season

Spring 2020 will long be remembered as an unusual and unsettling time. Shareholders are closely monitoring how companies tackle major challenges and unprecedented risks in light of COVID-19 and how contingency planning is unfolding. Boards are being increasingly asked by shareholders for detailed plans to ensure the well-being of their professionals and customers, crisis management roles and responsibilities and risk assessment and response to disruptions in all phases of product procurement, development and delivery.

In fact, as outlined in its April release of The Importance of Disclosure – For Investors, Markets and Our Fight Against COVID-19, the SEC is encouraging companies to provide robust disclosures on their financial and operating status, as well as detailed plans for addressing the effects of COVID-19 to facilitate engagement and enhance transparency.

Overall, shareholder meetings this year are shifting focus toward short-term and uncertain longer-term impacts of the novel coronavirus on organizations’ health. Shareholders are taking a heightened interest in financial management, liquidity and sustainability impacts and the adequacy of financial reporting and disclosures to convey risk transparently.

Opportunities for Reporting Relief for Companies Impacted by the Coronavirus

In a time of crisis, there is additional scrutiny from stakeholders and undoubtedly greater effort required by companies to ensure business continuity planning is working successfully. To provide relief to companies, some regulatory bodies are granting assistance. Among the flurry of new and updated regulatory guidance issued in response to the pandemic, the SEC announced via an order on March 4, 2020 (updated on March 25, 2020 via a new order) that it would be providing relief to publicly traded companies with additional time to file certain disclosure reports, including Forms 10-K and 10-Q, outlining material risks to their business and operations.

The SEC’s exemptive order grants conditional relief to public companies impacted by COVID-19 that are unable to file on a timely basis. It provides companies with a 45-day extension to the filing deadline for certain SEC disclosure reports that would have been due between March 1 and July 1, 2020. The steps that must be taken to take advantage of this relief include:

• Furnishing Form 8-K, which includes a statement that the registrant is relying on the Order;
• Providing a brief description of the reasons why the registrant cannot file on a timely basis, and the date the registrant expects to file;
• A company-specific risk factor(s) explaining the impact, if material, of COVID-19 on its business; and
• If the reason the registrant is unable to file relates to a person other than the registrant, the Form 8-K must include an exhibit containing reasons why that person in unable to provide its opinion, report or certification.

The SEC’s press release announcing the original March 4, 2020 order cited important reminders for companies of their disclosure obligations under the federal securities laws.

• The first reminder stipulates that if a company has become aware of a coronavirus-related risk that would be material to its investors, it should refrain from engaging in securities transactions with the public.
• Additionally, companies should take steps to prevent directors, officers or other insiders from initiating such transactions until investors have been appropriately informed about the risk.
• Furthermore, it reminds companies to disseminate material information related to the impact of the coronavirus broadly and on a timely basis. This also implies that previous disclosures may need to be revisited or updated.

Companies providing forward-looking information or known trends and uncertainties regarding the coronavirus in an effort to keep investors informed can avail themselves of the safe harbor in Section 21E of the Exchange Act.

Transparent Disclosure Considerations in Regard to the COVID-19 Pandemic

While the reprieves were likely welcomed, they emphasize the complexity of reporting and disclosures during an unprecedented global pandemic. For reporting purposes, the effects of the novel coronavirus need to be incorporated into the preparation of financial statements. Impacts of COVID-19 will be widespread across many industries due to disruption of global supply chains, reduced investment in capital improvements and construction, disruptions to manufacturing and distribution, reduced consumer demand for goods and services due to lost income and restrictions on consumers’ ability to move freely and a decrease in market prices for commodities and financial assets.

Corporate governance professionals, risk and compliance officers and boards working together with management, public relations, human resources and legal counsel must be proactive in issuing timely, robust and transparent communications to all of their stakeholders – as well as pivoting to address evolving regulatory compliance guidelines.

Continuing to Engage Shareholders Via Virtual Meetings

With the implementation of “social distancing” guidelines, in-person meetings and conferences have ceased to be conducted, and stakeholders have transitioned to working remotely. Shareholder meetings must also adjust to this new normal. Due to safety guidelines and precautions, numerous boards have opted to hold virtual shareholder meetings. While many companies engaged in virtual or hybrid meetings even before the COVID-19 pandemic, many others are now considering virtual meetings. This decision brings with it legal, regulatory and logistical challenges that include not only how to announce and conduct these events, but also how to communicate effectively with shareholders. Companies need to be navigating changing restrictive state laws. What’s more, companies need to be assessing use of host platforms to ensure they can engage their shareholders and provide opportunities for shareholders to ask questions and get answers from the board and executive management.

To address best practices, detailed advice has been produced for corporate governance professionals. For instance, in March, the SEC offered guidance to promote continued shareholder engagement at virtual annual meetings for organizations impacted by COVID-19, advising how to communicate shareholder meeting plans and conduct these meetings. Further representing shareholder interests, COVID-19 proxy advisory guidance has been issued by both Glass Lewis and Institutional Shareholder Services (ISS). Previously, ISS did not have a formal virtual meeting policy and Glass Lewis has seemingly relaxed its existing policy to consider the extenuating circumstances of COVID-19. Whichever engagement option is pursued this year, companies should consider the expectations of stakeholders as to whether virtual meetings are a one-time concession or if they may be the way of the future and provide robust disclosures about this year’s meeting expectations.