Written by Will Osler, John Piasta, Nicholas Fader, Kristopher Hanc, Steven Bodi and Emerson Frostad
As discussed in our earlier update, COVID-19 and Annual Shareholder Meetings, many issuers are reconsidering certain elements of their upcoming annual shareholders meeting (AGM). The regulatory reaction to this trend has become clearer in the past few days. The Canadian Securities Administrators (CSA) have confirmed an accommodative approach vis-à-vis issuers who choose to hold a virtual or hybrid AGM to comply with social distancing measures recommended or imposed by governments or public health authorities. This blog summarizes recent CSA guidance and draws attention to additional considerations for issuers as they work to ensure compliance with applicable corporate and securities laws.
On March 20, the CSA issued a news release to provide guidance for the calling and conduct of AGMs during the COVID-19 outbreak. The CSA release reflects a recognition that widespread changes in the timing of 2020 AGMs is to be expected and virtual or hybrid shareholder meetings represent a reasonable response to the ongoing public health challenge. The guidance addresses the steps that should be taken by issuers that determine to change the nature, date, time or location of an AGM that has already been called.
If an issuer has already sent and filed proxy materials, it may change the nature, date, time or location of its in-person AGM to address COVID-19 concerns (including changing from an in-person meeting to a virtual or hybrid meeting) without sending revised or supplemental proxy materials. The CSA release states that the issuer must:
- disseminate a news release announcing the change;
- file the news release on SEDAR; and
- take all reasonable steps necessary to inform the parties involved in the proxy voting infrastructure (such as intermediaries, transfer agents and proxy service providers) of the change.
The CSA expect that an issuer will take these actions promptly after it decides to implement such a change. Although not addressed in the CSA release, we anticipate that issuers will also post the most up-to-date meeting information on their websites. All registered and beneficial shareholders should be notified in the same manner of an adjournment or other change affecting an AGM.
Issuers that have not yet sent and filed proxy materials for their 2020 AGM should consider including disclosure in those materials that highlights the possibility of changes to meeting logistics due to COVID-19. The CSA expect that proxy materials will include clear directions on logistical details and instructions for any virtual or hybrid AGM (for example, how security holders can remotely access, participate in, and vote at the AGM).
Corporate Law Considerations
The CSA release cautions issuers to be sensitive to the requirements of applicable corporate law, which (for the most part) does not fall under the jurisdiction of securities regulatory authorities. Under business corporations legislation in Canada, corporations are generally required to hold an AGM within 15 months of the date of the previous AGM. Certain statutes impose additional restrictions, such as holding a meeting at least once each calendar year or within six months of the most recently completed financial year. Depending on the timing of the most recent AGM, corporations may have flexibility to delay calling or to postpone their 2020 AGM to address COVID-19 concerns.
Issuers must also consider requirements under corporate law with respect to the tabling of financial statements at their AGMs. Delaying an AGM beyond six months after the most recent year-end could affect the financial statements that an issuer is required to place before its shareholders at its 2020 AGM. If an issuer intends to delay a meeting beyond the six-month window, a discretionary court order may be required in relation to the financial statement requirements. Court sanction will also likely be required if the issuer decides to change the time and location of its AGM within 21 days before the meeting date. Orders granted to date suggest that Canadian courts are prepared to provide reasonable discretionary relief to accommodate actions taken by issuers in response to COVID-19 safety concerns and other barriers to the conduct of meetings in the ordinary course, such as travel restrictions.
Proxy Advisor Reaction
We note that Glass Lewis & Co. has historically discouraged virtual-only meetings because of concerns that such meetings do not approximate an in-person experience and could potentially curb the ability of a company's shareholders to meaningfully communicate with members of management. Glass Lewis's Canadian and U.S. proxy voting guidelines have been updated to explain how Glass Lewis will approach virtual meetings during the COVID-19 outbreak.
The guidelines include suggested disclosure in proxy circulars and recommendations for the design of meeting processes to ensure shareholders have the same opportunity to participate as they would at an in-person meeting. Examples of suggested disclosure include:
- addressing how security holders may participate and ask questions during the meeting;
- details of time guidelines for shareholder questions and rules around what types of questions will be allowed;
- rules for how questions and comments will be recognized and disclosed to meeting participants;
- procedures, if any, for posting appropriate questions asked and answered during the meeting to the investor-relations section of the issuer's webpage after the meeting; and
- the availability of technical assistance in the event a security holder encounters difficulties accessing the virtual meeting.
Glass Lewis generally recommends voting against the members of the governance committee where the board has called a virtual-only shareholder meeting and the issuer has not provided disclosure of the nature set out above; however it has relaxed this policy until June 30, 2020, in light of the COVID-19 outbreak. During this period, Glass Lewis will generally refrain from making adverse voting recommendations provided the issuer discloses, at a minimum, its rationale for hosting a virtual-only meeting. The standard policy will apply to meetings held after June 30, 2020, subject to any further updates disseminated by Glass Lewis. Glass Lewis will also note whether companies state their intention to resume holding in-person or hybrid meetings under normal circumstances.
Since March 13, 2020, nearly 20 TSX and TSXV issuers have announced their intention to switch from a physical to a virtual or hybrid meeting. Examples include CP Rail, Enbridge, Rogers Communications and TransAlta, all of which have distributed proxy materials for their respective AGMs that contemplate a virtual-only meeting, via a live online webcast. Several financial institutions, including Canada's largest banks and life insurance companies, recently announced that they had jointly obtained a court order allowing each of them to hold their respective AGM, in whole or in part, using electronic means. We anticipate that other issuers will follow these examples.
Other issuers have altered their traditional approach to shareholder meetings, by:
- restricting in-person attendance to registered shareholders only, or registered holders and duly-appointed proxyholders (i.e., no guests permitted);
- filing a circular to hold an in-person meeting in the ordinary course, but disclosing that the issuer may take additional precautionary measures deemed appropriate in the circumstances, such as providing a webcast;
- encouraging shareholders to vote in advance by proxy and not attend the meeting in person;
- filing a circular to hold an in-person meeting in the ordinary course, and disclosing by news release a change to a hybrid or virtual-only meeting, as contemplated by the CSA release; or
- holding a restricted in-person meeting and permitting shareholders to submit questions to management through a webcast at the conclusion of the meeting.
The guidance set out in the CSA release applies to AGMs of Canadian reporting issuers. Reporting issuers involved in proxy contests or that plan to hold a special meeting for an M&A transaction or other transaction that engages Multilateral Instrument 61-101 – Protection of Minority Security Holders In Special Transactions have been advised to contact their principal regulators to discuss appropriate steps in the circumstances.
Listed issuers must also consider exchange listing requirements. For example, each TSX issuer must hold a meeting within six months of its fiscal year-end. TSX rules contain a mechanism to apply for relief from this requirement. Although the TSX has not, to date, released a formal statement akin to the CSA release, we anticipate that the TSX will adopt an accommodative approach.
The United States Securities and Exchange Commission (SEC) has announced similar guidance in relation to various measures discussed above. Reporting issuers with a class of securities listed on a U.S. exchange will also need to consider applicable U.S. securities laws and exchange requirements.
The CSA has indicated it will continue to monitor the COVID-19 situation as it evolves, along with associated impacts on Canadian capital markets. Further, the CSA has stated it will issue further guidance and updates as required. We will continue to provide commentary to assist market participants with their planning through the 2020 annual meeting season.