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Shareholder Distancing: Virtual Shareholder Meetings – Coronavirus (COVID-19) | #riskmanagement | #security | #ceo | #businesssecurity | #

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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.

OBCA Corporations

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.

BCBCA Corporations

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.

Court Orders

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.

Summary

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.

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.
  • 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.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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