As concerns increase over COVID-19 and measures have been established by governmental authorities to limit public gatherings and restrict travel, corporations are considering alternatives to in-person annual shareholders’ meetings. Holding your corporation’s shareholders’ meeting virtually, whether wholly or in part, either by audio or video, if authorized under your corporation’s laws of incorporation and general by-laws, is an effective way of ensuring shareholder participation while protecting public health. Since the first virtual shareholders’ meeting held in the United States in 2001, this type of meeting has grown in popularity in North America, although at a slower pace in Canada.
Given the context surrounding the ongoing proxy season, virtual meetings will likely become common practice among both Canadian and American issuers. Indeed, Starbucks Corporation, Amazon.com, Inc., Enbridge Inc. and Telus Corporation have recently announced that their next shareholders’ meetings will be entirely virtual for these reasons.
What are your options?
There are three main options to take your shareholders’ meeting online:
- In-person meeting with webcasting. Webcasting (audio or video) is a practice which has been trending in recent years to allow shareholders who are not able to physically attend the meeting to watch or listen to the meeting. However, unless a valid proxy has been given prior to the meeting, this route does not satisfy legal requirements for attendance for quorum purposes nor does it provide a mechanism for remote voting. Since most shareholders exercise their right to vote at a meeting in advance via proxy, the practical impact of the absence of a remote voting tool is somewhat mitigated.
- Virtual meeting. Virtual meetings held entirely by electronic means constitute an interesting option for senior issuers. Integration of electronic voting systems results in reduced margins of error for voting results, potential cost efficiencies (compared to the hybrid meeting described below by eliminating the need to pay for a venue and transportation fees) and potential for increased shareholder participation, particularly by millennials. However, these meetings require a costly specialized technology that allows active participation and remote voting, as well as extensive upstream preparation, and are a more radical technological change for shareholders. Note that if topics to be discussed at the meeting are contentious, controversial or subject to a proxy contest, an exclusively virtual meeting may not be well suited to allow shareholders to communicate effectively at the meeting while maintaining order. Indeed, certain shareholders are worried that virtual meetings will limit the ability of shareholders to effectively influence a corporation’s behavior.
- Hybrid meeting. While webcasting offers limited participation and transitioning to an entirely virtual meeting may alienate part of your shareholder base and add complexity, a solution has emerged as an interesting and efficient compromise, namely a hybrid meeting. On the one hand, the meeting remains physically accessible, allowing those who wish to attend in person to do so without change (as long as they do not have symptoms of COVID-19 and comply with prescribed health and safety measures). On the other hand, shareholders who prefer avoiding an in-person meeting can participate as if they were present in person, with the assistance of live webcasting and the same specialized platform for voting and messaging used in virtual meetings.
How are meetings conducted in practice?
|In-person Meeting with Webcasting||Virtual Meeting||Hybrid Meeting|
|For Shareholders||Shareholders may not vote or participate virtually. Votes are cast in advance by proxy or in person at the meeting.||
Shareholders who participate virtually have access to the voting platform via their smartphone, tablet or computer by entering their own unique identifier and password. The platform allows viewing of the meeting, real time voting and active participation through direct messaging with management and other shareholders.
In the case of a hybrid meeting, shareholders who are physically present are encouraged to vote via voting interfaces provided at the meeting or with their smartphones to allow instant voting results.
|For observers/third parties||The webcast is generally available to the public and broadcast on the corporation’s website.||The corporation may determine beforehand whether the meeting will be open to non-shareholder observers. If such access is authorized, the observers’ identifiers will allow only viewing of the meeting, without allowing access to voting. The messaging function may also be granted to allow interaction, at the discretion of the corporation. Access may also be limited to shareholders only, although this adds an extra layer of complexity for both the shareholders (particularly those who are less familiar with technological devices) and the corporation.|
|For the corporation||The process is identical to in-person meetings, except for setting up the webcast.||
The service provider will help the corporation broadcast the meeting, whether management is gathered at the in-person meeting in the case of a hybrid meeting or in a conference room at its offices or elsewhere in the case of a virtual meeting.
Via electronic voting, the corporation has access to voting results in real time.
The messaging function is entirely controlled by management and may be open for a limited time or for the entire meeting. Given that electronic messaging may be conducive to greater abuses, this function also allows management to determine which messages will be made available to all shareholders and which will be kept private and answered subsequently. However, as this filtering function may be contested, best practice is to appoint a moderator to review messages and remove inappropriate comments after they have been posted (just as for in-person meetings where shareholders may be asked to leave a meeting in similar circumstances). This is especially relevant under Québec corporate law where participants must be able to communicate “directly” with each other during the meeting.
Formal rules of conduct should be adopted beforehand concerning messaging and communication with shareholders.
Who should you call to ensure a successful hybrid or virtual meeting?
- Legal counsel. Under the Canada Business Corporations Act and most provincial corporate laws, meetings may generally be held by any means that comply with the general by-laws of the corporation and that allow participants to communicate adequately with each other. Fasken professionals can guide you through these legal requirements.
- Transfer agent. As with an in-person meeting, the transfer agent will coordinate the process, namely by sending required documentation to shareholders, compiling voting instructions and proxies from shareholders wishing to vote in advance by proxy, and acting as scrutineer at the meeting.
- Service provider. Specialized service providers will provide you with the necessary technological tools to organize a hybrid or virtual meeting and will facilitate the proper conduct of the meeting. These firms work in collaboration with management, legal counsel and transfer agents to ensure the security of the voting process, namely with regards to confirming shareholders’ and proxyholders’ identities and protecting personal data used and stored during the meeting. As these service providers are physically present to support management during the meeting and offer technical support lines to shareholders, potential IT issues are significantly reduced.
How do you inform your shareholders of a hybrid or virtual meeting?
If you are considering a shift to a virtual meeting, it is best practice to issue a press release informing shareholders that the upcoming meeting will be held virtually, once the decision is made. You will then inform your shareholder base by explaining the procedure in detail in your management information circular. The circular will explain how to register as a virtual participant (usually by providing the issuer with an email address). Shareholders will then receive an information package from the service provider with a link and personalized access code to attend the meeting virtually.
If, however, your circular has already been mailed, a review of the corporation’s laws of incorporation and general by-laws will be required to determine the formalities required to take your shareholders’ meeting online. In such a case, switching to a fully virtual meeting, although advisable, will likely lead to a more cumbersome process (which may include the need to mail an amended notice of meeting) and therefore opting for webcasting or a hybrid meeting could be a more interesting option. In light of the multiple considerations involved, Fasken professionals can assist to ensure a smooth transition in compliance with applicable legal requirements.
No matter the means of communication ultimately used, it is important to provide full disclosure as to how shareholders can attend, vote and participate in the virtual meeting in order to ensure an orderly meeting. We note that Glass Lewis has indicated in its 2020 proxy guidelines that it will recommend voting against members of the governance committee if disclosure regarding how the issuer will safeguard shareholder participation rights is not adequate.
Whether you are a private corporation with a few shareholders or a public issuer with a broad shareholder base, hybrid and virtual meetings may constitute interesting alternatives to in-person meetings while ensuring (and potentially increasing) shareholder participation and, in the present context, helping to stop the spread of COVID-19.
For a more comprehensive legal analysis of the topic, we invite you to consult the following articles prepared by our colleagues Neil Wiener and Matthew Quadrini and posted on Timely Disclosure:
The authors wish to thank Neil Wiener, Jean Michel Lapierre and Tristan Lalumière-Roberge for their contributions.