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TMX POV - Could Social Distancing Change Shareholder Meetings Forever?

April 9, 2020

During this unprecedented time while the world deals with the COVID-19 pandemic, people are looking at all options available to avoid unnecessary contact with each other to help stem the spread of the virus. A crisis like this can often result in the development or acceptance of innovations and technology. One study indicates that "rather than being the result of continuous efforts, most innovations were developed as a response to discrete events, history-specific problems and new technological opportunities."

We are seeing this take place for the 2020 annual meeting season, as more and more issuers explore the option of using technology in the form of a virtual shareholder meeting. A virtual meeting allows an issuer to meet its regulatory requirement to hold an annual meeting to elect directors, appoint an auditor and transact any other required business, while ensuring that it is acting in a socially responsible manner by keeping their board, staff, agents and shareholders from gathering in a large group and being in close contact with each other.

Virtual shareholder meetings have been in existence for a number of years in the United States, with the first one occurring in 2001. In Canada, the first virtual meeting was held in 2017 and was managed by TSX Trust. Canadian issuers have been much slower to adopt the available technology, due to uncertainties around corporate law requirements and constating documents, guidelines from the proxy advisors that express concerns about how shareholders may be disenfranchised, and incomplete knowledge of the capabilities of the technology.

What do Proxy Advisors say?

Although ISS has not put out any recommendations or guidelines, Glass Lewis has released a set of guidelines for issuers who choose to hold a virtual or hybrid shareholder meeting. Glass Lewis believes virtual meetings may compromise the communication between shareholders and a company's management team, and could potentially reduce the board's accountability to shareholders. If an issuer does hold a virtual meeting, they recommend "robust" disclosure in the proxy statement. Their main concern is ensuring that shareholders attending virtually have the same rights and opportunities to participate as they would at an in-person meeting. Without appropriate disclosure, they will recommend an "against" vote for the members of the governance committee. Glass Lewis has published special guidance for the 2020 proxy season advising that they will not make this recommendation for virtual meetings held between March 1 and June 30, 2020 provided the company discloses why they made the decision, including reference to COVID-19.

Virtual Meetings can work for everyone

One of the arguments against a virtual meeting is that management could use it to avoid interaction with shareholders who may have tough questions. Issuers looking at using a virtual meeting should ensure that they are developing and following best practices that counteract these concerns. Transparency is key in this situation. Some recommendations include:

  • Disclose in your meeting material why the meeting is virtual.
  • Develop protocols for the meeting and communicate them in advance.
  • Provide instructions to shareholders about how they can ask questions, and how the questions are going to be managed. If there are concerns about some questions being removed or hidden in the queue, use an independent moderator to manage the process, and disclose this detail.
  • Post all questions and appropriate responses after the meeting, including those that weren't responded to at the meeting due to a lack of time. Some questions may not be answered because they aren't relevant to the company, or require disclosure of confidential information. If this is the case, provide that information.
  • Provide a recording of the meeting online after it has concluded.

Consider Other Benefits of a Virtual Meeting

There is also the opportunity to look at ways that a virtual meeting can be a good governance tool for an issuer, and beneficial to shareholders. Share your thoughts about this with your shareholders.

  • By offering a virtual meeting, shareholders who cannot travel to attend a meeting can now attend, vote in person, and engage with management and the board. This is especially important given the current situation with COVID-19, but is also relevant during a typical meeting season, as most meetings are held in a major city such as Vancouver, Calgary, Toronto or Montreal, and shareholders are resident throughout and outside the country.
  • Given the number of issuers who have December 31 year ends, many shareholder meetings are held within the months of April to June, and can overlap. The use of a virtual meeting can allow shareholders with multiple holdings to attend multiple meetings in a single day.
  • With the use of virtual voting, there is no ability for a motion to be passed by a "show of hands" motion for shareholders voting in person. All motions are therefore voted on by individual shareholders attending in person, who are representing their actual record date holdings. This allows the scrutineer to provide full and complete voting reports for each motion, representing both shares voted in person, and by proxy. A non-venture issuer's continuous disclosure reporting required under section 11.3 of National Instrument 51-102 can therefore be more complete.
  • Reduced environmental impact - Without the need to travel, management and the board are reducing their carbon footprint. If Notice and Access is also used, the reduction in printing requirements adds to this impact.

Although the reasons for using virtual meetings this year is not a situation that we would ever have asked for, we believe it can be used as an opportunity to move forward with innovation and technology. This could be a turning point for acceptance of virtual meetings in Canada, if they are used in a way that is transparent, and shareholder rights are front of mind and taken into account.


Photo of Lara Donaldson

Lara Donaldson

Chief Operations Officer, TSX Trust
lara.donaldson@tmx.com

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This article is provided for information purposes only and is not intended to provide any type of advice. This article is not an endorsement or recommendation of any specific securities in any industry nor is it an invitation to purchase securities listed on TSX Venture Exchange or Toronto Stock Exchange. Listing on TSX Venture Exchange or on Toronto Stock Exchange does not guarantee the future performance of a security or an issuer.