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Meeting of the SEC Investor Advisory Committee, May 4, 2020

A discussion of public company disclosures and the use of virtual shareholder meetings in the COVID-19 Pandemic Context.

On May 4, 2020, The SEC’s Investment Advisory Committee (IAC) held a special meeting to discuss public company disclosures and the use of virtual shareholder meetings (“VSMs”) in the COVID-19 Pandemic Context.

Public Company Disclosure Considerations

The SEC’s IAC discussed disclosures that issuers should consider making in their financial reporting to reflect risks and business impact associated with the coronavirus pandemic. SEC Chairman Jay Clayton began the meeting by referencing SEC staff discussions with retail and institutional investors, investor advocates, auditors, public company executives and board members. “Ordinarily companies would be comparing their first quarter results to their prior year’s first or fourth quarter results,” he said “This year, those comparisons may be less relevant to managers and investors. Instead, many are analyzing the current status of the company from a liquidity and operational perspective.”

Chairman Clayton outlined specific areas of inquiry to consider, including: 

  1. How long can the business sustain its current operating posture in the absence of additional funding?
  2. Have supply and distribution chains been temporarily or permanently disrupted?
  3. How do you plan to manage the health and safety of your employees and customers as you and other market participants seek to increase activity?

He added, “Public disclosures should be broadly disseminated, and the information provided should be consistent with related discussions involving senior management, board members, lenders, vendors, customers and government regulators.” But that “…matters are evolving and subject to change.” Commissioners Peirce, Roisman, and Lee also made brief remarks.

During the meeting, IAC members stressed the need for public companies to make COVID-19 related ESG disclosures involving: 

  • Workforce stability and turnover
  • Remuneration across the workforce
  • Employee engagement and sick leave benefits
  • Training, especially on health and safety preparedness

Chairman Clayton concluded the discussion by reiterating that companies should disclose their capability for working remotely. He also noted that there is an “asymmetry of information” as to whether investors are aware if companies have the capacity to test their employees and how many of their employees are in the at-risk category. Clayton said companies need to be consistent with their communications, adding that if they are asking for governmental assistance, they need to disclose that information.  

Public Companies Use of Virtual Shareholder Meetings:

On the subject of VSMs, Chair Clayton noted that, “health and safety considerations have also led to many companies holding their annual shareholder meetings in virtual formats.” He referred to the SEC’s recent “guidance in March designed to promote continued shareholder engagement in these settings,” and asked to hear from IAC members about company practices that “ensure that shareholder engagement is appropriate in these settings.” 

IAC members voiced support of public companies’ use of virtual shareholder meetings and remarked on the potential for increased shareholder engagement.

One IAC member commented that “one objective should be to replicate as close as possible the meeting processes, and the second objective should be to not deny current shareholder rights that they have at their in-person meetings.” The IAC member said, “We should be using technology as much as possible to continue the current shareholder meeting processes.” Another IAC member added that “the virtual shareholder meeting space…arguably has the potential going forward to allow for a degree of average investors in this process to participate that we haven’t previously seen….there is the potential once we get through the crisis to look back on what happened…to see what worked and didn’t work and what the potential is going forward to make it a more meaningful way for average investors to participate in a process they are typically not active in.” Another IAC member commented that “the virtual meeting is a great opportunity to expand inclusiveness for shareholders of public companies.”

Members also raised concerns that companies may not be providing investors with the opportunity to speak at shareholder meetings. The Council of Institutional Investors submitted a letter to the IAC before the meeting that provided a list of reported glitches that occurred this season that should be addressed going forward.

Broadridge’s VSM Service

In calendar year 2019, a total of 326 companies used Broadridge’s VSM service for their shareholder meetings, an increase of 15% over the previous year as acceptance has grown among companies, institutional investors, and shareholder proponents. However, this year the number of VSMs is increasing significantly (over 1,600 meetings have been completed or are scheduled) due to several factors related to the pandemic, including social distancing guidelines; travel restrictions enacted by many companies; and temporary permission by several States who otherwise had restrictions on holding shareholder meetings online.

The ways in which issuers and their shareholders decide to conduct VSMs has been guided, in part, by guidelines published in 2018 by The Best Practices Committee for Shareowner Participation in Virtual Annual Meetings. Broadridge’s VSM service provides options that support these best practices:

  • Allows participants to submit questions ‘live’ during the meeting through a text box or verbally via a phone line.  In some cases, questions are submitted before a meeting
  • Allows proponent’s proposal to be presented
  • Over 100 highly trained Broadridge associates are involved in scheduling VSMs, walking through the options, creating or customizing each issuer’s VSM site, ensuring that slide presentations and links to proxy materials and voting are posted and in working order
  • Operators are available during meetings to monitor activity and address issues
  • Participation by over 10,000 simultaneous users

Accommodates meetings held solely on Broadridge’s technology, or a combination of Broadridge and transfer agents’ platforms.

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