As we approach our 11th month of COVID-19 restrictions, the pandemic continues to evolve with new variants, while vaccination efforts move forward at a snail’s pace because of limited supplies in many states.  Many hoped for a return to normalcy in 2021, yet the prospects for in-person meetings in the spring seem unclear, if not dim.

Companies and boards grapple with whether it is still feasible to plan for an in-person only meeting or whether they should instead plan in advance for a hybrid or virtual-only meeting.  For many, the prudent course may be to plan in the ordinary course for a hybrid or virtual stockholder meeting, rather than making a last-minute change based on outdated SEC guidance issued during the 2020 proxy season.

While the SEC has not yet provided new guidance for the 2021 proxy season, Glass Lewis on January 14, 2021, issued updated guidance for hybrid/virtual stockholder meetings.  Glass Lewis stated that it would provide reasonable deference to companies that are incorporated in jurisdictions with current restrictions on in-person gatherings and where no established legal framework exists for a virtual-only meeting at this time.  However, Glass Lewis firmly stated its belief that completely “closed-door” meetings without any form of virtual transmission or the formal ability for stockholders to ask questions and receive transparent answers before, during, and/or after the meeting should be avoided at all costs.

Expectations Regarding Meeting Format

Glass Lewis highlighted two benefits for holding hybrid/virtual meetings – namely cost savings to the company

The new year is well underway, and calendar year filers are knee deep in Form 10-K and proxy planning and drafting.  Our client alert here discusses some of the key issues and recent changes that companies should consider as they continue working on Form 10-K and proxy statement matters. They include the following:

• Changes to Form 10-K
• Amendments to Regulation S-K Items 101 (description of business), 103 (legal proceedings) and 105 (risk factors)
• COVID-19 related Form 10-K risk factor, MD&A and other disclosures
• Proxy statement disclosure of 2020 COVID-19 related perquisites
• ISS’ and Glass Lewis’ November 2020 policy updates for 2021
• Virtual Annual Shareholder Meeting Trends

As boards prepare for the post-2020 round of self-evaluations, they will need to make the usual decisions regarding timing, scope and construct (e.g., written questionnaires and/or interviews), among others. But this year, boards also should consider adding questions/discussion topics specifically addressing the board’s ability to govern effectively in the face of the COVID-19 pandemic, as well as emerging areas of investor focus, such as diversity and inclusion, disruption/innovation, crisis preparedness, geopolitics, cybersecurity and privacy, virtual board meetings and environmental, social and governance (ESG) initiatives.

A recent study by the EY Center for Board Matters found that 53% of 2020 Fortune 100 proxy filers disclosed the general topics covered in their board evaluation program, up from 49% in 2019 and 40% in 2018. The study also found that 32% of 2020 Fortune 100 filers disclosed, usually at a high level, changes that had been made in response to the results of those evaluations, which was up from 27% in 2019 and 22% in 2018.

Sample supplemental questions/discussion topics for 2020 board evaluations, as well as, where applicable, committee and individual director evaluations, may include:

• All board members have sufficient technology capabilities, IT infrastructure and cybersecurity protections to effectively access board materials, prepare for and participate in board meetings in the virtual environment.
• Board members pay sufficient attention to environmental and social consequences and potential risks resulting from the company’s activities.
• Board members are able to clearly and effectively communicate with each other and with management in the virtual environment,
  

New York recently adopted new rules to, among other things, eliminate its cumbersome and confusing Form 99 blue sky notification filing requirement for many Regulation D offerings and instead require electronic notice filings on Form D for those offerings.  New York’s Martin Act previously required companies to manually file an originally-signed Form 99 before offering or selling private placement securities to New York investors. 

Effective December 2, 2020, New York’s new Regulation D filing procedures are now generally consistent with the 1996 National Securities Market Improvement Act and with procedures in other states, which allow companies selling “covered securities” under Rule 506 of Regulation D to provide notice to the state through the North American Association of Securities Administrators (“NASAA”) Electronic Filing Depository (“EFD”).  The Form D now is required to be filed with New York on the same schedule as federal and other state filings—within 15 days of the first sale of any securities to an investor in New York.

In a press release announcing the change, New York Attorney General Letitia James stated, “By moving to standardized electronic filings and payments, our systems will be more resilient to disruption in the future and will be better equipped to protect investors from frauds, especially critical as we have seen an exponential rise in these types of scams as a result of COVID-19.”  The press release also provides that the new rules are the “latest step in Attorney General James’ ongoing efforts to streamline and enhance the oversight

Institutional Shareholder Services (“ISS”) and Glass Lewis recently released their respective policy updates for the 2021 proxy season.  Key updates are summarized below.

The SEC recently voted to approve proposed amendments to Rule 701 and Form S-8 governing the offer or sale of securities to employees through compensation programs.  The proposed amendments provide for a temporary, five-year expansion of Rule 701 and Form S-8 to permit public and private companies to issue securities as compensation to certain “platform,” or “gig” workers, subject to various conditions.

Rule 701 provides an exemption from registration under the Securities Act of 1933, as amended, for the sale of securities by privately held companies to compensate employees, consultants, advisors and certain others under written compensatory benefit plans or written agreements.  Form S-8 is used by SEC reporting companies to register the sale of public company securities to employees, consultants and advisors.  Neither Rule 701 nor Form S-8 currently covers issuances to platform workers.

The proposed amendments to Rule 701 would allow a non-reporting company to offer and sell securities to “platform workers,” who are defined in the amended rules as workers who, pursuant to a written contract or agreement, provide services to an issuer or a third party through the issuer’s “internet-based marketplace platform or through another widespread, technology-based marketplace platform or system.”  The proposed amendments to Form S-8 would permit a reporting issuer to include that same category of workers in compensatory offerings registered on Form S-8.  The proposed amendments also include conditions that are designed to limit the possibility that the amended rules could result in offers and sales of securities for capital-raising, rather than

Nasdaq yesterday announced a proposed new listing rule that would require all Nasdaq-listed companies to publicly disclose consistent, transparent board diversity statistics in a specified form of matrix.  In addition, the proposed rule would require Nasdaq-listed companies to have, or explain why they do not have, at least two diverse directors:  one woman and one person who self-identifies as either an underrepresented minority or LGBTQ.

Nasdaq believes its proposal would benefit investors and the public interest, citing in its SEC filing numerous empirical studies as support for its finding that diverse boards “are positively associated with improved corporate governance and financial performance.”  It also noted calls for diversity from institutional investors, corporate stakeholders and legislators.

If the rule is approved by the SEC, companies would be required to disclose board-level diversity statistics within one year of the SEC’s approval of the listing rule.  In addition:

• All operating companies will be expected to have one diverse director within two years of the SEC’s approval of the listing rule (non-operating companies, such as asset-backed issuers, cooperatives, limited partnerships and investment management companies, as well as certain specified issuers of non-equity securities, would be exempt from the proposed rule).
• Companies listed on the Nasdaq Global Select Market and Nasdaq Global Market will be expected to have a second diverse director within four years of the SEC’s approval.
• Companies listed on the Nasdaq Capital Market will be expected to have a second diverse director within five years of the SEC’s