In recent years, an increasing number of companies have opted to hold annual shareholder meetings exclusively online. These annual meetings are commonly referred to as “virtual-only annual meetings”. In a decision critical for companies that currently hold or are contemplating switching to virtual-only annual meetings, the staff of the Securities and Exchange Commission (the “SEC Staff”) recently issued a no-action letter permitting a company to exclude a shareholder proposal that objected to virtual-only annual meetings. Specifically, the shareholder proposal requested that the company’s board adopt a policy to initiate or restore in-person annual meetings. The SEC Staff concurred that the proposal could be excluded under Rule 14a-8(i)(7) on the grounds that the decision whether to hold in-person annual meetings is related to the company’s ordinary business operations because the proposal “relates to the determination of whether to hold annual meetings in person.” The SEC Staff’s decision is not yet available on the SEC’s website.
The proposal in question was submitted to HP Inc. (“HP”) by John Chevedden and Bart Naylor. HP has been holding its annual meetings solely online since 2015. Previously, in a no-action letter dated December 9, 2016, the SEC Staff permitted Hewlett Packard Enterprise (which also adopted a virtual-only annual meeting format when it became a stand-alone publicly traded company) to exclude the same proposal based on procedural grounds without addressing the Rule 14a-8(i)(7) arguments (which Hewlett Packard Enterprise also included in its no-action request). By concurring with arguments made by Gibson Dunn on HP’s behalf, the SEC Staff confirmed that this proposal is also excludable under Rule 14a-8(i)(7).
In permitting HP to exclude the proposal, the SEC Staff reaffirmed its position on this subject from more than 14 years ago. Specifically, in EMC Corp. (avail. Mar. 7, 2002), the Staff concurred in the exclusion under Rule 14a-8(i)(7) of a proposal “request[ing] that EMC Corporation adopt a corporate governance policy affirming the continuation of in-person annual meetings, adjust its corporate practices policies [sic] accordingly, and make this policy available publicly to investors” on the basis that the proposal “relat[ed] to EMC’s ordinary business operations (i.e., the determination whether to continue to hold annual meetings in-person).”
Companies that currently hold and are considering holding virtual-only annual meetings should take comfort in this decision from the SEC Staff – whether to go virtual properly remains within the purview of the company’s board of directors. Given the potential cost savings and flexibility that can be achieved from holding virtual-only annual meetings, we expect that more companies will choose to hold virtual-only annual meetings in the near future. Importantly, as discussed in detail in our client memo, “Planning for your Annual Shareholder Meeting: Selected Considerations for a Virtual-Only Meeting”, before deciding to change to a virtual-only annual meeting format, companies should consult their governing documents and the laws of their state of incorporation. In addition, in spite of HP’s successful no-action request, companies may also wish to proactively discuss the proposed change with key shareholders and explain the rationale behind holding shareholder meetings exclusively online.