As the effects of COVID-19 continue to pound the economy and create havoc in markets, companies are entering the earnings report season with more uncertainty and less visibility than ever before. A recent note from the SEC acknowledges this challenge while urging companies to provide as much information as is practicable regarding their financial and operating status and planning.
High-quality disclosure is important not only to protect investors but also to aid the public response to the pandemic by enhancing “valuable communication and coordination across our economy—including between the public and private sectors—as together we pursue the fight against COVID-19.”
The note also signaled that, given the huge uncertainties, “we would not expect good faith attempts to provide appropriately framed forward-looking information to be second-guessed by the SEC.”
Major proxy advisory services also issued amendments to their reporting guidelines, including suspension of any policies that would otherwise discourage virtual-only meetings. ISS noted the need for companies to continue to engage with their shareholders and investors through the use of webcasts and conference calls and encouraged boards “to commit to return to in-person or ‘hybrid’ meetings (or to put that matter to shareholders to decide) as soon as practicable.”
Glass Lewis sounded a similar note, saying it would review virtual-only meetings case-by-case through June 30 and not expect to recommend votes against members of the governance committee on this basis of companies who cite COVID-19 as their rationale.
Glass Lewis said it would “note whether companies state their intention to resume holding in-person or hybrid meetings under normal circumstances” and that it would apply its standard policy on virtual shareholder meetings after June 30: “we expect robust disclosure in the proxy statement concerning shareholder participation.”
Greater flexibility, but…
Other provisions of the ISS guidance include: allowing the adoption of short-term poison pill and other defensive measures against opportunistic takeovers and alternative forms of director attendance at board and shareholder meetings; providing flexibility for the board and executive team changes; encouraging contemporaneous disclosure of modifications to 2020 compensation plans and indicating that in-flight and structural changes to long-term awards will be assessed on a case-by-case basis.
But, while allowances are to be expected, Glass Lewis warns against decisions that could be perceived as taking advantage of the exceptional circumstances: “Poor behavior or treatment towards shareholders will likely only encourage more activist attention and will certainly be reflected in future shareholder votes on directors and recommendations from proxy advisors.”