Some state corporate laws set forth a time frame during which companies must hold an annual meeting. Failure to hold an annual meeting during the specified time frame generally gives shareholders the right to demand that a meeting be held. For example, if a Delaware company fails to hold an annual meeting within 30 days after the date designated for the company’s annual meeting or, if a date is not designated, 13 months after its previous annual meeting, a shareholder or director can bring an action to force the company to hold its annual meeting. In addition, companies listed on the NYSE and Nasdaq are generally required to hold an annual meeting during each fiscal year.

Keep in mind that a change in the annual meeting date by more than 30 days before or after the anniversary of the prior year’s annual meeting will also affect the date by which shareholder proposals or director nominations need to be received by the company pursuant to SEC regulations and the company’s advance notice provisions in its governing documents. In such case, the company is generally required to publicly disclose the annual meeting date and the date on which any shareholder proposals or director nominations are required to be received by the company.

Determining the Annual Meeting Location

As early as a year in advance, individuals with responsibility for annual meeting logistics should anticipate the number of shareholders who will attend the meeting and reserve an adequate facility. State corporate laws generally permit annual meetings to be held within or outside the state of jurisdiction (including, in the case of many jurisdictions, such as Delaware, a virtual annual meeting on the Internet), in accordance with the company’s articles or certificate of incorporation and bylaws.

Many companies hold their annual meetings at the same location each year, either in their corporate offices or in conference facilities nearby. Holding the annual meeting at a corporate office can result in great price savings, and allows the company to be on familiar ground with everything from audiovisual equipment to security. An annual meeting at the company’s offices also provides shareholders the opportunity, during or after the meeting, to see new product demonstrations or to take a facility tour. Some larger companies with an extensive shareholder base rotate their annual meeting from year to year among cities where they have facilities or high shareholder density. In addition, some state corporate laws permit companies to supplement their annual meetings with virtual components or virtual shareholder participation at in-person meetings, such as broadcasting their meetings on the Internet.

Setting the Record Date

Only shareholders of record on the record date for the annual meeting are entitled to receive notice of, and to cast votes during, the meeting. Therefore, shareholders that acquire a company’s stock after the record date have no voting or notice rights with respect to the annual meeting. State corporate laws set the maximum and minimum number of days between the record date and the annual meeting date. In Delaware, for example, the record date may not be more than 60 days nor less than 10 days before the annual meeting. A company’s Board generally sets the record date for the annual meeting; however, some companies’ bylaws set further limits on the record date.

Subject to the limitations described above, companies generally should set a record date far enough in advance to allow adequate time for the solicitation of proxies prior to the annual meeting.

Notifying Shareholders and Exchanges

State corporate law requires a company to notify its shareholders in writing of the annual meeting date, time and place. Notice periods vary from state to state. In Delaware, for example, the notice period is at least 10 days and no more than 60 days prior to the annual meeting, and unless notice is waived, a company’s failure to adhere to that state’s notice requirements voids any action taken at the annual meeting. Each company should also comply with any notice provisions in its governing documents. In addition, companies taking advantage of the “notice and access” option for distributing proxy materials are subject to additional notice requirements under the e-proxy rules, including providing the notice at least 40 calendar days prior to the annual meeting.

The exchange on which a company lists its shares may also require notice of an annual meeting. For example, companies listed on the NYSE must provide the exchange with notice at least 10 days prior to the record date established for the annual meeting, and must indicate the date of the meeting and the record date. Nasdaq does not require advance notice of the record date by its listed companies.

Reaching Past “Street Name” to Contact Beneficial Owners

Because many owners of public company stock hold their shares in street name (i.e., by having a brokerage firm, bank or other nominee hold the shares in its name for the benefit of the actual investor), a public company cannot contact its shareholders directly by simply using its transfer agent’s list of record holders. To facilitate this contact, the SEC, the exchanges and the nominees themselves have developed rules, practices and procedures to make sure the materials will eventually be delivered to the investors (beneficial owners) that have economic ownership of shares held in street name.

Per SEC rules and exchange requirements, companies must send a sufficient amount of shareholder materials to the nominees for them to distribute to beneficial owners.

Under Rule 14a-13(a)(3) of the 1934 Act, companies must contact institutional nominees (through their transfer agent or other third-party service provider) at least 20 business days before the record date to learn the number of copies of the proxy and other soliciting materials needed for distribution to beneficial owners, which essentially imposes a 20-business-day advance notice requirement for setting a record date.

Shareholders intending to solicit proxies in opposition to a proposed action at an annual meeting have the right to access information regarding beneficial ownership. Delaware courts have ruled that soliciting shareholders are entitled, in addition to a list of record holders, to other information readily obtainable by the company that identifies beneficial owners, provided they take the necessary steps in time to obtain the information.

Who Attends the Annual Meeting?

Most annual meetings have few to no outside shareholders in attendance, but some large companies draw very large crowds of shareholders.

Additionally, senior management and some or all members of the Board typically attend the annual meeting. Their attendance provides shareholders an opportunity to meet and provide feedback to the Board and management team. A company must disclose in its proxy statement any policy regarding director attendance at the annual meeting and how many directors attended the prior year’s annual meeting.

Inspector of Elections. The company should arrange for an inspector of elections to tabulate votes and certify results. Sometimes the inspector is a company employee. More often, the inspector is a representative of the company’s transfer agent, independent auditors or other third-party service provider. Ideally, the inspector is truly independent and unrelated to the company or its regular service providers. The company should be familiar with the inspector’s qualifications and be prepared to answer shareholder questions regarding the inspector. In cases of close voting, a well-prepared, well-qualified and independent inspector will provide support for a company if a shareholder later challenges the voting results.

Counsel and Auditors. Representatives from the company’s legal counsel and independent auditors usually attend the annual meeting. The independent auditors can field questions regarding the company’s financial statements. Legal counsel attend to address any voting, agenda or procedural issues that may arise.

Board Meeting or Board Consent to Address Matters Pertaining to the Annual Meeting

Three to four months prior to the annual meeting, a company’s Board should:

• Set the meeting’s time, date and place;
• Set the record date(s);
• Determine the mailing date;
• Approve the engagement of a proxy solicitation firm, if one will be used;
• Establish the purposes of the meeting (generally, to elect directors, vote on specified matters and transact other business as may properly come before the meeting);
• Select director nominees;
• Appoint the inspector of elections;
• Designate proxies; and
• Deal with other corporate governance matters such as director independence determinations, committee appointments for the Board and designation of executive officers for purposes of the 1934 Act.

At the same time, the Audit Committee should indicate what firm it has selected as the company’s auditors, if it has not done so already. The Audit Committee may also recommend that its appointment of the auditors be submitted to the shareholders for ratification. 

Script, Agenda and Rules of Conduct

Most companies prepare a script, agenda and rules of conduct for the annual meeting. A well-organized script and agenda as well as clear and understandable rules of conduct are essential elements to conducting a successful annual meeting. It is good practice to distribute the agenda and rules of conduct to attending shareholders as they arrive.

Script and Agenda. The script should cover all items on the agenda and all statements that the scheduled speakers will make during the annual meeting, as well as provide draft answers to any questions that management can anticipate. An agenda and script typically include the following:

• Chairperson’s opening remarks and call to order;
• Introduction of management, directors and advisors in attendance;
• Establishment of proper meeting notice and quorum;
• Availability of corporate records and the shareholder list;
• Introduction of items to be voted on;
• Voting instructions;
• Opening and closing of polls;
• Report of the inspector of elections and the announcement of voting results;
• Closing remarks and adjournment of formal portion of meeting;
• Management presentations regarding the company’s business, if any; and
• Question-and-answer period.

Follow the Script! Regulation FD. The script plays a critical part in complying with Regulation FD by anticipating questions that may call for answers potentially revealing material nonpublic information. The company’s investor relations officer should carefully review these areas and either:

• Propose issuing a press release, or using any other dissemination method that is compliant with Regulation FD, prior to the annual meeting to disclose material nonpublic information that can reasonably be expected to be discussed; or
• Flag the topics for the CEO and CFO, and draft a response that does not disclose material nonpublic information. 

Speakers will benefit from rehearsing the script before the annual meeting and should pay particular attention to warnings on disclosure of material nonpublic information.

Rules of Conduct. Rules of conduct typically limit shareholders’ time to ask questions and address the annual meeting, describe how the company will handle unscheduled proposals, address how to handle unruly shareholders and restrict shareholders’ ability to use video or other recording devices during the meeting.

Materials to Bring to the Annual Meeting

Most companies have an admissions desk staffed with friendly company representatives and materials for the annual meeting attendees. Each attendee will receive the annual meeting agenda and rules of conduct. The company should also have available extra copies of its proxy materials, annual report and Form 10-K for distribution at the request of any attendee. Additionally, the corporate laws of most states require that companies make available to their shareholders a list of shareholders entitled to vote at the annual meeting and that such list be available at the meeting.

Quorum

Before shareholders can conduct business at an annual meeting, a quorum must be present. Quorum requirements generally are governed by state corporate law and the company’s articles or certificate of incorporation and bylaws. Usually, a quorum consists of a majority of the shares entitled to vote at the annual meeting. Shares count for quorum purposes if present at the annual meeting either in person or by proxy.

Broker Non-Votes

When a beneficial owner fails to instruct the company or the beneficial owner’s nominee how to vote on certain matters deemed to be “routine,” the nominee may vote the shares for or against the proposal in its discretion. Matters on which a nominee may vote a beneficial owner’s shares in its discretion are known as discretionary matters.

Each nominee ultimately sends a proxy to the company containing the cumulative result of beneficial owners’ instructions and the nominee’s votes on those discretionary matters for which it did not receive instructions. Typically, the only matter that is considered to be “routine” and discretionary is the proposal to ratify the company’s independent auditors.

National stock exchanges prohibit brokers and other nominees from voting shares they do not beneficially own with respect to the election of directors, executive compensation proposals and certain other nondiscretionary matters unless they receive specific voting instructions from the beneficial owners. Instead, a beneficial owner must give specific instructions to the nominee to vote on the nondiscretionary matter, or else the shares cannot be voted and a broker non-vote occurs. Broker non-votes are votes that a broker cannot cast with respect to the particular nondiscretionary matter.

Since most matters up for vote at the annual meeting are nondiscretionary, companies should consider including at least one annual meeting agenda item that qualifies as “routine” – such as the ratification of the company’s independent auditors – to help achieve a quorum.

Abstentions

A person with voting power (whether as a beneficial owner of shares, a designated proxy holder or a broker with discretionary authority to vote shares) who is present in person or by proxy at an annual meeting has the discretion to abstain from voting.

The Effect of Abstentions and Broker Non-Votes

Each company’s proxy statement relating to an annual meeting must describe how abstentions and broker non-votes count toward the tabulation of each proposal presented at the meeting.

Quorum. Delaware and jurisdictions that follow the Model Business Corporation Act (MBCA) count both abstentions and broker non-votes as “present” for the purpose of establishing a quorum.

Voting. The effect of abstentions and broker non-votes on the outcome of a shareholder vote varies based on:

• The state’s corporate law treatment of abstentions and broker non-votes; and
• The vote required to approve the shareholder action, which may be governed by state corporate law, a company’s articles or certificate of incorporation or bylaws, or exchange rules.

Vote Required: Fixed Percentage of Shares Present and Entitled to Vote. Under Delaware corporate law, unless otherwise provided in the company’s governing documents, most routine shareholder actions, other than the election of directors, require the affirmative vote of a fixed percentage of the voting shares that are present, either in person or by proxy, and entitled to vote on the matter presented at the annual meeting. Because abstentions are present and entitled to vote on the matter presented at the annual meeting, they have the effect of counting as votes against the proposal – they add to the pool of votable shares without contributing to the affirmative votes required to approve the shareholder action. Broker non-votes, however, while present for purposes of a quorum, are not entitled to vote on the matter presented at the annual meeting. Broker non-votes, therefore, are excluded from the pool of votable shares and have no effect on the outcome of the shareholder vote.

It is important to refer to the corporate law of a company’s state of incorporation for its treatment of abstentions and broker non-votes. For example, under New York corporate law, abstentions are treated differently than under Delaware law. In New York, unless the company’s shareholders have adopted a bylaw or provided otherwise in the certificate of incorporation, abstentions have no effect on the approval of a proposal other than the election of directors.

Vote Required: Fixed Percentage of Outstanding Shares. Approval of some shareholder actions requires the affirmative vote of a fixed percentage of the company’s outstanding voting shares, whether or not such shares are present at the annual meeting. Under Delaware corporate law, mergers, sales of substantially all the company’s assets, amendments to the company’s certificate of incorporation and dissolutions all require the affirmative vote of a majority of the outstanding voting shares. For these proposals, abstentions and broker non-votes are the same as votes against the proposal because both are included in the pool of the company’s overall voting shares, although they do not count toward the affirmative vote needed to approve the shareholder action. Stock exchanges may also have requirements regarding shareholder votes on certain matters mandated to be approved by shareholders. 

Default Vote Required for Election of Directors: Plurality of Votes Cast at a Meeting. The corporate laws of Delaware and the jurisdictions that follow the MBCA require only the affirmative vote of a plurality of votes actually cast at the annual meeting to elect directors and, in jurisdictions following the MBCA, to approve most other shareholder matters, unless a company’s governing documents provide otherwise. This means that more votes must be cast in favor of the action than votes cast for any other alternative, whether or not the approving votes constitute a majority or other fixed percentage. Abstentions and broker non-votes do not affect the vote’s outcome because they are neither votes cast for nor votes cast against the action. 

Majority Voting in Election of Directors. Many larger public companies have moved away from plurality voting and adopted a form of majority voting standard for the election of directors. The majority voting standard for director elections typically requires that, to be elected, a nominee must receive more votes “for” than “against,” which may include any votes withheld, depending on the definition of majority. One approach for implementing a majority voting standard is through an amendment to a company’s bylaws. As a result, there have been changes to Delaware corporate law and the MBCA to accommodate majority voting bylaw amendments and related matters. 

For example, Delaware bylaws may even prohibit directors from unilaterally amending shareholder-approved bylaw provisions implementing majority voting. Delaware law also includes a provision that permits irrevocable director resignations that are effective upon the occurrence of a future event, which could include a director’s failure to be elected by a majority vote.