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Practicing Good Corporate Hygiene In The Time of Coronavirus (COVID-19)

Corporate and Securities Alert | March 18, 2020
By: Ryan J. Udell and Marc Casarino

Travel restrictions, quarantines, office closures and social distancing associated with the novel coronavirus (COVID-19) are rapidly disrupting normal business operations throughout the United States, and these disruptions may continue for the foreseeable future. Corporate boards, like the operations they manage, must also adapt to these extraordinary circumstances, while still adhering to sound governance and providing appropriate risk oversight. To adjust to governance in the face of the COVID-19 pandemic, boards should adhere to these best practices:

  • Board and Shareholder Meeting Logistics. Boards must consult their governing documents and applicable laws to assess available alternatives to in-person meetings; Boards should act immediately to amend corporate governance documents, if necessary, to accommodate alternative meeting options; Boards should hold telephonic meetings, or act by written consent, where permitted. For example, Delaware permits telephonic board meetings if all participants can speak and be heard, and the meeting need not take place within Delaware; Delaware also permits a board to act by written consent so long as the vote is unanimous.
  • Reschedule Shareholder Meetings Where Practical To Do So. Consider remote participation if the shareholder meeting must proceed. For example, Delaware permits remote participation in shareholder meetings if reasonable measures are taken to verify participant status and everyone is provided a reasonable opportunity to speak, be heard and vote. Public companies should also consult the March 13, 2020 guidance issued by the SEC regarding these matters.
  • Risk Management. Boards must remain actively informed of management’s handling of the company’s risk exposure as a result of the virus for important and existing matters including health and safety, supply chain, employee matters, financial liquidity, cybersecurity and beyond. Appropriate board action should include:
    • Assuring that company management has identified the risk exposure and is monitoring for changes in the risk exposure and developing and implementing plans to address such exposure and changes. This also requires both creation and following of sound crisis management procedures. These procedures should incorporate succession planning, should a director or other key person be incapacitated, and contingency planning for things such as a positive test for COVID-19 in your company or additional governmental action taken to slow the transmission of the virus.

    • Addressing potential cybersecurity concerns arising from the crisis. The expansion of remote working may require updates to the company’s technology access protocols and equipment. If locations are going to be closed for extended periods, physical security of equipment and access controls must be strengthened.

  • Disclosures and public statements. The financial impact on stock prices from coronavirus is likely to trigger event-driven securities litigation. Boards should best position themselves to defeat such claims by carefully framing public statements. Update public statements to address changing risk factors, and specifically disavow any prior guidance that is no longer accurate. Use of cautionary language, clearly identifying opinions and appropriate forward-looking statements are best practices for maximizing the protections of the securities laws’ safe harbor provisions.

If you have any questions or need board guidance, please contact Ryan Udell (udellr@whiteandwilliams.com; 215-864-7152), Marc Casarino (casarinom@whiteandwilliams.com; 302-467-4520) or another member of the Corporate and Securities Group.

This correspondence should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult a lawyer concerning your own situation and legal questions.
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