Adjourning Your Annual Meeting: Not Having The Authority To Do It Can Be A Death Sentence

Another of our very favorite topics has jumped to the forefront this season: We’ve been warning year after year about the need to be sure that you have the proper authority to adjourn your annual or special meeting…if, that is, you have a legitimate need to do so: Once a quorum is present, adjourning a meeting simply because your side is losing is not a legitimate thing to do, in our opinion, absent clear-cut authority to do it. And for a Corporate Secretary or other Governance Officer – and for an Inspector of Election – it is, or should be your worst nightmare.

We’ve also been regularly warning that one can not realistically assume – as many companies seem to do – that somehow, you can act on the basis that the ‘street name votes’ automatically run to your own proxy committee: Unless you have included a box on the voting instruction form that permits an up and down vote on adjournment to be tabulated, there is simply no basis for an Inspector of Election to decide how many – if any – of the street name votes run to you on this matter. (A proxy card, btw, is a different matter altogether… since unless the voter strikes out the line appointing your proxy committee – which the Inspector CAN see, and can tabulate – the proxies DO run to you.)

This year, as noted elsewhere in this issue, there were at least four close or questionable calls about meeting adjournments this season – three where Risk Metrics changed its recommendations in eleventh hour, where “fairness” would seem to call for an adjournment to get the news out, and give people a chance to react – and the skuzzy Biogen case, where directors adjourned to desperately dial for votes from a patio adjacent to the meeting site.

At one of the companies, where two directors were failing to achieve a majority thanks to Risk Metrics’s original recommendation - and where Risk Metrics switched their recommendation just before the meeting - we were directly involved. Thank goodness, the company’s bylaws allowed the chairman to adjourn for any reason at all! At another meeting, one of our Inspectors took comfort in the fact that there was a voice-vote on an adjournment – and there were no objections – plus, there was really nothing really big to object about.

Now for the really bad news for corporate citizens…a 2008 case in Delaware which will surely become better known as “Portnoy’s Complaint” – Portnoy v. Cryo- Cell: This was an out-and-out proxy fight (much like the Biogen case, btw) where the CEO called an unexplained three hour break in the meeting while the polls were held open. The court determined that the purpose of the delay was to give two large shareholders time to switch their votes to the management slate, while management dialed around for still more votes. The court found that the defendant directors failed to prove that they had acted in good faith…and noted in particular that the CEO failed to tell stockholders the true reason for the delay.

To fix this and other breaches of fiduciary duty by defendant directors, the court ordered them to hold a special meeting for the new election of directors…and require the defendant directors to fund the new meeting – including the solicitation costs – out of their own pockets.

It’s a potential death sentence in itself to have to tell the Chairman that an important proposal is failing, and maybe you do not have the proper authority to adjourn the meeting. But just imagine their reaction if they have to foot the bill for a new meeting themselves!

So please remember our oft-repeated advice: Be sure you know for sure whatever authority you may have to adjourn a meeting – by reference to your own Charter & Bylaws. Regardless of what they might say, if there is the slightest chance that you’d have to adjourn a meeting, make it an official proposal on your proxy card and VIF.