By Joseph Kaufman, Brad Goldberg and Christian Riess

Law360 (April 27, 2020, 5:16 PM EDT )

Joseph Kaufman

Brad Goldberg

Christian Riess

With the COVID-19 pandemic and the recent widespread transition to remote work arrangements, many public companies are facing novel questions on how to properly conduct common corporate activities remotely, including board actions, U.S. Securities and Exchange Commission filings and contracts.

This article outlines some key considerations as to how companies may be able to continue to function when in-person interaction is not possible.

Board Actions

In the COVID-19 era, one of the basic difficulties that public companies face is the prospect of conducting corporate governance remotely.

Section 141 of the Delaware General Corporation Law specifically contemplates this scenario, providing that unless otherwise restricted by its certificate of incorporation or bylaws, a company's board of directors may hold meetings via conference call or other communications equipment (such as Zoom or similar video applications), and such participation will be considered in-person presence at a meeting, so long as all participants can hear each other.

As with any in-person meeting, for any action taken at a remote meeting to be valid, the meeting must satisfy all applicable notice and quorum requirements set forth in the company's bylaws and the action must receive the requisite number of director votes in favor.

Similarly, unless restricted by the company's charter or bylaws, boards can take action via unanimous written consent without a meeting, so long as all members of the board consent either in writing or by electronic transmission. For this purpose, the term "electronic transmission" is defined under Section 232 of the DGCL to include electronic networks or databases that create a record that may be retained, retrieved and reviewed by the recipient and that may be directly reproduced in paper form via an automated process.

This means a director's consent can be provided through a number of ways, including a scanned PDF of a manual signature, a picture of a manual signature taken from a mobile phone, an email indicating approval or use of an e-signature application such as DocuSign.

Therefore, assuming that a company's certificate of incorporation and bylaws do not contain restrictions in this regard, there should be several methods for a board of directors to continue to be able to take corporate action while working remotely, even if a printer or scanner is not immediately available.

In addition, companies may wish to consider whether to adopt emergency bylaws to the extent they are concerned that director unavailability may impede their ability to obtain a quorum for board and committee meetings.

Under Section 110 of the DGCL, the board of directors of a Delaware corporation may adopt emergency bylaws, subject to repeal or change by action of the stockholders, that become operative during certain specified emergencies, as a result of which a quorum of the board of directors or a standing committee thereof cannot readily be convened for action. The emergency bylaws are permitted to include any provision that may be practical and necessary for the circumstances of the emergency, including provisions that:

• A meeting of the board of directors or a committee thereof may be called by any officer or director in such manner and under such conditions as shall be prescribed in the emergency bylaws;

• The director or directors in attendance at the meeting, or any greater number fixed by the emergency bylaws, shall constitute a quorum; and

• The officers or other persons designated on a list approved by the board of directors before the emergency will, to the extent required to provide a quorum at any meeting of the board of directors, be deemed directors for such meeting.

SEC Filings

Another challenge the public companies face in the present environment is satisfying the "wet ink" requirement for signatures for SEC filings.

Currently, virtually all SEC filings are made electronically and use typed, conformed signatures rather than actual manual signatures. However, pursuant to Rule 302(b) of Regulation S-T, there is a parallel requirement that the filer obtain a manual signature from the person indicated electronically as having filed the document and, moreover, the manual signature must be retained by the filer for five years. Such signature may be on the actual signature page, or another document "authenticating, acknowledging or otherwise adopting" the typed signature in the electronic filing.

On March 24, the SEC staff released a statement acknowledging that some persons and entities may be experiencing difficulties satisfying the manual signature requirements of Rule 302(b) due to circumstances arising from COVID-19. As a result, the SEC staff has stated it will not recommend SEC enforcement action with respect to the requirements of Rule 302(b) if:

• a signatory retains a manually signed signature page or other document authenticating, acknowledging or otherwise adopting his or her signature that appears in typed form within the electronic filing and provides such document, as promptly as reasonably practicable, to the filer for retention in the ordinary course pursuant to Rule 302(b);

• such document indicates the date and time when the signature was executed; and

• the filer establishes and maintains policies and procedures governing this process.

The SEC confirmed that a signatory may also provide to the filer an electronic record (such as a photograph or PDF) of such document when it is signed. Accordingly, we believe that taking a photo from a mobile phone of the authorizing document and emailing back to the filer may be the simplest approach if more traditional methods are not available.

A related difficulty involves the requirements of Form ID — the application that all new filers must complete to gain access to EDGAR and that is currently required to be manually signed and notarized.

The SEC recently adopted a temporary rule permitting new filers to apply for and receive Edgar filing codes without the required notarization as long as (1) the applicant states that it could not obtain the required notarization due to circumstances relating to COVID-19 and (2) the notarized manually signed document is provided to the SEC within 90 days of the issuance of the codes under this temporary provision.

In addition, some states, including New York, have adopted emergency procedures relating to notarization of documents providing that videoconferencing may be utilized for such purpose.[1]

Electronic Signatures and Contracts

In general, electronic signatures are valid — permitted by either the Electronic Signatures in Global and National Commerce Act or a state's adoption of the substantially similar Uniform Electronic Transactions Act. Both E-SIGN and the UETA provide for the legal effect of electronic signatures in business contracts, when all parties to the contract — one of whom must be subject to one of E-SIGN or the UETA — explicitly or implicitly agree to the use of electronic signatures.

For clarity, it is recommended that the applicable contract contain explicit language consenting to the use of electronic signatures, stating that terms such as "execution," "signed," "signature" and "delivery" shall be deemed to include electronic signatures and confirming that electronic signatures shall be of the same legal effect, validity and enforceability as manually executed signatures.

Note that these laws contain exceptions to their application, the most significant of which for corporate purposes relates to negotiable instruments and other instruments of title, which may have potential implications for the issuance of debt securities and transactional closings. Accordingly, it is recommended that the willingness of all parties to utilize electronic signatures be confirmed early in the transactional process.

Development of Remote Corporate Governance Best Practices

The COVID-19 pandemic has plunged businesses in the U.S. and elsewhere into an unprecedented level of remote work. Nearly overnight, entire workforces transitioned to work from home and meetings that would normally take place in person transitioned to an array of videoconference platforms. Public companies have had to be creative and nimble, taking advantage of the available technological developments and the flexibility of existing law.

Looking beyond the current environment, the adjustments public companies are making now may reflect what will be considered business as usual in the future. As remote work technologies progress to make working from home seamless and in-person meetings unnecessary, companies seeking to reduce costs or maximize convenience will want to allocate more resources toward remote working.

As this shift occurs, companies will need to establish new best practices and regulators will need to update outmoded guidelines. Therefore, while the developments and considerations outlined above are important to weathering the COVID-19 era, they may also provide a template as the business world evolves with technological developments.

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Joseph Kaufman is a partner at Simpson Thacher & Bartlett LLP.

Brad Goldberg is a partner and head of the private equity advisory practice at the firm.

Christian Riess is a law clerk at the firm.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] The relevant order is available online at: https://www.governor.ny.gov/news/no-2027-continuing-temporary-suspension-and-modification-laws-relating-disaster-emergency.

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