Understanding Proxy Statements What They Are and How Voting Works

Proxy statements are documents the Securities and Exchange Commission obliges a company to give to shareholders so that they can vote on important issues. Proxy statements allow shareholders access to board composition changes and other significant decisions that the board must make. These are also tools that are useful for boards wishing to keep ahead of risks and activist attacks.


Investors and shareholders are demanding more disclosures, so these proxy statements become even more important. Many corporations would like to meet the SEC requirements or, at the minimum, appease the shareholders by providing more details. Remember though that a proxy statement must be viewed more as a strategic asset to be able to proactively discern risks. This article will help you proactively identify risks by presenting the following explanation.

What is a proxy statement?

  • A proxy statement does have a purpose in governance.
  • Proxy statement rules, requirements and examples
  • Benefits of long proxy statements
  • Best practice guidelines on preparation of a proxy statement
  • This report provides answers to questions on proxy statement.

What is a proxy statement?


Proxy statements are those that are delivered by listed public companies in anticipation of annual or special shareholder meetings so that they can make informed votes on board business by the shareholders.
Useful proxy statements should allow them insight into the company’s performance as well as that of the board.

The table shows the compensation of the company’s five highest paid executives, including bonus and equity, with the applicable benchmark.
The report is based on the performance of executives within similar companies.
Executive compensation covers company travel and other expenses.
There are possible conflicts of interest within the company, the board and the audit committee.


Do the company and executives have previous transactions with one another?
It is also part of the audit committee’s activities any fees paid for external public accountings.

The proxy statements also reflect the position of the board concerning nominations and proposals. Such statements can carry shareholder proposals as well if such proposals tend to be against the board position.

What are proxy statements?

  • A proxy statement aims at ensuring that the company and executive information are sufficient to enable shareholders to make informed votes during the shareholder meeting. Proxy statements urge shareholders to vote on issues such as;
  • Election of new board members
  • The vote involves approval of officers’ and other top executives compensation.
  • Mergers and acquisitions
  • Amending the bylaws of the company

But proxy statements have a secondary, equally vital purpose in governance. Since they’re a regulated reporting structure, they also give boards the chance to come across information which might put the company in a not-so-great light. Boards can avoid risks like unpopular mergers or questionable conflicts of interest by identifying these insights early and often.


Benefits of Proxy Statements


While a proxy statement is most relevant to shareholders preparing for a company’s special or annual meeting, this document can assist any potential investor in the process of evaluating the qualifications and compensation of its management team and board of directors. When the chief officers of an underperforming company receive significantly higher compensation than their peers, it could indicate how overboard such spending may be and may influence an investor’s decision to invest in such a company. Recurring material related-party transactions between the firm and its officers or directors raise potential suspicions regarding the misuse of firm resources and deserve further investigation.


Proxy Voting


A proxy vote would enable a shareholder or firm to effectively pass over the right to vote on certain issues of the company by proxy to a representative, either because the shareholder is going to be absent from the meeting or because the representative is deemed better informed on the subject.

Shareholders who are entitled to vote receive, prior to the annual meetings, a proxy ballot-by mail or online-in addition to an information booklet providing materials for proxy holders, called a proxy statement which identifies what issues will come up for vote. Investors vote most often to elect members of the board, to approve executive compensation, to approve mergers or acquisitions, or to approve stock compensation plans. Investors holding voting shares in the company have a right to vote on those matters on the record date.


Special Issues


At other times, firms are faced with something called a proxy fight or proxy battle. That’s when a group of shareholders group together so they will have the strength to win a vote. Corporate takeovers frequently use this tactic. 2

If the corporate takeover is so contentious that it has in fact become a hostile takeover, the acquiring group may attempt to persuade shareholders to vote out some or all of a company’s senior management in order to facilitate the takeover of the organization.


Proxy Statement FAQs


How Do You Find a Foreign Company’s Proxy Statement?
Like their counterparts in the United States, foreign companies issuing SEC-registered securities in this country must submit forms to the SEC to ensure that investors obtain the information they need in a timely and adequate fashion. EDGAR is the database of the SEC for all such forms. SEC rules mandate that companies that are not registered with the SEC must post disclosures in English on the internet. 3

What happens if a company is late in filing its proxy statement?
A public company that cannot file quarterly financial results, proxy statements, or other key filings with the SEC on time must file SEC Form 12b-25, also known as the Notification of Late Filing. Filing this form may enable the company to avoid some of the fees it would otherwise owe because of the late filing. The company making the late filing must state a reason for the late filing and indicate whether it reasonably expects to disclose any significant surprises compared with its filing for the prior year of the form. 4

Is a proxy agreement the same thing as a proxy statement?

A proxy agreement is a written contract by which one person has the authority to act legally on behalf of another. Shareholder votes-the proxy agreement speaks to how a proxy can vote on behalf of the principal. That’s different from a proxy statement, which is a document prepared by public companies and filed with the SEC that discloses material matters relating to a company’s voting procedures, candidates for its board of directors, and executive compensation.

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