A proxy statement is a statement provided by a firm soliciting shareholder votes.[1] This statement is useful in assessing how management is paid and potential conflict of interest issues with auditors.
The statement includes voting procedure and information, background information about the company's nominated directors, board compensation, executive compensation, and audit fees and committee members. Regulation may govern the requirements of proxy statements.
Contents
The statement includes:
- Voting procedure and information.
- Background information about the company's nominated directors including relevant history in the company or industry, positions on other corporate boards, and potential conflicts of interest.
- Board compensation.
- Executive compensation, including salary, bonus, non-equity compensation, stock awards, options, and deferred compensation. Also, information is included about perks such as personal use of company aircraft, travel, and tax gross-ups. Many companies will also include pre-determined payout packages for if an executive leaves the company.
- Who is on the audit committee, as well as a breakdown of audit and non-audit fees paid to the auditor.
Regulation
US regulation
In the US, Regulation 14A is the set of rules around proxy solicitations and Schedule 14A sets rules for the proxy statement.[2] A proxy statement is required of a firm when soliciting shareholder votes.[1] This statement is filed in advance of the annual meeting. The firm needs to file a proxy statement—otherwise known as a Form DEF 14A (Definitive Proxy Statement)—with the U.S. Securities and Exchange Commission. Per SEC proxy rules, the term proxy statement means the statement required by Section 240.14a-3(a) whether or not contained in a single document.
Proxy access
The Securities Exchange Act of 1934 also gave the SEC the power to regulate the solicitation of proxies, though some of the rules the SEC has since proposed (like the universal proxy) have been controversial.[3]
Voting process
Proxy advisory
In many cases, shareholder votes—particularly institutional shareholder votes—are determined by proxy firms which advise the shareholders. In July 2010, the SEC announced that it was seeking public comment on the efficiency of the proxy system.[9][10] Voting is important for corporate governance, but many of the votes are cast by institutional shareholders, including many who are passive investors. These organizations use proxy advisory firms, notably including Institutional Shareholder Services and Glass Lewis, to help them vote their shares in a responsible way.[11]
Broker voting
Retail investors
When retail investors own stock via investment funds such as mutual funds, the investor cannot vote the shares as the investment manager has that power. According to one estimate, retail investors voted 46% of the time between 2011 and 2016.[16] According to a 2013 estimate, between 23 and 38% of stocks are held directly, compared to 20% held by mutual funds and 16% held by pensions.[18]
See also
- Proxy fight
- Proxy voting
External links
- List of items required in proxy statements in Schedule 14A (SEC) (PDF) - note: the SEC published its final rules governing disclosure on August 11, 2006. This Schedule does not reflect the additions and changes.
- Wall Street Journal primer on how to read a proxy statement
References
- Scott Hirst. Frozen Charters The Harvard Law School Program on Corporate Governance Discussion Paper, 2017-01-01^
- SEC Financial Reporting Series 2019 proxy statements retrieved 2020-02-28^
- Scott Hirst. Universal Proxies