Getting to Know Proxy Statements
A publicly traded firm must file a proxy statement before shareholder meetings, and it discloses important corporate information for requesting shareholder votes and final approval of proposed directors.
The electronic data gathering, analysis, and retrieval system, or EDGAR, is the Security and Exchange Commission’s (SEC’s) database where proxy statements are filed as Form DEF 14A, or final proxy statements.
What Does a Proxy Statement Contain?
The company’s voting mechanism, proposed directors, and executive and director compensation must all be included in the proxy statement. The compensation for executives and directors, including wages, bonuses, equity awards, and any deferred compensation, must be included in the proxy statement. Proxy statements can also reveal any additional benefits enjoyed by executives, including travel, use of a company’s aircraft, and other major expenses paid for by the business.
The company’s directors, executives, and auditors may all have conflicts of interest, which are also disclosed in a proxy statement.
Proxy statements must specifically mention any related-party transactions that have previously taken place between the corporation and its key employees. Along with details regarding the company’s audit committee, the document also lists the audit and non-audit costs that were paid to the external public accountant. People who control a significant amount of the company’s common stock, including its executive officers and directors, are listed in a proxy statement.
Adequate Disclosures in Proxy Statements, Oversight, and Compliance
Directors must handle proxy statements with extreme caution. The final statements must be submitted to the SEC. When reading a proxy statement, a director should always pay special attention to the items he directly contributed to.
If the directors fail to disclose business matters that have an impact on shareholders or fail to send out proxy statements in a timely way, serious legal problems may develop.
Proxy Statement Benefits
A proxy statement can help potential investors evaluate the credentials and compensation of a company’s management team and board of directors. At the same time, it is most useful for shareholders getting ready for a company’s special or annual meeting. A red flag of extravagant spending may be raised, and an investor’s choice to invest may be affected by the discovery that a failing company’s chief officers receive pay much higher than that of peers.
Additionally, a likelihood that the firm’s resources are being misappropriated may be raised by frequent and significant related-party transactions between the company and its executives or directors, which calls for additional examination.
Proxy Vote
A shareholder or corporation may utilize a proxy vote to give a representative the power to cast a ballot on their behalf on certain corporate matters if they cannot attend the meeting in person or believe the representative is better educated than they are.
Eligible shareholders may get a proxy ballot in the mail or electronically before annual meetings, along with a proxy statement. This booklet contains proxy materials and lists the items on the ballot.
Most frequently, shareholders vote to approve stock compensation plans, mergers, and acquisitions, approve CEO remuneration and elect board members. Voting rights on these matters may be available to investors who held the necessary voting shares in the corporation as of the record date.
Since most shareholders cannot attend the annual meeting, they frequently choose someone else, like a manager, to vote on their behalf. This person, known as a proxy, has the authority to vote on behalf of the shareholder in accordance with the instructions on their proxy card.
Before the deadline, 24 hours before the shareholder meeting, proxy votes are submitted online, over the phone, or by mail.
In the past, if shareholders did not return the proxy statement, broker-dealers were allowed to vote for “routine” proposals on behalf of the shareholders. This has generated controversy, and in 2006 the NYSE Proxy Working Group proposed that the regulations, such as Rule 452, be changed to prevent frequent uncontested director elections.
For the most part, Rule 452 governs broker voting.
Universal Proxy Votes
In a contested board of director elections, shareholders often have to cast their ballots using either the management form (or “card”) listing management candidates or a separate dissident form identifying the competing candidates.
For shareholders to vote on various candidates, the SEC proposed a rule requiring a “universal” proxy card in 2016. As of 2019, this rule had not been adopted.
Particular Considerations
Companies can occasionally find themselves in the middle of a proxy struggle or proxy battle. This happens when several shareholders unite to exert enough influence to win a vote. Typically, this is a factor in corporate takeovers.
The acquiring group may attempt to persuade shareholders to vote out some or all of a company’s senior management to make it easier to take control of the organization when a corporate takeover is highly contentious to the point where it has turned into a hostile takeover.
How Can I Find the Proxy Statement of a Foreign Company?
In order to provide investors with accurate and timely information, foreign companies that offer SEC-registered securities in the US are required to submit paperwork with the SEC in a manner similar to US corporations.
The SEC’s database, EDGAR, contains all of these forms. According to SEC regulations, un SEC-registered businesses must publish online disclosures in English.
What Takes Place If a Company Misses the Deadline for Filing a Proxy Statement?
A public business must submit SEC Form 12b-25, also known as the Notification of Late Filing if it is unable to submit quarterly financial results, proxy statements, or other important filings to the SEC on time.
A corporation may be able to save money by filing this form instead of paying penalties for filing late. If a corporation files a necessary form late, it must explain why it did so and declare whether it anticipates disclosing any significant information about its prior year’s filing.
Are Proxy Statements and Proxy Agreements the Same Thing?
A written agreement allowing one person to legally represent another is known as a proxy agreement. The proxy agreement specifies that a proxy may vote on behalf of the principal in shareholder votes.
This is distinct from a proxy statement, a document issued by public firms and filed with the SEC that provides important information about a company’s voting practices, potential board candidates, and executive salaries.
When to Call an Attorney for Assistance
Consult a knowledgeable commercial attorney with experience in corporate law and business disputes if you have any questions or concerns about proxy statements.
A competent attorney will assess whether the business might have infringed upon your rights, concealed material facts, or broken any applicable laws.
