A proxy statement is a statement required of a firm when soliciting shareholder votes. 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 The U.S. Securities and Exchange Commission (SEC) is an independent agency of the United States federal government, created in the aftermath of the Wall Street Crash of 1929. The primary purpose of the SEC is to enforce the law against market ...

. This statement is useful in assessing how management is paid and potential

conflict of interest A conflict of interest (COI) is a situation in which a person or organization is involved in multiple interests, financial or otherwise, and serving one interest could involve working against another. Typically, this relates to situations i ...

issues with auditors.

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 in interest. * Board compensation. * Executive compensation, including salary, bonus, non-equity compensation, stock awards, options, and

deferred compensation Deferred compensation is an arrangement in which a portion of an employee's income is paid out at a later date after which the income was earned. Examples of deferred compensation include pensions, retirement plans, and employee stock options. The p ...

. 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. 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.

Voting process

In many cases, shareholder votes—particularly institutional shareholder votes—are determined by

proxy firm A proxy firm (also a proxy advisor, proxy adviser, proxy voting agency, vote service provider or shareholder voting research provider) provides services to shareholders (in most cases an institutional investor of some type) to vote their shares at ...

s which advise the shareholders. Traditionally,

broker-dealer In financial services, a broker-dealer is a natural person, company or other organization that engages in the business of trading securities for its own account or on behalf of its customers. Broker-dealers are at the heart of the securities and d ...

s have been permitted to vote for "routine" proposals on behalf of their shareholders if the shareholders do not return the proxy statement. This has been controversial, and in 2006 the NYSE Proxy Working Group recommended that the rules, e.g. Rule 452, be modified so that uncontested director elections were not considered routine. Broker voting is, for the most part, governed by Rule 452.The SEC approved the rule on July 1, 2009. In July 2010, the SEC announced that it was seeking public comment on the efficiency of the proxy system.

Universal proxy ballots

In contested elections for the

board of directors A board of directors (commonly referred simply as the board) is an executive committee that jointly supervises the activities of an organization, which can be either a for-profit or a nonprofit organization such as a business, nonprofit organiz ...

, shareholders typically have to vote using either the management form ("card") listing management candidates or separately listing the contesting candidates in a dissident form. In 2016, the SEC proposed a rule requiring a "universal" proxy card so that shareholders could vote on a mix of candidates, which as of 2019 had not passed.

Electronic voting

Prior to 2009, companies in the United States were required to send proxy materials via postal mail, but following a rule change effective in 2009, companies, can handle voting electronically. According to one study, about 31% of voting happened electronically in 2019. One major vendor,

Computershare Computershare Limited is an Australian stock transfer company that provides corporate trust, stock transfer and employee share plan services in a number of different countries. The company currently has offices in 20 countries, including A ...

, reported that 27% of votes occurred on the web in 2017.

Broadridge Broadridge Financial Solutions is a public corporate services and financial technology company founded in 2007 as a spin-off from management software company :Automatic Data Processing. Broadridge supplies public companies with proxy statements ...

is another major vendor.

Proxy advisory

Voting is important for

corporate governance Corporate governance is defined, described or delineated in diverse ways, depending on the writer's purpose. Writers focused on a disciplinary interest or context (such as accounting, finance, law, or management) often adopt narrow definitions th ...

, 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 Institutional Shareholder Services Inc. (ISS) is a proxy advisory firm. Hedge funds, mutual funds and similar organizations that own shares of multiple companies pay ISS to advise (and often vote their shares) regarding share holder votes. It i ...

and

Glass Lewis Glass, Lewis & Co. (Glass Lewis) is a major American proxy advisory services company. As of spring 2019, Glass Lewis controlled 28% of the proxy advisory market for mutual funds; this makes it the second-largest company in the market behind Inst ...

, to help them vote their shares in a responsible way.

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. There has been some controversy over "proxy access" which is a method to allow certain shareholders to nominate candidates which appear on the proxy statement. Historically, only the nominating board can place candidates on the proxy statement. Activist investors typically had mailed their own ballots when running competing candidates. The United States

Dodd–Frank Wall Street Reform and Consumer Protection Act The Dodd–Frank Wall Street Reform and Consumer Protection Act, commonly referred to as Dodd–Frank, is a United States federal law that was enacted on July 21, 2010. The law overhauled financial regulation in the aftermath of the Great Recessi ...

specifically allowed the SEC to rule on this issue. In 2010, the SEC passed a rule which allowed certain shareholders to place candidates on the proxy statement; however, in ''Business Roundtable v. SEC'' the rule was struck down by the

United States Court of Appeals for the District of Columbia Circuit The United States Court of Appeals for the District of Columbia Circuit (in case citations, D.C. Cir.) is one of the thirteen United States Courts of Appeals. It has the smallest geographical jurisdiction of any of the U.S. federal appellate cou ...

in 2011. Beginning in 2015, proxy access rules began to spread driven by initiatives from major institutional investors, and as of 2018, 71% of S&P 500 companies had a proxy access rule.

Retail investors

According to one estimate, retail investors voted 46% of the time between 2011 and 2016. 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. When retail investors own stock via

investment fund An investment fund is a way of investing money alongside other investors in order to benefit from the inherent advantages of working as part of a group such as reducing the risks of the investment by a significant percentage. These advantages inc ...

s such as

mutual fund A mutual fund is a professionally managed investment fund that pools money from many investors to purchase securities. The term is typically used in the United States, Canada, and India, while similar structures across the globe include the SICAV i ...

s, the investor cannot vote the shares as the investment manager has that power.

Regulation 14A and Schedule 14A

Regulation 14A is the set of rules around proxy solicitations while Schedule 14A sets rules for the proxy statement.

References

{{reflist

External links

List of items required in proxy statements in Schedule 14A (SEC)
(

PDF Portable Document Format (PDF), standardized as ISO 32000, is a file format developed by Adobe in 1992 to present documents, including text formatting and images, in a manner independent of application software, hardware, and operating systems. ...

) - 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
Statements SEC filings Shareholders Corporate governance in the United States

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