What Is a Proxy Statement?

A proxy statement is a document containing the information the Securities and Exchange Commission (SEC) requires companies to provide to shareholders so they can make informed decisions about matters that will be brought up at an annual or special stockholder meeting. Issues covered in a proxy statement can include proposals for new additions to the board of directors, information on directors' salaries, information on bonus and options plans for directors, and any declarations made by the company's management.

Key Takeaways

  • Public companies are required to file proxy statements with the Securities and Exchange Commission.
  • The proxy statement is filed when a company is seeking shareholder votes and is filed ahead of an annual meeting.
  • The proxy statement, called a Form DEF 14A, highlights new board of director nominees, proposed executive salary and compensation, and any other information a shareholder may need to vote on an issue.
  • Proxy statements provide shareholders with crucial information needed to assess the qualifications and compensation of key members of the company's management team and board of directors.
  • A proxy statement is different from a proxy vote, in which a shareholder agrees that another person can vote on behalf of the shareholder.

Understanding Proxy Statements

A proxy statement must be filed by a publicly traded company before shareholder meetings, and it discloses material matters of the company relevant for soliciting shareholder votes and final approval of nominated directors. Proxy statements are filed with the SEC as Form DEF 14A, or definitive proxy statement, and can be found using the SEC's database, known as the electronic data gathering, analysis and retrieval system (EDGAR).

What's in a Proxy Statement?

Proxy statements must disclose the company's voting procedure, nominated candidates for its board of directors, and compensation of directors and executives. The proxy statement must disclose executives' and directors' compensation, including salaries, bonuses, equity awards, and any deferred compensation. Proxy statements can also shed light on any other perks used by executives, such as the use of a company's aircraft, travel, and other material expenses covered by the company.

Important

Because the election of directors is the most important part of shareholders' meetings, a proxy statement goes into great detail about directors, their background information, and how much they had been paid in the past several years.

Additionally, a proxy statement discloses any potential conflict of interest between the company and its directors, executives, and auditors.

Specifically, proxy statements must list any related-party transactions that occurred in the past between the company and its key personnel. The statement also provides information about the company's audit committee, as well as audit and non-audit fees paid to its external public accountant. A proxy statement indicates persons with material ownership of the company's common stock, including its executive officers and directors.

Benefits of Proxy Statements

While a proxy statement is most relevant for shareholders preparing for a company's special or annual meeting, this document can aid potential investors in assessing the qualifications and compensation of its management team and board of directors. A finding that chief officers of an underperforming company are paid compensation significantly above those of peers may raise a red flag of excessive spending and weigh on an investor's decision of undertaking an investment. Also, frequent and material related-party transactions between the company and its executives or directors may pose a risk the company's resources are being misused and warrant further investigation.

Proxy Voting

With a proxy vote, a shareholder or firm delegates the right to vote on certain company issues to a representative, either because the shareholder cannot physically attend the meeting or because the representative is seen as more informed on the issue. 

Ahead of annual meetings, eligible shareholders might receive a proxy ballot—in the mail or digitally—as well as an information booklet containing proxy materials, called a proxy statement that describes what issues are up for vote. Shareholders most commonly vote to elect board members, to approve executive compensation, to approve mergers or acquisitions, or to approve stock compensation plans. Investors who own applicable voting shares in the company as of the record date may be eligible to vote on these issues.

Since most shareholders can't attend the company meeting, they will often designate someone, such as a member of the company's management team to vote for them. This person is referred to as a proxy and can cast a proxy vote as per the shareholder's wishes, written on their proxy card. Proxy votes are cast online, by phone, or by mail, ahead of the cutoff time, typically 24 hours before the shareholder meeting.

Special Considerations

Sometimes companies are at the mercy of what is called a proxy fight or proxy battle. This occurs when a group of shareholders band together so they will have enough power to win a vote. This is usually put in play in corporate takeovers.

When a corporate takeover is particularly contentious to the point that it has become a hostile takeover, the acquiring group may try to convince shareholders to vote out some or all of a company's senior management, so as to make it easier to take control of the organization.

Proxy Statement FAQs

How Do You Find a Foreign Company's Proxy Statement?

Foreign companies that offer SEC-registered securities in the United States have to file forms with the SEC in a similar way to U.S. companies so as to give investors accurate and timely information. All such forms can be found using EDGAR, the SEC's database. Companies that are not registered with the SEC must post disclosures in English on the internet, as per SEC rules.

What Happens If a Company Fails to File a Proxy Statement on Time?

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 a company to avoid certain fees that it would otherwise owe as a result of the late filing. The company filing the late form must give a reason for the late filing and state whether it expects to divulge any big surprises relative to its prior year's filing of the required form.

Is a Proxy Agreement the Same As a Proxy Statement?

A proxy agreement is a written agreement that one person can act legally on behalf of another. In the case of shareholder votes, the proxy agreement states that a proxy can vote on behalf of the principal. That is different from a proxy statement, filed with the SEC, which is a document provided by public companies and filed with the SEC that discloses material matters related to a company's voting procedures, candidates for its board of directors, and executive compensation.

The Bottom Line

A proxy statement is a document containing information that the Securities and Exchange Commission requires public companies to disclose to shareholders when requesting votes ahead of an annual meeting.