Last Updated on December 2, 2024

Overview – The Proxy Statement

Every year, millions of investors exercise their rights as shareholders and cast their votes at annual shareholder meetings.

Shareholders vote on a variety of items such as who will serve as the company auditor, which individuals get appointed to the Board of Directors, and certain corporate affairs.

Naturally, most investors want all the pertinent information needed to make the most informed vote possible. Therefore, before a company’s annual meeting, they send out an information package. One of the documents included in that package is the proxy statement.

What is a Proxy Statement?

A proxy statement is a document sent to all the shareholders of a company ahead of the annual shareholder meeting. It contains information investors should be aware of ahead of the annual shareholder meeting.

In the U.S., publicly traded companies are required to submit a proxy statement (known as Form DEF 14A) to the SEC.

Proxy statements can either be mailed as an entire document to investors or can be published online for investors to access electronically.

Either way, investors will be notified when a company’s proxy statement is available ahead of the shareholder meeting.

What Does a Proxy Statement Contain?

Although most proxy statements come in the form of a pamphlet or booklet, they contain a fair bit of information for investors to analyze and consider. Some commonly included items in a proxy statement are:

  • Voting Procedure: investors can either vote by sending a mail-in ballot or by voting online.
  • Background Information on Nominees to the Board of Directors: Members of the board who are seeking re-election, or individuals who want to get appointed for the first time, have their background information disclosed to investors such as previous experience, prior board appointments, and their educational credentials.
  • Board Compensation and Equity Ownership: How much each Board member is paid, as well as how much of the company’s equity they own, is disclosed to investors.
  • Corporate Policies that Must be Voted On: Whenever the company or other shareholders want to implement a new policy, it must be voted upon by the shareholders. The items that investors are asked to vote on, as well as management’s opinions regarding these matters, are disclosed.

Voting Is Not Required, but Is Certainly Encouraged

Shareholders aren’t mandated by law to cast a vote in preparation for the annual shareholder meeting. There’s no punishment that awaits investors if they fail to exercise their right to vote.

However, companies go to great lengths to disclose all relevant information to investors before the shareholder meeting with the implicit hope that shareholders will choose to vote.

Investors may choose not to vote, but if certain corporate policies or actions they dislike are approved by other shareholders, then they really can’t complain because they willingly chose not to vote on the matter.

Therefore, investors are encouraged to exercise their rights as shareholders and partial owners of a business by casting their vote.

Wrapping Up

A proxy statement is a simple yet important document some investors take for granted.

Before exercising the right to vote, it would be in an investor’s best interests to go over the contents of a proxy statement and understand exactly what it is they’re voting on.

Now, investors aren’t legally required to exercise their voting rights, but they are strongly encouraged to do so by the companies they invest in.