PROXY STATEMENTS



A proxy statement is, according to the Securities and Exchange Commission (SEC), "a document which is intended to provide security holders with the information necessary to enable them to vote in an informed manner on matters intended to be acted upon at security holders' meetings." Publicly-traded companies are required to send proxy statements to all shareholders, each of whom has a vote in the operation of the business, in advance of annual and special meetings. It includes information pertaining to issues that require a shareholder vote as well as a ballot for voting. This ballot is used for the election of the Board of Directors for the next year and may be used for other issues requiring a vote as well.

Proxy statements also provide information on all other matters which will be discussed at the annual or special meeting, such as approval of company auditors, approval of employee bonus plans, approval of changes in the company's preferred stock, etc. In addition, proxy statements contain a wealth of financial information about a company's significant shareholders, composition of the board of directors (including background and investment holdings), and compensation (salary, bonuses, stock options) paid to its top executives.

Finally, proxy statements contain SEC-mandated performance graphs detailing the company's stock performance and shareholder return when stacked up against other industry indexes, such as a national market index (like the Standard & Poor's 500), and broad industry averages. This information, if studied with a discerning eye, can help stockholders discern the fortunes and priorities of a company's top management. It serves as a financial benchmark for comparing the relationship between executive compensation and company performance. For example, proxy statements are less likely to create controversy if the company is performing well and rewarding stockholders of publicly traded companies with profits, or if the company is struggling financially and the executives are limiting their compensation accordingly. However, if key executives are pulling in enormous compensation packages while the company founders, attentive shareholders will notice. "Examining compensation is especially important for young, fast-growing companies that have yet to begin generating profits," wrote Geoffrey Simon in Business Journal of Tampa Bay. This aspect of the proxy statement cannot be hidden from public view, so experts urge leaders of growing firms to exercise appropriate judgement when establishing executive compensation packages.

In the future, analysts believe that many proxy statements will be delivered to shareholders via the Internet. This methodology, while still uncommon in the late 1990s, is trending upward both for reasons of convenience and cost savings (in such realms as printing and postage expenses). Costs associated with converting to this delivery method can be significant for smaller companies, due to the expense of establishing/upgrading Internet sites and converting proxy documents to HTML format. But most observers agree that once an electronic delivery system has been put in place, the firm can register considerable annual savings.

FURTHER READING:

Q and A: Small Business and the SEC. Securities and Exchange Commission, 1997.

Roberts, Bill. "No Chads, No Rips, No Errors." Electronic Business. January 2001.

Simon, Geoffrey A. "Proxy Statements are Full of Highly Valuable Information." Business Journal of Tampa Bay.

Sosnoff, Martin. "Forget the Annuals, Read the Proxies." Forbes. May 4, 1998.



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