Proxy Season is Coming Soon! Be Ready With This Guide

Posted on 12-06-2016 by
Tags: Guide , Lexis Practice Advisor , Proxy Statements , Practice Insights , Annual Report

Lexis Practice Advisor provides an overview of proxy statements and annual meetings, as well as detailed practice notes, forms and checklists on this topic.

Counsel preparing a public company for its annual meeting of shareholders can expect to spend a significant amount of time drafting or reviewing its proxy statement. Although state laws require companies to hold annual meetings to elect directors, Regulation 14A under the Securities Exchange Act of 1934 regulates how shareholders are contacted for such meetings by requiring that companies provide shareholders with a proxy statement if they plan to solicit proxies for an annual meeting. In particular, Rule 14a-3 states that the proxy statement must contain the information required by Schedule 14A and must be preceded or accompanied by a company’s annual report.

The proxy statement, which must be filed with the U.S. Securities and Exchange Commission (SEC) and also distributed to shareholders, discusses and provides information regarding the items on which shareholders are being asked to vote at the annual meeting, including such matters as the election of directors and the ratification of the company’s independent auditors. It also contains a wealth of information regarding the company’s executive officers and directors, corporate governance policies, executive compensation matters and related party transactions. Some of this disclosure is required by Schedule 14A, but some may be mandated by the national securities exchange on which the company lists its securities. The SEC also allows some of the disclosure that would otherwise be contained in the annual report to be disclosed in the proxy statement and incorporated by reference.

The information that is contained in the proxy statement may draw the attention of large institutional shareholders and activist shareholders who may be focused on a company’s corporate governance or executive compensation policies and practices. Some shareholders may also seek to use the proxy statement and the proxy solicitation process to force change at a company either through the nomination of their own directors or pushing for specific changes to the company’s policies and practices through shareholder proposals. As a result, shareholder advisory firms, such as Institutional Shareholder Services (ISS) and Glass Lewis & Co., have become prominent players in the proxy solicitation process, as shareholders have come to rely on them, as well as their own guidelines, in deciding on how to vote on the various proposals that may be contained in the proxy statement and voted on at the annual meeting.

Counsel drafting or reviewing a proxy statement for an annual meeting should have a solid grasp of not only the disclosure requirements, but the underlying documents and principles on which they are based. In addition, he or she must also be aware of the internal and external parties involved in the proxy solicitation process and the annual meeting and the different stages at which they are involved. The following resources provide guidance from the preparation of the proxy statement and the proxy solicitation process through the annual meeting.

Proxy Solicitation Mechanics

The following resources discuss the process for preparing, filing and mailing the proxy materials, which include the proxy statement, annual report and proxy card. Included are several practice notes and checklists on the mechanics of preparing the proxy materials as well as a sample set of resolutions related to the proxy statement.

Compensation-related Disclosure

A significant portion of the required disclosure in the proxy statement includes information regarding executive compensation. This disclosure encompasses not only the summary compensation table that discloses compensation awards for a company’s named executive officers, but the Compensation Discussion and Analysis (CD&A) which explains the material elements and policies underlying the company’s compensation decisions. The proxy statement must provide information regarding how executive compensation decisions are made, including the use of and relationships with compensation consultants, and any potential conflicts between the members of the compensation committee and the company’s executives. Also, to the extent that the company is seeking shareholder approval of any equity compensation plans at the annual meeting, information regarding such plans must be provided in the proxy statement. The following resources address a variety of compensation-related disclosure that counsel may have to draft or review for the proxy statement.

Dealing with Shareholders

Proxy statements have become important vehicles for some shareholders seeking to force strategic, corporate, financial or other change at a company when dialogue with management fails. Shareholders may demand that a company include its proposal(s) to be voted on at the annual meeting in the company’s proxy statement, provided that it meets the requirements of Rule 14a-8, or may seek to conduct its own proxy contest by proposing their own slate of directors to compete with the company’s nominees in an election proxy contest. These resources address the various ways in which shareholders may impact the proxy preparation process and strategies that may be employed by companies to address such shareholder activism.

Corporate Governance Issues and Disclosure

The proxy statement must contain information regarding various aspects of a public company’s corporate governance policies and practices. Such disclosure must address such issues as:

  • The process for nominating candidates to the board of directors
  • The leadership structure of the board of directors
  • The composition of the board and its committees
  • Director independence
  • Whether the company has an audit, compensation and nominating and corporate governance committee with respective charters and their website location
  • Whether the company has corporate governance guidelines and their website location
  • Whether the company has a code of business conduct and ethics and its website location

Schedule14A mandates many of these disclosure requirements. However, some of these governance disclosures are required by the rules of the NYSE or NASDAQ. These resources describe the corporate governance requirements and their disclosure in practice notes and checklists and also provide some forms of the governance documents that must be adopted by a public company and described in the proxy statement as samples.

Annual Meeting

The proxy solicitation process culminates with the annual meeting of shareholders. Below are several helpful resources that can assist counsel in preparing for the annual meeting.

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