Proxy Statement Form Guide

Nicholas J Price
5 min read
In 2018, the proxy season showed some new trends. Institutional ownership of public company shares declined slightly while retail ownership increased just slightly. Institutional shareholder voting participation remained high at 91% and retail shareholder participation was reduced by 1%, down to 28%. Also, in 2018, many corporations began making mandatory CEO pay ratio disclosures. Say-on-pay proposals have stayed steady at 89% for the last five consecutive years. Institutional shareholders are showing increased percentages of support for social and environmental, as well as political, proposals. One other notable trend is that institutions opposed shareholder proposals that promoted lowering existing thresholds or removing limits on the number of shareholders needed to reach the threshold for ownership.

What Items to List on the Proxy Statement

The SEC's Schedule 14A of the Exchange Act lists 24 items for disclosure requirements for proxy statements. Some of the items only pertain to certain transactions. If those transactions don't occur, corporations don't need to list them on the proxy statement. Here is a list of things that need to be included on the proxy statement:
  1. Date, time and place information
  2. Revocability of proxy
  3. Dissenters' right of appraisal
  4. Persons making the solicitation
  5. Interest of certain persons in matters to be acted upon
  6. Voting securities and principal holders thereof
  7. Directors and executive officers
  8. Compensation of directors and executive officers
  9. Independent public accountants
  10. Compensation plans
  11. Authorization or issuance of securities otherwise than for exchange
  12. Modification or exchange of securities
  13. Financial and other information
  14. Mergers, consolidations, acquisitions and similar matters
  15. Acquisition or disposition of property
  16. Restatement of accounts
  17. Action with respect to reports
  18. Matters not required to be submitted
  19. Amendment of charter, bylaws or other documents
  20. Other proposed action
  21. Voting procedures
  22. Information required in investment company proxy statement
  23. Delivery of documents to security holders sharing an address
  24. Shareholder approval of executive compensation

Matters Most Commonly Disclosed in Proxies

Board directors should be aware of some of the most commonly disclosed issues on proxy statements.

Proxy statements often describe whether the shareholder returning the proxy has a right to revoke it, whether it has limits and what procedures they need to follow for revocation. Proxy statements should divulge who is soliciting the proxy, whether they can solicit through the mail or the internet, and who pays the cost of the solicitation.

Additionally, proxy statements should state the number of shares of voting securities that are outstanding, the record date for shareholders who are entitled to vote, and the number and percentage of equity shares that each director and nominee owns. Included in the proxy statement are the named executive officers, all directors and executive officers as a group, and each person who owns more than 5% of any class of voting securities.

Proxies must provide background information on executive officers, existing directors and nominees. Boards don't need to duplicate overlapping information. Proxies must also outline any applicable cumulative voting rights. Also, proxy statements should describe the required vote percentage for approval or election, as well as how they will count votes, abstentions and broker non-votes.

Part III of Form 10-K

Boards may include references from the proxy statement if they file it with the SEC no later than 120 days after the end of the fiscal year covered by the Form 10-K. If not, they must include it in Form 10-K or add an amendment on Form 10-K/A within 120 days after the end of the fiscal year.

Regulation S-K works in conjunction with other securities rules and regulations from the SEC. This portion includes disclosure requirements for:

  • Securities authorized related to equity compensation plans
  • Directors, executive officers, promoters and control persons
  • Executive compensation
  • Security ownership of certain beneficial owners and management
  • Transactions with related persons, promoters and certain control persons
  • Compliance with Section 16(a) of the Exchange Act
  • Code of Ethics
  • Corporate governance

The Code of Ethics should state whether it covers its principal executive officer, principal financial officer, principal accounting officer, controller or another that performs similar functions. Corporations may add the Code of Ethics as an exhibit to their Form 10-K, post it on their website, provide the 10-K and website address, or post a notice that the corporations will provide it upon written request.

A Notable Exception to the Rules

Boards may choose to include the information required by Item 10 of Form 10-K for executive officers under a caption 'Executive Officers of the Registrant,' rather than including that information in the proxy statement.

Audit Committee Financial Experts

The section on the audit committee's financial experts should indicate whether the board of directors had a financial expert on its audit committee and note the individual's name and whether that individual is independent. Boards that don't have an independent financial expert on their audit committee must explain why not. Boards must provide this information on the Form S-K, or include it on the proxy statement, and reference it on Form 10-K.

Hot Topics with Institutional Investors

Institutional investors encouraged corporations to abide by best practices for good corporate governance in a variety of areas in 2018.

According to the 2018 Proxy Pulse report, global investor BlackRock held discussions with corporations on societal topics such as gun violence. They also engaged with corporations on governance topics such as CEOs who serve on too many boards, board diversity, performance evaluations and director succession.

New York City Comptroller Scott Stringer and the New York City pension funds continue their push for diverse, independent and competent boards. Their efforts have prompted an increase in female board directors and an increase in the number of people of color on boards.

The California Public Employees' Retirement System (CalPERS) withheld votes from 271 board directors from 85 companies in the Russell 3000 because their boards lack diversity.

  1. Rowe Price (TRP) voiced its stance on being willing to engage directly or privately with corporations to resolve their differences amicably. TRP also noted that they will continue to take the long-term vision of their investments.

This article provides a basic proxy statement guide. Boards need to follow all rules and regulations, as well as stay current with market and voting trends.