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Inside a Proxy Statement

Some of the smartest people I know are intimidated by stock investing. It seems part of their problem is the mystery of corporate Securities and Exchange Commission filings. Tell these folks that stock ownership carries with it the task of reading 10-Ks, 10-Qs, and proxy statements, and they run into the waiting arms of mutual fund managers.

As an individual investor, I believe their fears are unfounded. But, then again, I remember feeling a little lost the first time I read through SEC filings. Back then I wished I had a tour guide. You, too? Well, my Fool, you're in luck, because it so happens that I had to read Akamai Technologies' (Nasdaq: AKAM  ) proxy statement this morning. Follow along to see what I saw.

A proxy statement is short for a notice of the annual meeting of all shareholders. Akamai's gathering is May 25 in Cambridge, Mass. The document is called a "proxy" because you don't need to attend the meeting to vote on the proposals offered by management. Instead, you can read all about them in the document and vote by mail or over the Web. If you use a broker such as Ameritrade (Nasdaq: AMTD  ) , Charles Schwab (NYSE: SCH  ) , E*Trade (NYSE: ET  ) , or privately held Fidelity, your broker will mail you the proxy, usually with the annual report and full financial report for the prior year, or 10-K.

At this year's meeting, Akamai will elect directors to its board, offer a proposal to increase the amount of common stock available for employees, and name PricewaterhouseCoopers as its auditor. Akamai management wants me, as part owner, to approve each of these proposals. Should I? Let's look.

Akamai has three board members up for election this year: Ron Graham, a computer scientist and professor at the University of California at San Diego; Tom Leighton, an Akamai cofounder; and Naomi Seligman, a partner in a technology strategy consulting firm. The proxy statement names no consulting or other arrangements -- disclosed under "Certain Relationships and Related Party Transactions," page 21 in the Akamai report -- which could jeopardize their judgment. That's a good sign, so I vote yes.

The stock plan is a little trickier. Akamai wants the authority to issue up to 7 million more shares for employees. While I can't argue that such incentives are important, I hate when new stock dilutes my ownership. In this case, Akamai would boost its available shares for incentives to roughly 48 million, or by a little less than 6%. If that seems high, consider that roughly 40 million of Akamai's 122 million shares issued, or 33%, are attributed to employees. Indeed, a note on page 2 shows that management and the Board hold 13% of company stock. I can tolerate minimal dilution when employees and management maintain heavy ownership interests. This proposal also gets a yes vote.

Finally, there's ratifying the auditor PWC. This usually looks like an easy call, but don't be deceived. We want to be sure our company's bookkeeper isn't on the take, collecting moolah for duties other than scouring the financials. On page 24, we see Akamai paid PWC roughly $880,000 during 2003. $55,000 of those fees, or 6%, was for supporting the annual information security risk assessment, whatever that is. I'd prefer it if PWC were only working the books, but this security assessment isn't a onetime event. PWC did a similar audit during 2002, for $49,000. I'll grudgingly vote yes, but lodge a complaint with Akamai's IR department.

And that's it. Hey, I realize you may not dig reading SEC filings like us Foolish freaks do, but was this exercise really that hard? Nope. All the information we found was written in English and easily accessible, either in the proxy statement, or in Akamai's financial statements. If you didn't sleep through fifth-grade math -- heck, even if you did but have 15 minutes and a calculator -- you can do what we did here with any stock you're interested in.

Is the idea of reading proxies keeping you up at night? Stop losing sleep. Get help juicing your returns from our Foolish analysts. You can check out their monthly recommendations in any of our investing newsletters risk-free.

Fool contributor Tim Beyers owns shares in Akamai. You can view his Fool profile here.

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