What is in a proxy statement?
A proxy statement tells you a lot about a company's management and board of directors, providing details about compensation, large shareholders, and the accounting firm that audits the company books. It also includes information about shareholder resolutions and the board's responses to those proposals.
Each publicly traded company files a proxy statement with the Securities and Exchange Commission (SEC) every year, and it's used by shareholders to help cast votes on their proxy ballots. The board may provide recommendations to vote for or against a proposal, but investors should do their best to collect the facts and make a decision on their own.
Board of directors
The first order of business in most proxy statements is voting for or against individuals to serve on the board of directors. The role of the board is to oversee management, talk through a company's future plans, and lend expertise. In an ideal world, directors are looking out for shareholder value and are willing to push back against management if a situation calls for it.
Many companies have a combined CEO and board chair role, where the CEO of the company runs the board meetings. Some argue this is detrimental because the board isn't able to run in an independent, unbiased manner. Others argue this is ideal because the CEO provides important expertise about the company. Both are valid arguments, and shareholders ought to consider all the circumstances when evaluating any shareholder resolutions aimed at separating the CEO and chair roles.
Here are some questions to consider when evaluating board members:
- Are these people qualified to serve on this board?
- If they aren't new to the board, have they added value or have you been impressed with them during their tenure?
- Does the board have an array of experience and insights to drive the company forward?
- Will this addition to the board add a new perspective that is lacking or will it reinforce existing perspectives? Studies show boards with greater diversification across gender and ethnicity are more profitable.
- Are any individual directors on too many other boards? "Overboarding" can result in directors who have too many demands on their time to serve thoroughly and effectively.
- How long have board members served on the board? Long-tenured directors may lend expertise and experience, but long tenure can result in a too-cozy board that is arguably not independent even though the directors aren't literal employees.
