Every investor knows about the three financial statements; statement of cash flows, balance sheet, and the income statement. One statement that is vital for that tends to be glossed over is the proxy statement. The proxy statement contains enormous amounts of vital information about a company. According to MarketFolly.com, Paul Sonkin “feels the Proxy statement is the most underrated tool out there and he also won't invest in a company if a CEO wears a lot of jewelry”.
Here is something I found in a proxy statement of a recent company I was analyzing (I will not name the company, because I might be doing a formal write up on it):
The Board of Directors consists of nine members. The company states that five directors are considered independent are "independent directors" within the meaning of the NASDAQ's listing standards. However, a brief reading of the biographies of the directors stated that all nine directors worked or continue to work for X or parent company X.
Below are a few brief details about topics that can be found in a proxy statement:
The form DEF 14A, or Definitive Proxy Statement, is a statement that is used by investors to vote on important issues of the company. The proxy statement is very useful when it comes to making sound financial decisions that impact a company, but it is also mandatory as decreed by the SEC. Proxy statements are useful when it comes to making organization wide decisions related to board compensation, board elections, and other general voting situations.
The proxy statement informs the shareholders of important company. It is issued before the annual meeting, and aside from containing important information it also allows the shareholders to include their votes on the issues of the company. It also serves as a “study guide” for investors; giving them highlights of the items that they should be informed about. They can disregard a point if they are already informed, or if not, they have the chance to brush up on important items before the annual meeting and voting occurs.
Usually accompanying the proxy statements is any other pertinent information that the company needs to send out such as the annual report, an annual review, and letter(s) to the shareholders from management. Basically, proxy statements are items sent to the shareholders to try and keep the shareholder in the loop. Obviously as an investor the shareholders themselves should be actively engaged in the decisions of the company, but if for some reason an investor cannot keep up with news related to the company, then the proxy statements act as a summary for what their company has done (this is not my recommended approach). It is easy to understand how an investor could gain a significant amount of knowledge about the company just by looking at the proxy statements.
A proxy statement is usually issued with instructions for what must be done, as well as forms about the company and other key statistics. Included with the proxy statement will be all of the forms and information relating to voting procedure for the upcoming meeting. A list of all nominations for the positions of the board will be included, and usually it will contain backgrounds of each nominee so that the voters can more clearly understand who they are voting for and how those members can contribute. The compensation information for the board is often included so that the shareholders can be sure that they know what the directors and management are being paid. Also included in the proxy, is the audit committee information which informs shareholders of the payments to the auditors to keep the company compliant.
The combined information is very useful when it actually comes to electing the board members. Is the CEO trying to put competent and knowledgeable individuals in place to act as a check against unethical practices? Or, are the board members just trying to collect a paycheck while ultimately being “yes-men” in suits?
So where does that leave you as the investor? You are the owner and management is supposed to represent you. It is a right but it is also an obligation to evaluate your talent (or lack thereof) and make sure that you are doing your job of managing all of the other managers. You obviously do not have to know them all by name, see them in action, or understand everything about them, but you better at least know if they are doing the job that you hired them to do. Are they bringing in the best talent, projects, technology, and etc.? Or, did you bring in a CEO who hired a few of his college buddies?
http://www.valuewalk.com/
Here is something I found in a proxy statement of a recent company I was analyzing (I will not name the company, because I might be doing a formal write up on it):
The Board of Directors consists of nine members. The company states that five directors are considered independent are "independent directors" within the meaning of the NASDAQ's listing standards. However, a brief reading of the biographies of the directors stated that all nine directors worked or continue to work for X or parent company X.
Below are a few brief details about topics that can be found in a proxy statement:
The form DEF 14A, or Definitive Proxy Statement, is a statement that is used by investors to vote on important issues of the company. The proxy statement is very useful when it comes to making sound financial decisions that impact a company, but it is also mandatory as decreed by the SEC. Proxy statements are useful when it comes to making organization wide decisions related to board compensation, board elections, and other general voting situations.
The proxy statement informs the shareholders of important company. It is issued before the annual meeting, and aside from containing important information it also allows the shareholders to include their votes on the issues of the company. It also serves as a “study guide” for investors; giving them highlights of the items that they should be informed about. They can disregard a point if they are already informed, or if not, they have the chance to brush up on important items before the annual meeting and voting occurs.
Usually accompanying the proxy statements is any other pertinent information that the company needs to send out such as the annual report, an annual review, and letter(s) to the shareholders from management. Basically, proxy statements are items sent to the shareholders to try and keep the shareholder in the loop. Obviously as an investor the shareholders themselves should be actively engaged in the decisions of the company, but if for some reason an investor cannot keep up with news related to the company, then the proxy statements act as a summary for what their company has done (this is not my recommended approach). It is easy to understand how an investor could gain a significant amount of knowledge about the company just by looking at the proxy statements.
A proxy statement is usually issued with instructions for what must be done, as well as forms about the company and other key statistics. Included with the proxy statement will be all of the forms and information relating to voting procedure for the upcoming meeting. A list of all nominations for the positions of the board will be included, and usually it will contain backgrounds of each nominee so that the voters can more clearly understand who they are voting for and how those members can contribute. The compensation information for the board is often included so that the shareholders can be sure that they know what the directors and management are being paid. Also included in the proxy, is the audit committee information which informs shareholders of the payments to the auditors to keep the company compliant.
The combined information is very useful when it actually comes to electing the board members. Is the CEO trying to put competent and knowledgeable individuals in place to act as a check against unethical practices? Or, are the board members just trying to collect a paycheck while ultimately being “yes-men” in suits?
So where does that leave you as the investor? You are the owner and management is supposed to represent you. It is a right but it is also an obligation to evaluate your talent (or lack thereof) and make sure that you are doing your job of managing all of the other managers. You obviously do not have to know them all by name, see them in action, or understand everything about them, but you better at least know if they are doing the job that you hired them to do. Are they bringing in the best talent, projects, technology, and etc.? Or, did you bring in a CEO who hired a few of his college buddies?
http://www.valuewalk.com/
