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Proxy Statement reveals the dark secrets of a company

What is a Proxy Statement?

A proxy statement tells the in-depth details about the company’s performance which may not cover in the annual report.

Not to mention, an investor can check the financial condition of a company by seeing its annual report.

The annual report includes the three major financial statements. These are:-

  1. Balance Sheet
  2. Profit and Loss/ Income Statement
  3. Cash flow statement

Yet, a proxy statement is not a part of any of these financial statements but plays a major role to know the dark secrets of a company that is not covered in any of the financial statements.

An investor can also call the proxy statement with its second name i.e “Form DEF 14 A”.

 
 

What details does the proxy statement cover?

The proxy statement covers every detail such as

  • Executive pay
  • The composition of the board of directors
  • The financial goals of a company.
  • Voting right

 It also covers the information about all the sensitive topics that aren’t a part of any financial statements.

An investor can find information in the proxy that helps them to find the strength of a firm.

The four of the important sections in a proxy statement are:- 

1. Management’s experience:

Management is the main driving force behind the company to take it to the new heights.

Thus, it is important to check the details and experience of the management team.

A proxy statement is the best source to check the details such as name, current title, age, business experience of management and board members.

2. Board of directors composition.

The board of directors are keeping track of the executive activities. In addition, they plan and put in place the plans for the firm benefit.

The basic detail about the directors are available in the proxy statement and looks like it.

Name– ABC

Education – PhD from M. school of business

Age – 73

Roles and duties – He has helped the Board of Directors to identify and assess the risks linked with new ventures.

Also, he brings the Board of Directors achievement in strategic business planning, which is a key part of the growth strategy.

Experience – He is a director since 2000 in an Audit and Technology Risk Committee.

Earlier, from the year 1991to 1994 – He worked as a senior professor in the Center for Techno at the college of south California.

Further, from the year 1994 to 1996, he was the co-founder and chairman of Gentech Corp.

In 1996, he served as a CEO in N2 tech. N2 tech is a non-profit company focussing mainly on technology growth in rural America. He worked there till the year 2000.

Apart from it, he is also a scholar at the dept. of home security, where he guides on issues related to cybersecurity.

Passions – His passion is to write books and published the 15 books on enterprise and technology progress.

3. Compensation

It is the section which an investor doesn’t touch but to know the CEO earnings from the salary income of the company is important to know especially when the CEO salary is rising in spite a decline in company profits.

The compensation part in the proxy statement looks like the below example.

  • 70% of the compensation awarded to the senior management on objective criteria and 30% was based on subjective appraisal of one’s performance.
  • The long-Term Incentive Program (LTIP) of FY 2020 comprises equity compensation based on the achievement of the long- term performance goals over a three-year performance period.
4. Corporate governance

 The proxy statement highlights the company’s corporate governance practices under the defined policies and laws to conduct the business.

Corporate governance is necessary to maintain the company’s reputation, integrity and serving its stockholders.

The below-mentioned example can give better clarity on how the corporate governance states in the proxy statement of a company.

  • The board of directors are structured with an independent chairman and Chief Executive Officer (CEO).
  • All committee members of the Audit, Compensation, Nominating/Corporate Governance, and Technology Risk committees are independent.
  • Directors conduct annual self-evaluations and take part in orientation programs to educate the employees about our Corporate Governance Guidelines.
  • Our Board of Directors conducts an annual enterprise Risk management process to identify and assess management’s clarity into company risk.
  • Our directors, officers, and other employees conduct the code of Business ethics to ensure our business follows the highest standards of moral and ethical behaviour.
  • The board of Directors has adopted a “whistleblower” policy to provide a line of connection to directors for reporting concerns.

Other than the above 4 important parts, the proxy statement give the details about the hidden secrets. These are:-

1. Conflict of interest:

A conflict of interest occurs when a senior executive or any of the board members cannot act on the probable threat.

2. Ownership details

Shares distribution play a major role to give ownership to the shareholders. If any executive, director or board member has a big part in the distributed shares then they have more stake in the company.

Amazon Proxy Statement

The pdf document is attached in this section gives the the Notice of 2020 annual meeting of shareholders and a proxy statement of Amazon as an example that how the proxy statement looks like:

2020-Amazon-Proxy-Statement-compressed

It reveals the dark secret of the company by sharing important information.

In case , if you want to access the previous year’s proxy statement then link is shared to download the previous year’s statements.

https://ir.aboutamazon.com/annual-reports-proxies-and-shareholder-letters/default.aspx

Conclusion

An excellent company always encourage their stakeholders to review the information in the proxy statement because it summarizes:-

  • The company’s achievements during the year
  • Improvements in the company’s compensation program
  • Enhancements to a firm’s corporate governance practices.

The proxy statement is the best way to look over the corporate governance matters and the safeguards of a company.

The frequently asked questions is another section at the end of the proxy statement that answers the general queries of stakeholders such as

  • What is the source of the proxy statement?
  • What is the annual meeting?
  • Who is entitled to vote at the annual meeting?

Shareholders are free to bring matters to a vote at the meeting. Sometimes, the company consider the proposal of shareholder and input into the proxy.

The proxy statement is a key document that shareholders should refer before the shareholder meeting.

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