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What Is in a Proxy Statement?
How to Read One
By John S. Gray An analysis of proxy statements filed with the Securities and Exchange Commission by Procter & Gamble (PG) (the company formerly known as Gamble), 3M (MMM), and International Paper (IP) (formerly known as International Paper or IP.) What Is a Proxy Statement? A proxy statement is a formal document made by a corporation, either before shareholders' meetings or quarterly stockholder meetings, to disclose its directors, officers, executive officers, stockholders, and significant members of its board of directors, among others, for election as directors or re-election to their positions. Usually, in most cases, proxy statements cover issues in which the company's stockholders and other interested parties may hold a proxy.
The proxy statements are typically filed with the United States Securities and Exchange Commission. However, an important distinction is that not all companies file proxy statements with the SEC, although the filing is still considered by many to be an important part of a well-informed shareholder's investment decisions.
How Proxy Statements Are Formulated. Many corporate organizations today draft proxies or written arguments designed to inform a group of shareholders, the board of directors, or even the public at large about the actions and policies of the company they are affiliated with. The first step in drafting a proxy statement usually begins with a review of the recent history of the company, from new acquisitions to financial statements and product line performance.
Most companies begin this process by evaluating what changes occurred at the company following significant public disclosure events like annual meetings and executive-level departures, mergers, acquisitions, product developments, and so on. Changes since the last proxy statement are then identified and analyzed. The draft report reviews trends in the company's performance and identifies trends in the business environment, market conditions, regulatory conditions, and any special events or developments, like a merger or acquisition, and a description of how these may impact the future direction and performance of the company.
The final draft of the report is then reviewed by the CEO, and is typically forwarded to the president of the company's board of directors. In turn, the board of directors considers the issues for board action or further discussion at the next scheduled meeting of the company's shareholders.
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When Does a Proxy Statement Need to be Filed?
A proxy statement is required to be filed with the SEC in any situation that involves the solicitation of proxies in which at least one person (other than the person soliciting the proxies) holds equity securities of the subject company. It is intended to allow shareholders to express their views regarding a proposed change in control or other fundamental change. A proxy statement is also required when an outside director proposes to be elected to the board of directors, when an amendment to the bylaws of the company will result in a change of control, when the company is merging or consolidating with another company and its stockholders vote in favor of the merger or consolidation, and when the company is making a tender offer. A proxy statement must contain the information discussed below, along with such other matters as the SEC may require.
Generally, a proxy statement is not required to be filed with the SEC if: The securities to be voted are listed on an approved national securities exchange or other facility;. The number of shares outstanding is no greater than 10 million;. No one is entitled to more than one-third of the total number of shares outstanding;. No voting agreement exists; and. The proposed corporate action does not involve any change in the form of the company's existing equity securities. If the above-described conditions are met, it may be appropriate to file the proxy statement with the SEC for the information of the company's shareholders. The purpose of the filing is to ensure that the company's shareholders can decide whether or not to approve the transaction. The SEC may approve the transaction without reviewing the proxy statement, and the company and its shareholders may then be free to proceed with the transaction. However, the SEC may only approve the transaction if the proxy statement includes the information required by the Commission's rules. In addition, the SEC may delay its review of the proposed transaction if a proxy statement is filed with it, unless the Commission determines that there is good reason to review the proxy statement at an earlier date. In such cases, a party other than the company may not solicit proxies from shareholders during the period for which the company is permitted to file its proxy statement with the SEC.
The company may use information from prior proxy statements to prepare its proxy statement. Because prior proxies are not subject to public scrutiny, they should be used with caution.
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