What Is a Proxy Statement?

Proxy Statements Explained

A person opening mail
•••

Hill Street Studios / Getty Images

A proxy statement is a document the Securities and Exchange Commission (SEC) requires companies to send to shareholders to inform them of upcoming shareholder meetings. Proxy statements let investors know about important votes on board-of-directors elections, executive compensation, and more.

As an investor, you have a right to receive a proxy statement for each company of which you’re a shareholder. In this article, you’ll learn what’s included in proxy statements, why they’re important, and what to do with the information in them.

Definition and Examples of a Proxy Statement

A proxy statement is a document companies send to their shareholders to let them know about matters to be voted on at the next shareholder meeting, as well as when and where the meeting will take place. The SEC requires that companies send these proxy statements in the case of both regular and special shareholder meetings.

For an example of a proxy statement, we can look to the document that Apple Inc. sent its shareholders and filed with the SEC to notify them of its annual shareholder meeting on February 23, 2021.

Apple informed shareholders about the matters they would be voting on, which included the election of the board of directors members and the approval of an advisory resolution on executive compensation.

Companies can also use their proxy statements to inform shareholders about other important matters and recent events. For example, Apple used its most recent proxy statement to inform shareholders about its response to COVID-19, its efforts to promote diversity and environmentalism, and more.

How Proxy Statements Works

When you purchase stock in a public company and become a shareholder, you don’t just get the possibility of making money from your investment. You also have the right to vote on key corporate matters, including the election of members to the company’s board of directors. Votes take place either at an annual shareholder meeting or a special shareholder meet.

To inform shareholders about these meetings and the matters they’ll be voting on, the SEC requires companies to send proxy statements to all shareholders. At the time the company sends a proxy statement to its shareholders, it must also file the statement with the SEC using form DEF 14A.

Proxy statements must include every matter that shareholders will be voting on at the upcoming meeting. Topics often include:

  • Election to the company’s board of directors
  • Approval of the board’s auditor selection
  • Approval of executive compensation
  • Stock options and other equity-based compensation plans
  • Votes and proposals introduced by shareholders
  • Proposed mergers and acquisitions

In previous years, these statements were required to be sent by mail to each shareholder. In 2007, the SEC changed its policy to allow companies to post their proxy statements online. In most cases, companies notify brokers about the release of proxy statements, and the brokers then inform their customers who are shareholders of the company.

Benefits of a Proxy Statement

Proxy statements are an important tool companies use to inform investors about upcoming shareholder meetings. The statements have several benefits for shareholders.

Inform Shareholders About Upcoming Meetings

The first benefit of proxy statements is that they inform shareholders about upcoming meetings, whether it’s the annual shareholder meeting or a special meeting. The proxy statement includes information such as when and where the meeting will take place so shareholders can arrange to attend.

Allow Shareholders To Learn About Company Matters

Shareholders can learn critical information about the company and its leaders from a proxy statement. For example, when shareholders will be electing board members, the proxy statement is likely to include biographical information about each nominee, as well as their qualifications. Shareholders can also learn important information about the company’s corporate governance and executive compensation.

Invite Input From Shareholders

Not only do proxy statements alert investors of upcoming shareholder meetings and inform them about critical company matters, but they also invite shareholders to voice their opinions by voting. Shareholders have a say in who leads the company and other critical matters. The proxy statement is the first step to allow shareholders to voice their opinions.

Allow Shareholders To Impact Change

The proxy statement and shareholder meeting don’t just include information about proposals the company and its board put forth. Shareholders also have the right to submit their own proposals. Any shareholder who holds at least $2,000 in market value or 1% of the company’s stock for one year can submit a proposal, and it will be included in the proxy statement and voted on at the upcoming shareholder meeting. Shareholders often use proposals to encourage the company to improve its policies on environmental, social, and governance (ESG) issues.

What It Means for Individual Investors

When you invest in a company, you become a shareholder and part owner, meaning you have the right to vote on important company matters. The proxy statement is a critical part of this process since it lets you know when meetings will take place and what matters you can vote on.

As a shareholder, you aren’t required to vote. However, if you decide to exercise your voting rights, you’ll find instructions on how to do so in the proxy statement. And you don’t have to attend the shareholder meeting to vote. Companies allow shareholders to vote “by proxy” without attending the meeting in person.

Even if you choose not to vote at the shareholder meetings, the proxy statement still contains critical information that’s relevant to you as an owner of the company.

Key Takeaways

  • A proxy statement is a document that companies send to shareholders to inform them about upcoming shareholder meetings and share matters they’ll be voting on.
  • Votes that the proxy statement may inform shareholders of include board of directors elections and executive compensation matters.
  • At the time companies send proxy statements to shareholders, they must also file a copy with the SEC.
  • As a shareholder, you can attend the shareholder meeting to vote on the matters listed in the proxy statement, or even vote without attending, known as voting “by proxy.”