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A public company and its shareholders
7.1 Proxy statement and annual meeting
Morrow & Co., LLC
(a) Annual meeting requirements
Every public company in the United States
is required to have an annual meeting, at
which shareholders can cast their vote,
either in person at the meeting or by proxy
beforehand. At a minimum, shareholders
are given the opportunity to vote on the
election of directors of the corporation
and are also given the opportunity to
provide their advisory vote on executive
compensation for the previous year
(commonly referred to as “Say on Pay”).
Most annual meetings are fairly
formal affairs, well scripted and planned
in advance. Generally, the venue for the
meeting is chosen by the company and is
usually suited to the number of holders
expected to attend the meeting. Some
companies hold the meeting at the same
place every year, and others choose to
rotate the meeting site to accommodate
shareholders; the choice is up to
management and the board of directors.
There has been some movement toward
holding “virtual” annual meetings, with
no physical site for holders to attend;
instead, it all takes place on the Internet.
Most companies have chosen not to take
this option; they use the once-a-year
opportunity to meet shareholders in
person, and many shareholders seem to
prefer it that way.
(b) Timeline
The timing of the annual meeting is
generally determined by the company’s
fiscal year-end, and meetings are typically
held at the same time each year. A number
of important events in the preparation for,
and lead-up to, the annual meeting require
compliance with state laws, government
regulations and other regulatory agency
policies, as well as stock exchange listing
requirements, if applicable.
(c) Preparation
Determine agenda and dates: Management
and the board of directors, working
together, will determine any other
items to be presented to shareholders in
addition to the usual items and determine
the timing for the annual meeting. The
board will set the record date (the date
of stock ownership that determines
eligibility to vote) and the meeting date,
and management will communicate this
information to all appropriate parties.
The length of time between the record
date and meeting date is set by state law
(in Delaware, for example, the record date
can be no more than 60 days prior to the
meeting and no less than 10 days prior to
the meeting).
Communication: To ensure that the
process runs smoothly, all parties involved
need to work closely together to achieve
the common goal. Parties involved include
the issuer, the company’s transfer agent,
the proxy solicitor (if one is used) and
outside counsel.
Notification of record date and meeting
date (broker search): SEC rules require that
all street name holders (brokers, banks and
other custodians) be given advance notice
of the record date and meeting date, and
this notice must be given a minimum of 20
business days prior to the record date. The
notice sets forth the name of the company,
the Cusip number of the security(ies)
entitled to vote, the record date and the
annual meeting date; it is sent to brokers,
banks and their agents, as applicable, and
affords them the opportunity to respond
with the number of sets of material they
will need to forward to their beneficial
holders to allow them to vote at the
meeting. This also gives the issuer the
opportunity to determine the total number
of copies of material that will be needed to
be printed. If the company retains a proxy
solicitor, the solicitor will take care of the
broker search. In the absence of a proxy
solicitor, the transfer agent will generally
handle the search notice.
Analyze the need for a proxy solicitor:
Recent changes to NYSE regulations
(which govern member firms, such as
brokers, and not just listed companies)
have changed the voting landscape for
public companies. The most important
change involves the election of directors;
previously, member firms (brokerage
firms) were permitted to vote on the
election of directors in the absence of
instructions from the underlying owners
of the shares. However, since January 1,
2010, brokers are no longer permitted
to vote on the election of directors
without specific instructions from
their clients. Usually, member firms are
permitted to vote on the ratification of
auditors without specific shareholder
instructions. A professional proxy
solicitation firm not only can help with
timing and mechanical requirements
for the meeting but can also provide
advice on the presentation of items to
shareholders for optimal readability
and the likelihood of achieving the
requisite vote for the proposal to pass.
The recent addition of the requirement
to include a shareholder vote on
executive compensation (Say on Pay)
has added another level of complexity to
annual meetings. Other issues, such as
increasing support for certain shareholder
proposals, the increasing influence of
institutional and activist investors, and
the views of proxy advisory firms have
made planning for the annual meeting a
more complex and longer process than
it has been in the past. Companies with
nonroutine ballot items (such as equity
plans or shareholder proposals), and
even those with “ordinary” agenda items,
should consider retaining a professional
proxy solicitation firm to help navigate
the proxy process.
7.2 Providing shareholders with proxy
material
Morrow & Co., LLC
(a) Material preparation
Materials to be provided to holders: In
order to solicit votes from shareholders for
the annual meeting, the issuer is required
to provide holders with a proxy statement
and form of proxy that allows holders
to vote. In addition, the annual meeting
materials must either be accompanied
by, or preceded by, an annual report.
These documents must be filed with the
SEC concurrently with the mailing. In
some cases (which can be discussed with
counsel), the proxy may need to be filed
in preliminary form, depending on the
proposals to be presented to shareholders.
The proxy statement, in addition to
meeting applicable legal requirements, is
also an advocacy piece for management’s
position. Clarity of presentation and ease
of reading are key to ensuring that holders
take the time to read the material that is
being sent to them.
74 NYSE IPO Guide