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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
A public company and its shareholders In addition to the proxy statement and annual report, the issuer will need to provide shareholders with a form of proxy (generally referred to as a proxy card) to allow holders the ability to cast their vote. The format of the proxy is generally coordinated with the issuer’s transfer agent to ensure that returned proxies will be readable by the transfer agent’s computer systems. In-house counsel will also generally ensure that the form of proxy meets applicable legal requirements. (b) Material distribution Web hosting of materials: Since January 2009 all companies soliciting proxies under SEC rules are required to post annual meeting material to the Internet and notify shareholders of availability. However, the issuer cannot merely link to the SEC’s EDGAR website—a link must be provided to a site that is cookie-free and may be hosted either by the issuer or by an outside party. Whoever is chosen to host the site, it is important that all requirements for accessibility and privacy protection are met. Electronic distribution of materials: SEC rules allow issuers to distribute proxy material electronically to shareholders that have already consented to such delivery. Shareholders are offered the opportunity to access their documents electronically, which offers printing and postage cost savings. Consents may be promoted via hardcopy communications such as the proxy card, proxy statement and annual report. Shareholders can also sign up for electronic delivery of material for future mailings when they vote online. Notice and Access: The SEC allows issuers to send holders a simple notice providing information on how to access their proxy materials—without prior consent for electronic delivery. If an issuer chooses to use Notice and Access, the form to be used in mailing is prescribed by the SEC and must include the issuer’s name, date of meeting and a brief description of items to be voted on, among other items. A link to the proxy material and voting site is included in the notice, along with a control number specific to the holder to access the site, and an issuer may NOT include a proxy card with the mailing. Shareholders must also be given the opportunity to request a printed copy of the proxy materials, and instructions on how to do so must be included with the Notice. The issuer is obligated to honor requests for paper copies of the material for up to one year after the meeting. Use of notice and access requires that the notice be sent at least 40 days prior to the meeting date, and the site hosting the material must be live and available at the time the Notice is mailed. Failure to meet the 40-day time frame would cause the company to revert to its normal delivery procedure. Issuers may use Notice and Access, or they may choose to use Notice and Access for certain holders and mail full packages to other holders. This determination can be made in coordination with the proxy solicitor and will include consideration of the items on the ballot, the vote requirements for each proposal and the number of shareholders to be affected. Householding: To further reduce the number of printed annual reports and proxy statements required, the SEC permits issuers to mail one set of materials when two or more shareholders with the same last name live at the same address. Separate proxy cards are included for each registration, however. Full-set mailing: An issuer may also choose to mail a full package to all holders; the package includes the annual report, proxy statement, proxy card and return envelope. The choice can be made to mail all packages by one class of mail (typically, either first class mail or standard (formerly bulk) mail). The choice will, as with Notice and Access, depend on the size of the shareholder base, share distribution of holders and the ballot items to be voted on. (c) Phase three: solicitation and voting Generally, less than 30% of retail (noninstitutional) shareholders vote in response to the initial proxy material distribution; institutional holders have a much higher rate, with U.S. institutional investors typically voting over 90% of their positions. In cases where contentious or high-vote proposals are on the ballot, it may be helpful to achieve higher turnout from retail holders. In general, retail holders support management more often than not and can provide an additional margin of support for a management proposal. Three methods of voting are typically offered to shareholders to make their choices known: (1) traditional mail-in, where a holder signs a card and mails it in a postage-paid return envelope; (2) telephone voting, whereby a holder calls a toll-free number and enters the control number that appears on the proxy form and specifies his or her choice; and (3) Internet voting, whereby a holder goes to a specified site and enters the control number and specifies the voting choice. The holder will also have the option to sign up for electronic delivery of material for future meetings. Professional proxy solicitation firm versus in-house solicitation: A large number of public companies in the United States hire a professional proxy solicitation firm to help them with all aspects of their annual meeting. A proxy solicitor can handle the mechanical aspects of the solicitation (such as overseeing the distribution and mailing of material), provide guidance on the presentation of information in the proxy statement and work to ensure that all shareholders are afforded the opportunity to vote. A solicitor can also provide advice on the likely voting outcomes on many proposals to be presented to shareholders and will work closely with management to coordinate solicitation efforts. The solicitor will also provide daily voting reports to keep the company apprised of the status of the voting on a real-time basis, so there will be no surprises at the time of the meeting. Proxy solicitation team: At most public companies, the conduct of the annual meeting is the responsibility of the corporate secretary’s office, working in conjunction with the general counsel and legal staff. In addition, the investor relations department may also be involved, to assist in garnering support from institutional investors with whom it has a close working relationship. With the current requirement to provide shareholders with an advisory vote on executive compensation, it is not uncommon for the human resources department to also be involved. The proxy solicitor will work closely with the company in coordinating outreach to shareholders, both institutional and retail. NYSE IPO Guide 75
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