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A public company and its shareholders
To determine whether an issue is
controversial or to obtain a vote, the
corporate secretary and corporate legal
counsel should retain a proxy solicitation
firm. With recent changes to regulations
and the growing influence of proxy
advisory firms, achieving successful
voting percentages is becoming a more
challenging task.
Shareholder profile: In order to
conduct an efficient and effective proxy
solicitation, it is important to know the
composition of the shareholder base. A
proxy solicitor can determine the amount
of shares held by institutional holders,
retail holders and insiders (including
shares held in company plans). With
this information, a determination can
be made on the nature and extent of the
solicitation needed and also whether an
outreach campaign to retail holders is
necessary and beneficial.
Executing an effective campaign: With
knowledge of the shareholder base, the
corporate secretary and staff can position
the messaging in the proxy statement.
The proxy statement is not just a means
to satisfy SEC and state law disclosure
requirements but is also a public
company’s most broad and direct investor
relations tool.
Corporate governance practices are
important for many shareholders, and
this is a trend that continues to grow in
importance. A company’s governance
practices should be presented in the best
possible light, since many investors will
take these practices into account when
making their voting decisions. The board
of directors is responsible for deciding
what practices are best for the company as
a whole, while also taking into account the
views of their shareholders. Meeting with
investors regularly, and understanding
their concerns as well as those of the
proxy advisory firms, will help address
potential conflicts before the annual
meeting.
Third-party proxy advisory firms: The
two major proxy advisory firms are
Institutional Shareholder Services (ISS)
and Glass, Lewis & Co. These third-party
proxy advisory firms provide analysis
and voting recommendations on virtually
all U.S.-listed companies, and many
foreign ones, to institutional investors.
While the views and recommendations
of these firms are influential, they are
not necessarily dispositive, and most
major institutions have their own voting
policies and guidelines in place that
govern how they will vote on specific
issues. Many will also subscribe to one or
more of the proxy advisory firms proxy
analysis services and use them as a guide
in helping to make their voting decisions.
Most institutional investors are required
to publicly disclose their voting record
once a year, on Form NP-X, with the SEC.
Some institutional investors will also
have one of the advisory firms vote their
proxies, based on the advisory firm’s
recommendations.
7.3 Ownership reporting by
shareholders
Cleary Gottlieb Steen & Hamilton LLP
After the IPO, the company’s major
shareholders (or groups of shareholders
acting together) will be required to comply
with certain reporting requirements under
the Exchange Act. These requirements
are in addition to those applicable to
officers, directors and 10% shareholders
under Section 16 of the Exchange Act.
The company’s management usually
encounters these requirements in two
ways. First, a company with a controlling
or principal shareholder will often monitor
that shareholder’s compliance with these
requirements. Second, filings under
these requirements occasionally provide
important information about transactions
by major shareholders.
Schedule 13D filers: Pursuant to Sections
13(d) and 13(g) of the Exchange Act and the
related SEC regulations, each person (or
group of persons acting together) acquiring
any voting equity securities registered
under the Exchange Act as a result of
which such person or group beneficially
owns more than 5% of such securities,
within 10 days of the 5% threshold being
crossed, must file a report on Schedule
13D with the SEC and send copies to the
company and relevant stock exchanges. As
discussed below, some shareholders may
be able to file instead on Schedule 13G,
which requires less information.
Schedule 13D requires disclosure of:
• the identity of the acquirer (or each
member of the group), including its
management, directors and controlling
entities;
• the source and amount of funds used to
acquire the securities;
• the purpose of the acquisition,
including any plans or proposals the
acquirer may have for future purchases
or sales of target stock or for any
changes in the target management
or board of directors, or any major
corporate transaction affecting control
of the target, such as a tender offer or
business combination;
• the amount and percentage of target
securities held by the acquirer and
details about transactions in such
securities during the 60 days prior to
filing of the Schedule 13D (or, if shorter,
for the period since the most recent
Schedule 13D filing); and
• the nature of any arrangements to
which the acquirer is a party relating to
the target’s securities.
Documents relating to the financing
of the acquisition and any contemplated
extraordinary transaction involving the
company must be filed as exhibits to the
Schedule 13D filing.
Schedule 13D filings can be quite long
and complex. In the event of a contest for
control, there can be litigation challenging
the accuracy of the filing, and especially
of statements describing the acquirer’s
purpose and plans. Filers often try to
preserve as much flexibility as possible by
describing a wide variety of options.
A report on Schedule 13D must
be amended “promptly” (which can
mean almost immediately in some
circumstances) in the event of a material
change in the information disclosed in the
schedule, including a change in—or, in
the view of the SEC, the selection of one
particular purpose from—the previously
disclosed plans. Any acquisition or
disposition of 1% or more of the relevant
class of securities is deemed material
for this purpose, while a lesser change in
holdings may be material, depending on
the circumstances.
Schedule 13G filers: An existing
shareholder that already owns more than
76 NYSE IPO Guide