Proxy statements give shareholders a forum for weighing in on important company issues. The audit committee plays a primary role in preparing the proxy statement. Proxy statements offer shareholders information about changes on the board and other important decisions the board needs to make.
Proxy season depends on the date that a corporation’s fiscal year ends. Most corporations in the United States set their fiscal year to end on December 31. Corporations hold their annual meetings about five or six months after the end of the fiscal year. That means that the busiest time for the proxy season ranges from late April until early June. Corporations typically send out their proxy statements about six weeks before their annual meeting.
The Securities and Exchange Commission (SEC) regulates the rules that corporations must follow when they release their proxy statements. Investors and shareholders are pushing for greater disclosures, so corporations often try to oblige them by including more information than the SEC requires.
What Is a Proxy Statement Definition?
To better understand the proxy statement definition, it helps to understand the definition of the word “proxy.” A proxy is an individual that another person designates to represent them at a meeting or before a public body. A proxy statement is a written authorization that allows someone to act on behalf of another. In the corporate world, a proxy gives someone the authority to vote stock and other issues related to appointing new board directors.
Within the proxy statement definition, the term applies to publicly traded corporations, and the SEC requires corporations to submit their proxy statements annually.
Corporations invite shareholders to their annual meeting, where they make some of the most important decisions of the year. Shareholders who can’t attend the annual meeting may give their proxy to other shareholders, the board of directors or another representative so that the decisions made at the meeting are as legitimate as possible. Shareholders often instruct their proxy to vote according to the shareholder’s wishes.
Proxy statements ask shareholders to vote for such things as:
- Nominees for board directors
- The audit firm the board recommends
- Salaries of officers and other top directors
Proxy statements indicate the position that the board is taking on nominations and proposals. Proxy statements may also include shareholder proposals, even when those proposals are at odds with the board’s stance.
The SEC requires corporations to show the salaries of the company’s five highest-paid executives and the appropriate benchmark in chart form, as well as their performance and the performance of executives of similar companies. This is an important part of the proxy statement definition.
The overall intent is to provide shareholders with the necessary information, so they can make informed votes on matters that boards bring up at a stockholder meeting.
Proxy Statement Requirements
Corporations that register securities under Section 12 of the Securities Exchange Act must send out a proxy statement before they have their annual shareholder meetings. Proxy statements are required for regular and special meetings.
Boards must file the information on their proxy statements with the SEC before they can ask shareholders to vote on board director nominees or other important corporate decisions. Solicitations may also originate from shareholders. Regardless of the source of the solicitations, proxy statements much disclose all pertinent facts about issues on which shareholders will be voting.
The Role of the Audit Committee and the Proxy Statement
The audit committee has many important responsibilities related to the proxy statement. Audit committees are responsible for disclosing internal controls and overseeing financial reporting. Audit committees also review SEC filings and earnings releases. One of the most important duties that audit committees have is to oversee the internal audit and the independent auditor processes. In addition, audit committees oversee interactions between management and the board and review external communications.
The board appoints three to seven members for the audit committee that aren’t part of management. Members of audit committees have challenging duties in today’s corporate world, where stakeholders are continually pushing for greater disclosure. According to Deloitte, S&P 100 companies are voluntarily increasing disclosures in their proxies.
Specific areas that shareholders and others want disclosures on include:
- How the audit committee evaluates, oversees and chooses independent auditors
- How the board oversees risk and reports financial information
- Pay structures for the board and executives
The Public Company Accounting Oversight Board will require auditors of large accelerated filers to disclose critical audit matters for fiscal year statements that end on or after June 30, 2019, as part of the phase-in process. The hope is that this new requirement will increase corporate disclosures.
Board Management Software Systems Support Compliance and Financial Disclosures
Diligent Corporation knows the pressures that corporations face in remaining compliant and providing the transparency that shareholders require and expect. Diligent Boards is a secure digital platform where internal audit committees can collaborate on audit functions and their other oversight responsibilities. The portal provides automated tracking features to ensure that important obligations don’t fall through the cracks and cause compliance problems.
Governance Cloud is an entire suite of digital governance tools that support all of the important board processes including D&O Questionnaires, which board directors and officers can complete quickly and securely online. Diligent Messenger is a highly secure digital messaging platform that keeps board and committee conversations confidential. Governance Cloud also offers a tool for online voting and electronic signature voting.
Governance Cloud helps to make the audit committee’s work efficient, timely, accurate and productive.
Proxy statements are only due once a year, but that doesn’t minimize their importance. Best practices for corporate governance are swiftly evolving. Corporate boards and their audit committees are feeling more pressure than ever before from the SEC, institutional investors and shareholders for disclosures that are accurate, responsible and transparent.
Enterprise governance management software automates and streamlines the many important processes that boards use for annual and regular activities. Good corporate governance practices enhance the relationships between corporate boards and senior executives and those of the company and its shareholders. Diligent Corporation is committed to providing digital solutions with the highest security to safeguard shareholder investments during proxy time and the whole year round.