Parse those proxies and attend annual meetings
By Flickr user Rachel Elnar
Your readers are starting to find their mailboxes stuffed with bulky envelopes bearing annual reports and proxy statements.
Odds are fairly good that both items will head straight to the residential recycling bin. But there are several good reasons for business readers to take time to peruse the materials and to attend, if possible, annual shareholders meetings.
These annual documents are the most extensive reports that publicly traded companies are required, by law, to make to investors. The annual reports usually offer a lengthy management statement, which sometimes can give insight into business lines.
“Weakness in our frozen private-label widget unit was offset by growth in retail sales of single-serve fresh gizmos,” the letter might say. Perhaps you didn’t know this company even made single-serve fresh gizmos. In other words, aside from financial statements and other required data, the more subjective management letters can open up entire new fields of questioning for the alert business journalist.
And those spare, no-frills black-and-white proxy statements offer some of the juiciest content since “True Blood.”
Visit the SEC Web site for primers on proxies and annual reports . And of course, you can download all current documents on any public company from the SEC’s EDGAR database.
The obvious use for proxies is to whip straight to the executive compensation page, which tells the world how much the most highly paid managers are making. Easy pickings? Yes, but in recessionary times quite relevant, especially when you juxtapose the salary, bonuses and benefits with the company’s share price history and sales/income data.
Be sure not to miss “other compensation” footnotes; that’s where interesting items like chauffeurs, executive protection, housing allowances, life insurance, season tickets, personal use of corporate aircraft and other fun tidbits are located.
Other areas to check out: Director compensation – is it in cash or shares? Are there plenty of outside directors, and do they control the audit and compensation committees? They should.
Look for related-party transactions which must be disclosed by law. Those are less-than-arm’s-length business deals in which, say, the company leases cars from the CIO’s brother-in-law, or buys raw materials from a board member’s firm. Sometimes legit, sometimes fishy, they’re worth looking into.
Be sure to scrutinize the matters shareholders will be voting on this year. This site, RiskMetrics Group, runs a very interesting 2010 Proxy Season Watch List of Shareholder Proposals. It’s due for an update but as of February hot accountability topics included political spending reviews, climate change issues, compensation advisories and provisions for special meetings. You might plot a similar grid for companies in your region, to educate readers about trends in shareholder demands.
Another angle to consider: Changes in how shares held through investment firms are voted could give activist shareholders more clout than before, the Toledo Blade reports.
Annual shareholder meetings, in addition to providing a toe in the door to executive interviews, are great places to stockpile investor contact information. Yes, some of the attendees tend to be gadflies with axes to grind, but you’ll find some “real people” there as well.
