Proxy Statements Law and Legal Definition

A proxy statement is, according to the Securities and Exchange Commission (SEC), "a document which is intended to provide security holders with the information necessary to enable them to vote in an informed manner on matters intended to be acted upon at security holders' meetings." Publicly-traded companies are required to send proxy statements to all shareholders, each of whom has a vote in the operation of the business, in advance of annual and special meetings. It includes information pertaining to issues that require a shareholder vote as well as a ballot for voting. This ballot is used for the election of the Board of Directors for the next year and may be used for other issues requiring a vote as well.

Proxy statements also provide information on all other matters which will be discussed at the annual or special meeting, such as approval of company auditors, approval of employee bonus plans, approval of changes in the company's preferred stock, etc. In addition, proxy statements contain a wealth of financial information about a company's significant shareholders, composition of the board of directors (including background and investment holdings), and compensation (salary, bonuses, stock options) paid to its top executives.

Finally, proxy statements contain SEC-mandated performance graphs detailing the company's stock performance and shareholder return when stacked up against other industry indexes, such as a national market index (like the Standard & Poor's 500), and broad industry averages. This information, if studied with a discerning eye, can help stockholders discern the fortunes and priorities of a company's top management. It serves as a financial benchmark for comparing the relationship between executive compensation and company performance. For example, proxy statements are less likely to create controversy if the company is performing well and rewarding stockholders of publicly traded companies with profits, or if the company is struggling financially and the executives are limiting their compensation accordingly. However, if key executives are pulling in enormous compensation packages while the company founders, attentive shareholders will notice. This aspect of the proxy statement cannot be hidden from public view, so experts urge leaders of growing firms to exercise appropriate judgment when establishing executive compensation packages.

Beginning in the late 1990s, analysts began to speculate that proxy statements in the future would be delivered to shareholders via the Internet. By 2006, this approach had been adopted by the SEC, as reported by Chris Kentouris in Securities Industry News. The SEC proposal, not yet formally required early in 2006, envisions mandatory distribution of proxy statements by the Internet, requiring investors "to opt out with a formal request for the mailing of paper documents," according to Kentouris. The securities industry was not pleased by this initiative although in agreement that it would be efficient. In the meantime, it would, according to the Securities Industry Association, "disrupt the proxy delivery system and increase the costs for issuers, and ultimately, the shareholders." In all likelihood, the proxy statement will, of course, eventually arrive by e-mail once the administrative ways of making it happen are fully ironed out by those supervising from above, the SEC, and those who have to make it happen: the issuers of stock.


Dye, Jessica. "Secure Exchanges: The SEC's online alternative to paper proxies." EContent. January-February 2006.

Kentouris, Chris. "Industry Supports Efficiency But Blasts E-Proxy Proposals." Securities Industry News. 13 March 2006.

Partigan, John C. "Perks: What 2005 proxy statements reveal." Financial Executive. July-August 2005.

Roberts, Bill. "No Chads, No Rips, No Errors." Electronic Business. January 2001.

Sosnoff, Martin. "Forget the Annuals, Read the Proxies." Forbes. 4 May 1998.

                                Hillstrom, Northern Lights

                               updated by Magee, ECDI