Diving through

proxies

Using proxy statements wisely Michelle Leder

editor/founder footnoted

mleder@footnoted.com

@footnoted

Photo by flickr user

TauchSport_Steininger

Review homework assignment:

Take a closer look at the HPQ 10-K filed on Dec. 27, 2012:

http://www.sec.gov/Archives/edgar/data/47217/000104746912011417/a2

211959z10-k.htm

Things to note:

•Filing was made Dec. 27 just a few minutes shy of 5 p.m. It wasn't a

Friday, but it was during the dead week between Xmas and New Year's

when few people are working.

•Language in risk factors clearly spells out the many challenges the

company faces. Company uses the word challenges 9 times in the risk

factors, compared with just 3 times in the prior year.

•One risk factor is devoted to problems overseas, particularly related to the

Foreign Corrupt Practices Act, which is a new disclosure.

POLL QUESTION #1

How often do you read proxy statements?

•I’ve never read one.

•Once or twice

•Periodically for companies I really follow

•It’s my favorite hobby.

What's so interesting about a proxy

statement?

• Compensation, compensation, compensation (plus

lots of perks)

• Director bios, compensation, committee

assignments and meeting attendance

• Related-party transactions

• Audit-related fees

• Shareholder proposals

Photo by flickr user Victor1558

How can you find the proxy?

• SEC's Edgar site (can search by ticker or

company)

• Investor relations section of company site

• Google Finance, Yahoo Finance, or any

number of other large finance sites

• Simple search: “Yahoo proxy 2013”

The sum of the pieces

• Like the 10-K, the proxy statement (or DEF14A if we

want to get all formal) has very specific pieces.

• Thankfully, it’s much shorter than the 10K.

• Typical proxy is < 100 pages, though many are larger.

• Compensation takes up largest chunk of proxy.

• March Madness: Proxy season typically starts in mid-

March and goes until April 30.

• Many companies have been giving their proxy

statements extreme makeovers to make them easier to

read.

A closer look at Yahoo's proxy:

• This proxy was filed after 5 p.m. on April 30.

• At 97 pages, it’s on the longer side, but not

unusually bulky.

• The good news? You don't have to read all

97 pages!

• Let's focus on the most interesting parts.

Start with the summary-comp table

Skip straight to this chart by typing "summary compensation"

Beware of common traps

• Too many journalists take the total-comp

number in the last column as gospel. It isn't.

• The rules for reporting stock options are

complicated, and it's very easy to think

you're getting it right, but get it wrong.

• Pay close attention to executive changes

from year to year. Once an executive leaves,

you may not get any more info on him/her.

• Companies often time departures to limit

disclosure.

What I look for in the summary --

comp table

• Mix of compensation

(cash, stock, perks)

• Trends in compensation

• Comp for former execs

• Weird disclosures:

apartments in Paris, fish

camps, excessive

corporate jet usage,

moving expenses for the

family pet, wine cellars

Photo by flickr user seantoyer

Photo by flickr user andyrusch

Yahoo’s summary chart

• What’s the first thing that jumps out at you?

Even more compensation

• Next, I like to skip to the

director-compensation

table.

• This isn't always as easy

to find as the summary-

comp table, but it's

always there.

• Often provides good

insight into company Photo by flickr user Tax Credits

Director comp at Yahoo isn't so

simple

http://www.sec.gov/Archives/edgar/data/1011006/00011

9312513187918/d501548ddef14a.htm

Director comp at Yahoo isn't so

simple

• These are two of the 22 footnotes that

accompany this chart.

• Cash vs. stock mix

• All other comp (small here, but pretty

common)

• Compare with how many times directors met

Director bios

One-stop shopping: bio, length of board service, board committees, other

boards he/she sits on

What the bios

normally look

like.

Zoomed in and

(somewhat)

legible.

Board attendance

• Hard to get a real feel for this. Usually get

boilerplate disclosure. But every now and

then, there's something good.

Meetings and meeting attendance

Our Board of Directors holds regularly scheduled quarterly meetings. Typically, committee meetings occur the day

before the Board meeting. During one quarter each year, the committee and Board meetings occur on a single day

so that the evening and following day can be devoted to the Board’s annual retreat, which includes presentations

and discussions with senior management about Microsoft’s long-term strategy. In addition to the quarterly

meetings, typically there are two other regularly scheduled meetings and several special meetings each year. At

each quarterly Board meeting, time is set aside for the independent directors to meet without management

present. Our Board met eight times during fiscal year 2012.

All of our directors attended 75% or more of the aggregate of all Board of Directors meetings and meetings of the

committees on which they served during the last fiscal year. Directors are encouraged to attend the Annual

Meeting of Shareholders. Five of the nine directors then on the Board attended the 2011 Annual Meeting.

QUESTION #2

What’s the most interesting related-party

transaction you’ve ever found in a proxy?

Please type your answer in the chat pod.

Related-party transactions

• Can be called different

things and in a different

place in each proxy, so

you often need to search

• Look for "related party,"

"certain transactions,"

"transactions with officers

and directors" to start with.

• Almost always worth

reading very carefully. Am

often amazed at what

companies disclose Photo by flickr user outcast104

Audit-related fees

• There's rarely a smoking gun here, but

there's sometimes an interesting detail.

• Audit fees up 21% over past year

Shareholder proposals

• First few proposals are usually proposed by the

company (re-election of directors, appointment

of auditors, other routine corporate actions).

• The others are the ones you want to pay

attention to.

• Newest one is "say on pay."

• Remember: even if a shareholder proposal wins

the popular vote, the company chooses whether

to adopt.

Your homework: Barnes & Noble

• Company has had its ups and downs lately.

• Read the related-party transactions (pages 47-

51), and come up with 3 key bullet points: http://www.sec.gov/Archives/edgar/data/890491/0001193125

13305921/d571208ddef14a.htm

• Email your answer to

cassandra.nicholson@businessjournalism.org

by noon ET Thursday, Oct. 10, to be entered in

a drawing for

for Michelle's

book.