Proxy statements: What you should know - 19 Jan 2009

Proxy statements: What you should know

Posted by Alison Grant/Plain Dealer Reporter January 19, 2009 16:22PM

Michelle Leder, who has made an art of sleuthing through company proxy
filings, was flipping through a report by Northeast Ohio's A. Schulman
Inc. last month when something prompted her to sit up and grab her
magnifying glass.

Of course, you don't actually need a magnifying glass to read the
proxy statements, the documents that companies are required to file
with the Securities and Exchange Commission in advance of their annual
meetings.

But interesting details -- often about executive pay -- can be in
such small print that Leder has safely adopted the Sherlock Holmes
motif for her research on corporations.



As proxy season arrives in Northeast Ohio and across the country,
shareholders and potential investors are wise to take a sharp look at
these important documents. At least skimming a company's proxy (and
also its annual and quarterly reports) will make you a more informed
investor. Familiarity with proxies is especially important if you plan
to own individual stocks.

Michelle Leder, of footnoted.org, has made an art of sleuthing through company proxy filings.

The
proxy statement is a measure of a company's health: It outlines the
employment history of directors and managers. It says how many shares
of the company they own and whether executives have gotten any loans
from the business. It says whether a company has switched auditors,
which can be a clue as to whether there are accounting issues. And it
details executive compensation.

What Leder noticed just before Thanksgiving in the Schulman proxy
was a "head-slapping" mention on page 55 of the company's decades-old
fishing camp in Canada.

Leder, a business blogger saw
that Schulman had stopped leasing a private plane for its executives
and directors, which meant that getting to the camp was becomingly
increasingly difficult and expensive.

The Fairlawn plastics company decided to sell the property to what
it said was the only person making an offer -- former Schulman CEO and
President Terry Haines, who had retired nine months earlier. The
$55,000 transaction closed at the end of 2008.

A company spokesman said last week that the four-acre property in
Exmoor, New Brunswick, is near a pond and has several rustic, unheated
cabins. Since Haines offered a price "close to its appraised value,"
the company decided not to list it for sale with brokers.

Schulman did not have to report the sale. A transaction with a
related party like a former executive does not have to be reported if
it is less than $120,000. But Chief Executive Joseph Gingo decided to
be as transparent as possible, the spokesman said.

Not every proxy has such intriguing passages. The preludes to
annual meetings that hit shareholders' mailboxes starting in January
are dry and brimming with legalese.

Still, they hold more information of importance to investors than
appears at first glance. That's especially true since regulatory
changes in 2006 required companies to go into more detail about the pay
and perks of top officers.

The new rules are meant to make companies more forthright about
such things as stock options and golden parachutes -- deals that top
officers get when they leave a company.

Proxy statements run from 10 to 50 or more pages in length, opening
with biographical information about directors and proceeding to the
compensation of top officers and proposals before the board.

Some proxies (and the annual meetings that follow) are vanilla
affairs in which directors are seated or re-elected with hardly a
squeak from shareholders. But as the economy has soured, and criticism
of executive pay has soared, these dense, number-filled statements are
getting more attention.

Click to download a Plain Dealer graphic explaining proxies.

In
fact, no issue in the 72-year history of the Securities and Exchange
Commission has generated as much public outcry as the question of
disclosure in financial reporting by companies, SEC Chairman
Christopher Cox has said.

The 2006 rule changes mandate that most of the information in
proxies and other filings be in plain English. That doesn't mean you
can digest them in a snap.

"There's no requirement for a company to call up and say, 'Hey, you
really ought to check out this footnote on page 41,' " Leder said last
week.

Here is an example of a passage on Page 14 of the proxy filed by
Keithley Instruments Inc. on New Year's Eve, as the Solon electronic
instrument maker kicked off the local proxy season:

"The Annual Bonus Plan does not cap the performance measures but
rather limits an individual's payout at three times the target bonus
award. The number provided in this column approximates the level at
which maximum payout would be reached and, for [return on assets], is a
range because of the interplay between the two measures."

more...http://blog.cleveland.com/business/2009/01/proxy_statements_what_you_shou.html