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Power by proxy:


Brace yourself for the white booklet invasion known as proxy season. Thousands are being delivered, clogging up mailboxes and cluttering desks and kitchen tables as investors promise to read it tomorrow.

To the Securities and Exchange Commission, a proxy report, or DEF 14A, is a required filing for any publicly traded company and must be distributed prior to the firm's annual meeting. It is supposed to provide information on the company's board of directors and executive compensation and give shareholders a chance to vote by proxy on certain proposals.

To many investors, the proxy reports are riddled with dense terms in tiny print on the type of paper reminiscent of weighty reference books.

"The way proxies are written are not meant to be read," said Michael Rosenbaum, president of Rosenbaum Advisors Inc., an investor-relations consulting firm in suburban Chicago. "They are written by an attorney for regulators."

But shareholder advocates say you should take the time to read what is on the pages and exercise your vote regardless of how many shares you own. You won't have direct influence in day-to-day operations such as whether to acquire or sell a business unit, but enough dissenters can unseat someone who is making those decisions.

Take, for example, the 2001 campaign of Guy Adams of Los Angeles. Adams, who held 1,100 shares in Lone Star Steakhouse and Saloon Inc., not only got himself elected to the restaurant chain's board of directors but also kicked the founder and chief executive off the board.

Adams ran for the seat after being disenchanted with management's pay raises and stock options packages while the company struggled financially.

He even rallied the support of the California Public Employees' Retirement System and Amalgamated Bank of New York, both large shareholders in Lone Star. Adams resigned from the board in May 2002.

"I proved that even with a small investment I could align myself with other shareholders," said Adams, who now heads GWA Investments LLC, an investment firm. "I just implemented the will of other shareholders."

But it was a tough and expensive battle, he added, and individual shareholders who want to wage a proxy fight should get the support of larger investors behind them.

Internet bulletin boards and Web sites run by shareholder rights groups can help unite investors with similar interests.

"Individual investors need to be more informed about this stuff," said Beth Young, senior research associate at the Corporate Library in Portland, Maine, which tracks corporate governance. "Paying attention to the proxy statement and exercising your vote is a way to maximize your investment potential."

Investors have two options when dissatisfied with how a company is being run.

"If you don't like what's going on with a company and you don't think your voice is going to be heard because you own so few shares, you can dump your shares," said Ed Smith, an attorney who specializes in securities law and corporate governance for Chadboune & Parke law firm in New York.

Shareholder rights' advocates back the other choice: voting and submitting a proposal that calls for change.

Many shareholders are clamoring to have their voices heard. Shareholder proposals are at an all-time high as fraud and mismanagement scandals continue to roil the ranks of corporate America, said Brian Heil, founder of ProxyMatters. com, an online forum for shareholder proposals.

He believes many investors, regardless of the size of their holdings, want their voices heard.

"But they want to be efficient with their time, and they want to hear both sides," Heil said. "Because a proxy is written by management, in many investors eyes, it is not a 'trusted' source of information."

Lorene Yue is a Your Money staff writer.

What to look for in a proxy statement

Thumb through the pages of a proxy to see:

Board of directors' experience.

Are they all just well-known names with business skills that are irrelevant to the company they are serving? How much are they getting paid and how many meetings did they attend? How many shares does each director own that are not a part of a stock-option package?

Compensation of the chief executive and the top five highest paid executives.

Check how much their pay packages increased compared with your share price. Did they get a bonus while your investment tanked?

Shareholder proposals.

What business changes are the company or other investors asking for? Do they want new independent auditors or guidelines on how to conduct business overseas?

You don't have to be a financial whiz to detect glaring issues.

"If the company filed for bankruptcy and the CEO got a $2 million bonus, it is going to hit your retch level," Rosenbaum said.

On the Web

The following Web sites can help you find out about shareholder rights, hear what other shareholders are saying and see what issues may be flaring up at companies you are invested in: www.

Corporate Governance:

The Corporate Library: www.

The Corporate Monitoring Project:

Investor Responsibility Research Center:

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