6.2 The Solicitation Process
Shareholders have a right to vote annually on (1) who should represent them and serve on the board of directors, (2) who the auditing firm for the company should be, (3) an advisory vote on executive compensation (say-on-pay), whether or not additional stock should be authorized for use in awarding stock options, restricted stock and other equity compensation to executives, board members and employees and other important corporate matters (such as mergers and acquisitions). The way shareholders vote is through a proxy solicitation process. The significant steps in this proxy solicitation process are:
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Notice of shareholder meeting. Each year every public company must provide notice of and hold an annual shareholders' meeting. Procedures for calling a shareholder meeting and establishing the matters that may be brought before the meeting for shareholder vote are typically governed by the company's constituent documents and applicable state laws. The important point is that an annual meeting must be held that shareholders can attend and vote their shares, either in person or by proxy. It is important to note that shareholders who hold at least $2,000 of stock can also call for a special shareholder meeting (for any purpose) following the same procedures that the company follows for its annual meeting. However, if a shareholder adds something to the proxy that is voted on and less than 3% of the shareholders vote positively on the issues, that shareholder cannot submit the same proposal a second year. In the second year, the proposed matter must receive 6% approval to be considered a third year. The third year, the percentage of positive votes that must be earned to submit the proposal a fourth year is 10%.
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Proxy statement preparation. Once a shareholder meeting has been called and the proposals for that meeting established, the company must prepare the proxy statement and obtain SEC approval of the proxy statement before the actual solicitation of shareholder votes can begin.
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Solicitation. Only after the final proxy statement has been approved by the SEC and sent to each shareholder of the company may actual proxies be solicited.
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Shareholder meeting. Following the solicitation of votes, the proxies granted by other shareholders of the company are finally cast at the shareholder meeting. While the outcome of the solicitation is typically known by the time of a meeting, official results will usually be determined by an independent examiner agreed to by the shareholder and the company.
In addition to the shareholder and the company, other players involved in the proxy solicitation include legal counsel; who helps prepare the proxy statement; the external auditor, who approves the financial information to be included in the proxy statement; and possibly a proxy solicitor. Proxy solicitation firms, such as Georgeson, help the company encourage shareholders to vote for the company's slate of proposals. Independent proxy advisors (discussed later in the chapter) are also likely to play a significant role in the outcome of the solicitation process.