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.
