TheCorporateCounsel.net

We all make mistakes. In fact, I can specifically recall for you many of the significant mistakes that I have made in my career, because I frequently dredge them up in my memory banks and mentally flog myself with those mistakes in an act of relentless self-flagellation. I am pretty sure that this practice does not do much to prevent me from making the same mistakes again, but it has just become of part of what it means for me to be a lawyer.

One of the areas where mistakes are often made is in the preparation of the proxy statement for the annual meeting of shareholders. Proxy statements are long and complicated documents with quite a few inputs, so it is foreseeable that mistakes can be made along the way. As Liz recently noted in the Proxy Season Blog here on TheCorporateCounsel.net, the most recent issue of “The Shareholder Service Optimizer” outlines frequent mistakes that they encounter in proxy statements and related annual meeting materials, including the following:

– One of the first things we noticed – as still avid readers of Proxy Statements – and mostly-faithful voters – and eager attendees at VSMs where we own shares and can squeeze in the time – was how difficult it was to find the correct date and time of the VSM – and how hard it was to find the link to the meeting in so many cases.

– Worse yet, we encountered several instances where the times and dates were at best incomplete, and in several cases, FLATLY WRONG!

– Another major observation this season was the unusually large number of instances we encountered where there were differences – sometimes quite substantial ones – in the number of “Votable Shares” reported in Proxy Statements vs. the numbers shown as “Shares Outstanding on the Record Date” as shown in the once “certified” lists of shareholders produced by transfer agents. And often, we encountered different numbers entirely in the reports from proxy tabulators. Our Inspector Team has a policy that requires our Inspectors to investigate here and to satisfy ourselves as to the correct number to use in the Final Report on the Voting – which is filed with the SEC. Most often, the differences are due to option exercises that took place shortly before or shortly after the official record date, But, we ask, “Who is in charge of the SEC-required “Control Book” at the Transfer Agent? And who is responsible for monitoring the numbers at the Company – and for making sure that the required entries are actually made on their “Cap Tables”… AND for assuring that differences are properly reconciled?

– The most disturbing thing we saw this season was the fact that many Transfer Agents are not officially certifying and signing the legally required list of registered shareholders. (Maybe because they themselves are ‘not in proof’?) And at least one TA is not including CEDE on the list of registered shareholders!

– One last thing we noted – the surprising number of times that issuers got totally wrong advice from newbies at their outside counsel. To cite just one example, we had a case where we presented our draft documents in advance, as usual, and were told re: the draft Ballot of Appointed Proxies [sometimes known as the “Master Ballot” whereby the proxy holders legally CAST their votes] that “our outside counsel says we do not need this.” “Don’t try telling that to a judge,” we said, citing the landmark case where the judge ruled, as most experts already knew, that “proxies are not votes” until the Proxy Committee votes them by BALLOT. (Bad as this was it still doesn’t top the case, a few years ago, when an attorney for one of the most famous law firms in California insisted that the votes that had been recorded for a Director who dropped out at the last minute should be simply “transferred” to the replacement – then – even stupider – he advised them to write and mail a new proxy statement – when the company could have appointed a new director with no fuss and muss – and without spending an extra dime – right after the AGM, where he or she could have served without a shareholder vote until the next AGM.)

Do yourself a favor and avoid providing fodder for the self-flagellation machine. Avail yourself of all of the resources that we have here on TheCorporateCounsel.net and CompensationStandards.com, take the time to learn and understand the proxy process and be very careful when reviewing and preparing the proxy statement and related annual meeting materials.

– Dave Lynn