DEF 14A

DEF 14A (also known as the 'Definitive Proxy Statement') is a mandatory document that a public company must file with the U.S. SEC before its annual or special shareholder meeting. Think of it as the official invitation and program for a company’s most important yearly event. Its primary purpose is to give shareholders the essential information they need to cast informed votes on critical matters, whether they attend the meeting in person or vote by proxy (i.e., remotely). This document goes far beyond a simple meeting agenda. It provides a detailed look into the company's Corporate Governance, offering a window into the inner workings of the Board of Directors, the pay packages of top executives, and any major proposals that could change the company's future, such as a potential Merger or Acquisition. For any serious investor, particularly a Value Investing practitioner, the DEF 14A is not just administrative paperwork; it's a treasure trove of qualitative information that financial statements alone can't provide.

While they can seem long and dense, proxy statements are structured to present specific information. Knowing where to look is key. Once you pop the hood, you’ll find the real machinery of the company.

The very beginning of the document lays out the basics of the shareholder meeting:

• The date, time, and location of the meeting.
• A clear list of the matters up for a vote.
• Instructions on how to vote your shares, either in person, online, or by mail.

This is where the real detective work begins. The following sections are packed with clues about the quality and integrity of the company's leadership.

This section provides biographies for each board nominee and current executive. Don't just skim the names. Look for:

• Experience: Is their background relevant to the company's industry and strategy?
• Independence: Do the directors have financial ties to the company outside of their board seat? A truly independent board is better at holding management accountable.
• Interlocks: Do directors sit on each other's boards? This can be a sign of a cozy “old boys' club.”

Often the most scrutinized section, and for good reason. It details exactly how, and how much, the top five named executives are paid. You'll find:

• Summary Compensation Table: A breakdown of salary, bonus, stock awards, and other perks for the last three years.
• Incentives: Is their bonus tied to metrics that actually create long-term shareholder value (like return on invested capital) or short-term fluff (like adjusted earnings)?
• Peer Group: The company will list “peer” companies it uses to benchmark its pay. Are these peers truly comparable, or are they cherry-picked to justify higher salaries?
• Say on Pay: This is a non-binding advisory vote where shareholders can approve or reject the executive compensation packages. A high percentage of “against” votes is a major red flag.

This short section confirms that the audit committee has reviewed the company's financials and has overseen the work of the independent auditor. It’s a good place to check for consistency and any signs of trouble with the company's accounting.

Here, fellow shareholders can put forward their own resolutions for a vote. These can range from requests for environmental reports to calls for changes in governance. A high number of such proposals, or a contentious battle over one, can signal a budding Proxy Fight or deep dissatisfaction among the owners.

A value investor's job is to buy great companies at fair prices. But a great business can be ruined by poor management. The Form 10-K tells you about the business; the DEF 14A tells you about the people running it.

Warren Buffett famously said he looks for managers with integrity, intelligence, and energy. The proxy statement is your best tool for assessing these traits. Are the executives' interests aligned with yours? Or are they using the company's assets to build a personal empire, funded by excessive salaries and perks? The compensation section tells this story plainly.

The proxy statement can be an early warning system. Things to watch out for include:

• Sudden departures from the board or key executive positions.
• Related-party transactions where the company does business with entities controlled by its own executives or directors.
• Excessive pledging of company stock by executives as collateral for personal loans.
• Perks that seem outrageous, like personal use of the company jet without a clear business purpose.

Reading the proxy statement is the first step. The second is voting. As a shareholder, you are a part-owner of the business. Voting is your right and your responsibility. The DEF 14A equips you to make intelligent decisions to protect and grow your investment by holding management's feet to the fire.

Finding a company's proxy statement is simple and free. All public U.S. companies must file them electronically with the SEC.

• Direct from the Source: The best place to find them is the SEC's EDGAR (Electronic Data Gathering, Analysis, and Retrieval) database. Just search for a company's name or ticker symbol, and filter the filings for “DEF 14A.”
• Company Website: Most companies also post their SEC filings, including the proxy statement, in the “Investor Relations” or “Investors” section of their corporate website.