SEC Form DEF 14A: Definition and Information for Shareholder Use

What Is the SEC Form DEF 14A?

SEC Form DEF 14A is a filing with the Securities and Exchange Commission (SEC) that must be filed by or on behalf of a registrant when a shareholder vote is required. SEC Form DEF 14A is most commonly used in conjunction with an annual meeting proxy. The form should provide security holders with sufficient information to allow them to make an informed vote at an upcoming security holders' meeting or to authorize a proxy to vote on their behalf.

SEC Form DEF 14A includes information about the date, time, and place of the meeting of security holders, revocability of proxy, dissenter's right of appraisal, persons making the solicitation, direct or indirect interest of certain persons in matters to be acted upon, modification or exchange of securities, voting procedures, and other perfunctory details. The average investor often overlooks Form DEF 14A. It contains key details on corporate governance, listed in the next section, that are scrutinized assiduously by activist and like-minded investors.

Understanding SEC Form DEF 14A

SEC Form DEF 14A, which is also known as a "definitive proxy statement," is required under Section 14(a) of the Securities Exchange Act of 1934. This form is filed with the SEC when a definitive proxy statement is given to shareholders and helps the SEC ensure that shareholders' rights are upheld. The proxy statement helps shareholders understand corporate governance practices when it comes time to cast their votes for the proposed items. 

At the outset of Form DEF 14A, the items up for vote are listed. They typically include approval of the re-election of directors, approval of executive compensation on an advisory basis (so-called "say-on-pay"), approval of audit fees, and ratification of the ongoing engagement of the auditing firm. In many cases, the proxy filing will ask for approval of a new or amended executive compensation plan. Sometimes a shareholder vote on a singled-out matter appears on the voting ballot. An example would be something like the elimination of sourcing of meat from farms that use antibiotics or hormones for its livestock.

Lifting the Veil on Corporate Governance Practices

SEC Form DEF 14A is a shareholder's main document to understand the composition of the board of directors and how they oversee the management of the company. The board is responsible for the formation and running of committees, the most important of which is the compensation committee. Large sections of the proxy filing are devoted to the discussion of executive compensation practices and philosophy, as well as tables of executive and director compensation components. Tables of major stockholder ownership percentages are also displayed. Executive compensation growth has recently become hotly debated; it is the proxy filing that shareholders look at to determine whether compensation levels are acceptable.

Conjoined with this debate is the issue of whether the large passive index funds, including Vanguard, BlackRock, State Street, and others, which hold significant ownership of corporate America, are too passive in their voting. The track record of these heavyweights shows that they vote the vast majority of the time with the recommendations of the board of directors. Activist investors serve an important function in speaking up when they find certain corporate governance practices objectionable.