I was nosing around on footnoted.org today, gathering ideas about companies to target for our Vote Recommendations. As I drilled down into the site, I came upon a page written by Michele Leder, footnoted.org’s founder about what to look for when reading SEC filings. Her recommendations for scanning a proxy statement were interesting and it prompted me to think about what I look for when grinding through a proxy statement.

1. How many times did the audit committee meet in the past year? Does the audit committee seem to have enough experience and independence to ask tough questions of company management?
2. What types of related party transactions are being disclosed? Has there been a substantial increase in these transactions? Do they seem reasonable?
3. How much stock do executive officers own? What about the directors?
4. Do executive salaries correspond in any way to the company’s financial performance over the past year?
5. Do the retirement benefits for executives (including pension benefits) seem excessive given the company’s performance?
6. How much is the company paying its accounting firm for non-audit services? How does this compare to previous years?
7. What sorts of shareholder proposals are being included in the proxy? Do they raise concerns about the company’s approach to corporate governance?

Some of these questions seem broad in scope when thinking about how to vote your proxy. But they are certainly a good guide for tackling the task. One way to think about analyzing a proxy statement is to ask yourself what you are trying to accomplish when reading the document. For instance, the first 2 questions above focus on director qualifications. Did the board and its key committees meet a sufficient number of times to do their jobs? Similarly, do any of the directors have any potential conflicts that might affect their judgment as directors?

Questions 3, 4 and 5 relate to executive compensation questions that can give a voter some clarity about how to vote for compensation-related issues coming to a shareholder vote.

Question 6 addresses the core concern about outside auditors. Are other fees excessive, suggesting possible conflicts of interest for the auditors?

Finally, Question 7 makes an interesting point about shareholder proposals related to corporate governance matters. It’s the old “where there’s smoke there’s fire” notion that if an institutional investor is raising a corporate governance issue by going to the trouble of submitting a proposal, there may be some concern related to that very issue that you as a shareholder should pay attention to.

The staff at footnoted.org have figured out a way to have fun with what could be a painful exercise. Obviously having a purpose when reading a proxy statement is key to your success. Give it a try?