A proxy fight is a situation in which a number of shareholders in a company form a unified group with the intention of voting for or against a certain action, such as electing members of the board of directors, approving a merger or acquisition, or other important business issues. Because of this, a proxy fight is a common strategy used whenever shareholders are unhappy with the current corporate governance and its business decisions. It is also the tactic used in hostile takeovers.
Why Should You and Other Shareholders Care About Proxy Battles?
As a shareholder, you play an active role in how a company operates because collectively shareholder votes carry weight. You are granted the right to vote for or against a variety of different major actions that can affect the corporation and its investors. Such issues can include:
- Electing people to fill vacant positions on the company’s board of directors
- Making changes in corporate governance documents
- Making major mergers or acquisitions
- Selling some or all the company’s assets
- Dissolving the company
If you haven’t yet exercised your right to vote, then here is how it works.
When shareholders vote, they vote according to their shares and assign their voting rights to a representative who will cast their vote based on their preference. This representative is called a “proxy.”
Because a company can have hundreds or even thousands of investors, not all shareholders can attend a company’s annual general meeting (AGM). As a result, the proxy is the representative who shows up at the AGM and votes in accordance with the shareholder’s instructions. A proxy contest emerges when an activist shareholder or a group of shareholders actively tries to convince the other shareholders to grant their proxy vote to support a specific action.
Here is an example of how a proxy fight can impact the election of members of the board of directors:
In a corporation, when there are vacancies on the board of directors, the existing board members nominate individuals to fill those vacant positions. The names of the nominees appear on proxy ballots which get sent out to shareholders.
Normally, this type of election process provides the board of directors with a significant advantage because they choose the nominees. As a result, one or more of the board’s nominees are essentially guaranteed to be elected.
But if a proxy contest is initiated in the election of directors, the group of shareholders responsible for starting the proxy fight will either seek to include their own nominees on the proxy ballot or they may contact the other shareholders directly to request that they vote for a specific candidate already included on the proxy ballot.
If the proxy challenge is successful, then the shareholders will elect the members to the board of directors that they want instead of those preferred by the current board. In cases where shareholders can elect most of their desired directors, then the shareholders or activist shareholders will essentially gain control over the corporation and all the powers that come with it.
Of course, it is important to note that when shareholders initiate a proxy fight in business, the corporation’s existing board of directors will fight vehemently and use a variety of methods to attempt to thwart the shareholders from succeeding in their efforts. Such tactics can include:
- Denying shareholders proxy access
- Staggered boards
- Restricting funding
- Limiting certain provisions in the company’s bylaws
Here’s How Civex Can Help Amplify Your Voice
Investing in a company provides an individual with so much more than just the prospect of attractive returns or an impressive portfolio. An investor can have a say in many of that company’s major business decisions. But unfortunately, so many investors don’t realize the power their voices can have on the corporation they invest in. Currently, just 10% of all investors take the time to vote by proxy.
Civex has developed an innovative app that is helping to change that. Civex makes it easy for investors to meet, discuss, and take action, so they can have a significant impact in the companies they invest in.
Get the Civex app today and stay informed about the topics that matter most to you and most importantly – let your voice be heard!