Shareholders of a public corporation may appoint an agent to attend shareholder meetings and vote on their behalf. That agent is the shareholder's proxy.[1] A proxy fight or proxy battle is an event that may occur when a corporation's stockholders develop opposition to some aspect of the corporate governance, often focusing on directorial and management positions. Corporate activists may attempt to persuade shareholders to use their proxy votes (i.e. votes by one individual or institution as the authorized representative of another) to install new management for any of a variety of reasons.
In a proxy fight, incumbent directors and management have the odds stacked in their favor over those trying to force the corporate change. Many tactics are used by these incumbents to stay in power; including staggering the boards (i.e. having different election years for different directors), access to the corporation's money, and creating restrictive requirements in the bylaws. As a result, most proxy fights are unsuccessful. However, it has been recently noted that proxy fights waged by hedge funds, which are virtually unregulated, are successful more than 60% of the time[citation needed].
The use of proxies is highly regulated by both federal law (through the oversight of the SEC) and state law, often resulting in serious concerns of federalism.
For example:
An acquiring company, frustrated by the takeover defenses of the management, may initiate a proxy fight to install a more compliant management of the target.
Or stockholder dissidents opposed to an impending takeover in the view that it will dilute value may use a proxy fight to stop it. An example of a proxy vote took place within Hewlett-Packard, when the management of that company sought to take over Compaq. Opponents of the Compaq takeover lost the fight. The management, under Carly Fiorina, remained in place, and the merger went ahead.
In the absence of any looming takeover, proxy fights can come about because dissidents are unhappy with management, as with Carl Icahn's effort in 2005-2006 to oust a majority of the board of Time Warner.
A proxy is the use of a third party voter. When ones voice is presented through a third party. The third party is usually persuaded through financial means.
An early history of Proxy Fighting, detailing such 1950's battles as the fight for control of some of America's largest corporations, including the Bank of America and the New York Central Railroad, can be found in David Karr's 1956 volume, Fight for Control.
References
- ^ Klein, Ramseyer, and Bainbridge. Business Associations: Cases and Materials on Agency, Partnerships, and Corporations. (7th Ed.) Foundation Press.
