What is a Proxy Fight?

A proxy fight (also known as a "proxy contest", "proxy battle", or "proxy war") is an effort by the shareholder or group of shareholders of a corporation to convince other shareholders to cast their corporate votes (by granting a representative or proxy the authority to vote those shares) the way the urging shareholders prefer. The objective of the shareholders initiating the proxy contest is to secure the number of shareholder votes required to achieve the desired result (such as electing specific directors or approving a specific corporate action). 

How Does a Proxy Contest Work?

Common shareholders (and some preferred shareholders) of a corporation have the right to vote for or against major actions affecting the corporation - such as:

• changing of the corporate governance documents, 
• major mergers or acquisitions, 
• dissolution of the company, 
• sale of substantially all of a company's assets, or 
• the election of directors. 

Shareholders generally vote their shares by indicating their voting preference and assigning their voting rights to a representative, known as a "proxy". The representative will show up to the shareholders' meeting and vote in accordance with the shareholder's instructions.  As defined above, a proxy contest is when a shareholder or group of shareholders undertake an effort to convince other shareholders to grant their proxy vote in favor of a specific action. The most common form of proxy contest concerns the election of specific directors (members of the board of directors). In a corporation, the existing board members nominate individuals to fill vacant positions on the board of directors. The names of these individuals appear on the proxy ballots that are sent out to shareholders. This nominating function grants a significant advantage to the individuals nominated by the board. It is nearly a 100% certainty that these individuals will be elected, unless the shareholders are presented with other options and a reason to support those options. In a proxy contest for the election of directors, the group of shareholders initiating the proxy contest will either seek to include their nominees on the proxy ballot or contact shareholders directly with information and a request to write in the name of a specific candidate for the director position on the proxy ballot. If the shareholders initiating the proxy challenge are successful, they will elect their desired members to the board of directors. If successful in electing a majority of desired directors, the activist shareholder has effectively achieved control over the corporation. The new members will have the power to set corporate strategy, appoint new executive officers, elect a new chairman of the board, etc. Existing boards of directors fight hard to fend off activist investors seeking to initiate a proxy contest. They employ any number of anti-takeover tactics, such as:

• Denying Proxy Access
• Staggered Boards
• Restricting Funding
• Limiting Provisions in the Bylaws.

Proxy Contests in Hostile Takeovers

Proxy contests are often employed as part of a hostile takeover attempt. In such situations, another company seeks to purchase a target company. If the board of directors of the company is resistant to being taken over (as these directors will likely lose their positions after the acquisition), they reject the takeover proposal.  The acquiring company then sends an offer for acquisition (along with relevant company financial and operational documents) on Schedule 14A to the shareholders of the target company. The acquiring company will generally employ the services of a proxy advisory firm to assist in the process of compiling the list of shareholders, contacting them, and presenting the acquiring firms proposal.  As part of the proposal, the acquiring firm requests the right to vote as a proxy for the shareholders of the company. If the proxy contest is successful, the acquiring firm will be able to elect a majority of the company's directors. Once elected, these directors will approve the acquiring company's offer to acquire the target company.

Related Topics

• Corporate Governance Law (Intro)
• What is Business Governance?
• Berle-Means Thesis 
• Corporate Governance Rating Definition
• Who are the members of a corporation?
• Corporate Charter
• Shareholder Register
• Common Stock
• Preferred Stock
• Par Value
• Authorized Shares
• Issued Shares of Stock
• Unissued Shares of Stock
• Outstanding Shares
• Institutional Shares
• Dual Class Shares
• What is a closely-held corporation?
• Close Corporation Plan Definition
• What is a Private Company vs a Public Company?
• What is the role and purpose of the corporation?
• What is the Agency theory of corporate governance?
• Shareholder-Centric Perspective
• Shareholder Value
• What is the Stakeholder theory of corporate governance?
  
• What is the role & rights of Shareholders in the corporation?
  
• Shareholder Democracy Definition
• Quorum Definition
• Information Circular
• Straight and Cumulative Voting
• Statutory (Straight)
  
• Cumulative Voting
• Plurality Voting
• Class Voting Shareholders
• Changing the Voting Rules
• Supermajority (Voting)
• Shareholder Sponsored Proposal 
• What are the variations on attributes of Ownership structure?
• Stock Split
• What are the fiduciary duties owed by shareholders?
• When is a shareholder personally liable for corporate obligations?
• Appraisal Rights
• Dissenter's Rights
• Say on Pay Rights
• How can shareholder enforce their rights (direct and derivative actions)?
• Amotion
• What is the process for bringing a Derivative action?
• What are corporate vote Proxies?
• Proxy Statement
• Proxy Fight or Contest Definition & Explanation 
• What is Shareholder Activism and the significance of Institutional Investors?
• Activist Investor
• Overview of Board of Directors
• Board Decision Making
• Advisory Board (Observer Directors)
• What is the role of the Board of Directors?
• Board of Trustees
• Board of Governors
• What is the composition of the board of directors?
• Chairman of the Board
• CEO as Chairman of the Board
• Inside Director
  
• Outside Director
• Outside Director or Non-Executive Director Definition
• Independent Outside Director
• Budget Committee
• Audit Committee
• Compensation Committee
• Nomination Committee (Corporate Board)
• What standards govern the actions of the board of directors?
• Duty of Candor Definition
• Duty of Care (Board of Directors)
• Duty of Loyalty (Directors) 
• Self-Dealing
• Board Evaluation Definition
• What is the Business Judgment Rule?
• What is D&O insurance?
• Codetermination (Foreign)
• What is the role of Managers of the corporation?
• What standards govern manager actions?
• Chief Executive Officer (CEO)
• Chief Financial Officer
• Chief Information Officer (CIO)
• Chief Investment Officer (CIO)
• Chief Legal Officer
• Chief Operating Officer
• Chief Risk Officer
• Chief Security Officer
• Chief Technology Officer (CTO)
• What are the primary state and federal corporate governance laws?
• What is the role of the state in corporate governance?
• What is the role of Securities Laws in corporate governance?
• What is the role of the Foreign Corrupt Practices Act in corporate governance?
• What is the Sarbanes-Oxley Act (SOX) effect on corporate governance?
• Sarbanes-Oxley Act (SOX)
• What is the Dodd-Frank Wall Street Reform and Consumer Protection Act effect on corporate governance?
• Corporate Monitors
• What industry organization standards affect corporate governance?
• How do proxy advisory firms affect corporate governance?
• What is the role of ethics in corporate governance?
• What are the major causes of corporate governance issues?
• What are the access to information issues?
• What are decision-making structure issues?
• What are the power struggle or competition issues?
• Holding Company
• What are hostile takeovers and defenses to hostile takeovers?
• Williams Act
• Staggered Board
• Shark Repellent Defenses?
• Poison Pill Defenses?
• Flip Over Poison Pill Definition
• Flip In Poison Pill Definition
  
• Voting Poison Pill Plan
• Delay-Tactic Defenses?
• Legal Lockup Defenses?
• White Knight and Pac Man Defenses?
• Jonestown Defense
• Lady Macbeth Strategy
• Macaroni Defense
• Yellow Knight
• Back-end Plan Definition
• Backflip Takeover Definition
• Dead Hand Provision Definition
• Kamikaze Defense
• Operating Company Property Company Model
• Whitemail
• Scorched Earth Policy Definition
• Revlon Rule
• What are benefit-alignment issues?
• Cadbury Rules Definition