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What are corporate vote “proxies” and how are they used?
Shareholders may vote their shares through a “written consent” or by casting their vote at a shareholder meeting. Written consents avoid the need to call a meeting, but any matter voted upon must receive unanimous written consent to be approved. In corporations with large numbers of shareholders, it is unlikely that all shareholders will attend the meetings and unanimous written consent is not likely. Thus, shareholders have the right to appoint someone to vote for them at a shareholder meeting. Both the appointed individual and the card that the shareholder signs to appoint the substitute voter are often called a “proxy”. For purposes of this material, we will refer to a shareholder proxy as the card used to appoint an individual to vote the shareholder’s interest. The proxy is used to solicit shareholder response and votes on a particular proposal. The shareholder may grant the proxy in favor of a particular action, such as a vote in favor of her desired candidate or corporate action. Under SEC rules, publicly-traded companies are not required to solicit proxies from shareholders, but virtually all of them do. This is the only practical way to obtain the requisite number of shareholders at a meeting to hold a vote and take action. This reaching this minimum number of shareholders present is known as obtaining a “quorum”. The company must accompany all “proxy solicitations” with financial statements and a disclosures statement, known as a “proxy statement”. The proxy statement contains lots of information about the corporation and any proposed actions. Much of this information is disclosed to shareholders in the annual statement and to the public via filing with the Securities Exchange Commission.
- Note: Some corporations pass what are known as “proxy access bylaws”. Under proxy access bylaws, shareholders have greater ability to place information in the proxy materials sent to shareholders. Notably, large shareholders may propose individuals for election to the board of directors and these names must be included in the proxy material. These outsider nominees compete directly against directors nominated by the existing board or director nominating committee. It is, therefore, possible for an outside nominee to be elected to the board without the expense and drama of preparing separate proxy materials. So far, only a handful of companies have adopted proxy access bylaws. Shareholders have the right to require the company to take a vote at the annual meeting on changing company bylaws to permit proxy access. The proposal passes if a majority of shareholders vote in favor.
Discussion: How do you feel about the ability of shareholders to appoint a voting representative? Do you think corporations should be able to meet quorum requirements for shareholder meetings through proxies? Why or why not? Why do you think corporations are required to make such extensive disclosures along with proxy solicitations? Why do you think proxy access is not a widely adopted practice?
Practice Question: You are corporate secretary and are in charge of the administration of shareholder meetings. What process might you follow to make certain a quorum is established at the annual shareholder meeting? What information must you provide to shareholders in this process?
- Generally, the majority of company shareholders do not show up to the shareholder’s meetings. Instead, they assign their votes to individuals to vote on their behalf. This process is known as a “corporate proxy”. The proxy will vote the shareholder’s shares in the manner indicated on a proxy ballot. The proxy ballot is set to shareholders prior to the shareholder meeting. The corporate secretary must announce a shareholder meeting a minimum number of days (usually 90 – 120) prior to the meeting. They must provide access to all relevant company information for the meeting – including disclosing any information coming up for shareholder vote (including mandatory and advisory proposals). If it is an annual meeting, it also means disclosing the financial data of the company (Balance sheet, income statement, cash flow statement, statement of shareholder’s equity, etc.). To ensure that quorum is established at an ASM, in addition to providing the statutory notice. the company’s secretary can ensure that the annual meeting is well publicized, through sending letters to the shareholders, advertising the meeting through television or social media.