Proxy contest Definition
Oftentimes, situations (such as geographic constraints) occur that make it difficult or impossible for shareholders to actually vote at the various shareholder meetings. Alternatively, situations occur where certain actions undertaken by management or other shareholders are so critical to those interested that they may solicit the votes of shareholders prior to the actual meeting’s occurrence. In either of these situations, the shareholder may decide to grant a proxy to a third party in order to insure that his or her vote is cast.
Proxy voting is a fairly straightforward process. The shareholder who wishes a third party to vote for him will issue him a proxy statement. The proxy statement will provide certain information:
- The name of the shareholder issuing the proxy
- The party who will actually vote (typically, this need not be another shareholder)
- The number of shares held by the party
- The vote (yes or no to a particular question or the name of the board member that the proxy holder is authorized to vote for)
- The duration of the proxy (how long it will be effective)
The above, while not an exclusive list, constitutes the basic requirements designated by most states as the necessary elements of the proxy. After the proxy is completed, a copy of it is retained by the shareholder and the voting party, and a third copy is typically forwarded to the company secretary, who keeps the proxy until the actual date of the vote.
EXAMPLE: A group of shareholders was particularly concerned about a recommendation by management that shareholders adopt a plan to sell the stapler-making business line of Office, Inc. Given their concern, the shareholders decided to mount a proxy contest to defeat management’s initiative. Thus, they distributed a set of information to shareholders that described why the stapler line was critical to the success of the firm. In addition, the packet sent to shareholders...