Upon buying shares in a company, you hold an ownership stake. Most shareholders do not attend meetings of the company’s board of directors, but instead cast their votes on corporate governance issues by proxy. A proxy fight or proxy battle refers to the process of trying to win over proxies as a way of influencing the actions or decisions of a corporation’s board. Proxy fights often erupt in the context of company takeovers. The company initiating the takeover may try to spark a proxy fight in hopes that shareholders will vote out the company’s existing board and install new directors who are more agreeable to the takeover.
An example of a proxy fight involving a takeover occurred in 2001. The shareholders of Hewlett Packard were attempting to take over rival Compaq Computer Corp. Opponents of the merger lost that battle, which left Hewlett’s management, including then-CEO Carly Fiorina, in place to continue with the takeover. In other cases, proxy fights occur when a group of shareholders is opposed to the way existing management is running a company. They will try to pool their proxy votes in order to influence the actions of company directors or even oust them for different leadership. In cases like this, a large enough bloc of proxy votes can send a message to a company’s board of directors. An example of this occurred in 2004 when Michael Eisner, Chairman of the Walt Disney Company, received a vote of no confidence from 45 percent of voting shareholders. Eisner was ousted as Chairman shortly after this vote.
When a company initiates a proxy fight, it often hires firms known as proxy solicitors to lobby shareholders to use their proxies toward whatever end is the goal of the fight. In most cases, proxy solicitors concentrate on large shareholders, such as institutions, which hold large numbers of shares. Proxy fights are regulated by the Securities and Exchange Commission, which requires proxy solicitors to submit all lobbying materials for review before the materials are sent out to any shareholders.
More information on proxy fights and applicable regulations is available from the SEC web site at http://www.sec.gov/answers/proxy.htm.
