A proxy fight, proxy contest or proxy battle (sometimes even called a

proxy war A proxy war is an armed conflict between two states or non-state actors, one or both of which act at the instigation or on behalf of other parties that are not directly involved in the hostilities. In order for a conflict to be considered a pr ...

) is an unfriendly contest for the control over an organization. The event usually occurs 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. 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. In a proxy fight,

incumbent The incumbent is the current holder of an office or position, usually in relation to an election. In an election for president, the incumbent is the person holding or acting in the office of president before the election, whether seeking re-ele ...

directors and management have the odds stacked in their favor over those trying to force the corporate change. These incumbents use various corporate governance tactics to stay in power, including: staggering the boards (i.e., having different election years for different directors), controlling access to the corporation's money, and creating restrictive requirements in the bylaws. As a result, most proxy fights are unsuccessful; except those waged more recently by

hedge fund A hedge fund is a pooled investment fund that trades in relatively liquid assets and is able to make extensive use of more complex trading, portfolio-construction, and risk management techniques in an attempt to improve performance, such as s ...

s, which are successful more than 60% of the time. However, previous studies have found that proxy fights are positively correlated with an increase in shareholder wealth.

Examples

*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. *Internal opponents to an impending takeover (viewing it will cut value or add much risk) may enter into a proxy fight. Such took place within Hewlett-Packard, before

Carly Fiorina Cara Carleton "Carly" Fiorina (''née'' Sneed; born September 6, 1954) is an American businesswoman and politician, known primarily for her tenure as CEO of Hewlett-Packard (HP). As chief executive officer of HP from 1999 to 2005, Fiorina was ...

's management of that company in 2002 took over

Compaq Compaq Computer Corporation (sometimes abbreviated to CQ prior to a 2007 rebranding) was an American information technology company founded in 1982 that developed, sold, and supported computers and related products and services. Compaq produced ...

. *Absent any looming takeover, proxy fights emerge from shareholders unhappy with management, with or without legal and equitable

derivative suit A shareholder derivative suit is a lawsuit brought by a shareholder on behalf of a corporation against a third party. Often, the third party is an insider of the corporation, such as an executive officer or director. Shareholder derivative suits are ...

grounds, as with

Carl Icahn Carl Celian Icahn (; born February 16, 1936) is an American financier. He is the founder and controlling shareholder of Icahn Enterprises, a public company and diversified conglomerate holding company based in Sunny Isles Beach. Icahn takes la ...

's effort in 2005–06 to oust most the board of

Time Warner Warner Media, LLC ( traded as WarnerMedia) was an American multinational mass media and entertainment conglomerate. It was headquartered at the 30 Hudson Yards complex in New York City, United States. It was originally established in 1972 by ...

. *An early history of proxy fighting, detailing such 1950s battles as the fight for control of some of U.S. largest corporations, including the

Bank of America The Bank of America Corporation (often abbreviated BofA or BoA) is an American multinational investment bank and financial services holding company headquartered at the Bank of America Corporate Center in Charlotte, North Carolina. The bank ...

and the

New York Central Railroad The New York Central Railroad was a railroad primarily operating in the Great Lakes and Mid-Atlantic regions of the United States. The railroad primarily connected greater New York and Boston in the east with Chicago and St. Louis in the Mid ...

, can be found in

David Karr David Harold Karr, born David Katz (1918, Brooklyn, New York – 7 July 1979, Paris) was a controversial American journalist, businessman, Communist and NKVD agent. Early life Enthralled with the radical left, Karr began writing at a relativel ...

's 1956 volume, ''Fight for Control''.

Key players

Due to their out-sized influence with many institutional investors,

proxy advisor A proxy firm (also a proxy advisor, proxy adviser, proxy voting agency, vote service provider or shareholder voting research provider) provides services to shareholders (in most cases an institutional investor of some type) to vote their shares at ...

s play a key role in many proxy fights. In many cases, the proxy firms end up determining the result of the contest.Protecting Shareholders From Activist Proxies HP declares proxy win
/ref> The Securities Exchange Act of 1934 also gave the Securities and Exchange Commission (SEC) the power to regulate the solicitation of proxies. Some of the rules the SEC has since proposed, like the universal proxy, have been controversial because opponents have suggested that they would increase the amount of proxy fights.

References

{{corporate finance and investment banking Business terms Corporate law Shareholders Mergers and acquisitions Corporate warfare

Examples

Key players

See also

References