A proxy fight, proxy contest or proxy battle (sometimes even called a proxy war) 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-el ...

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, 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 wa ...

'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 grounds, as with Carl Icahn'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 and the New York Central Railroad, can be found in David Karr's 1956 volume, ''Fight for Control''.

Key players

Due to their out-sized influence with many institutional investors, proxy advisors 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 The U.S. Securities and Exchange Commission (SEC) is an independent agency of the United States federal government, created in the aftermath of the Wall Street Crash of 1929. The primary purpose of the SEC is to enforce the law against mark ...

(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