A proxy fight, proxy contest or proxy battle is an unfriendly contest for 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 Agent may refer to: Espionage, investigation, and law *, spies or intelligence officers * Law of agency, laws involving a person authorized to act on behalf of another ** Agent of record, a person with a contractual agreement with an insuran ...

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. In an election, the incumbent is the person holding or acting in the position that is up for election, regardless of whether they are seeking re-election. There may or may not be ...

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 A by-law (bye-law, by(e)law, by(e) law), is a set of rules or law established by an organization or community so as to regulate itself, as allowed or provided for by some higher authority. The higher authority, generally a legislature or some other ...

. As a result, most proxy fights are unsuccessful; except those waged more recently by

hedge fund A hedge fund is a Pooling (resource management), pooled investment fund that holds Market liquidity, liquid assets and that makes use of complex trader (finance), trading and risk management techniques to aim to improve investment performance and ...

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 The Hewlett-Packard Company, commonly shortened to Hewlett-Packard ( ) or HP, was an American multinational information technology company. It was founded by Bill Hewlett and David Packard in 1939 in a one-car garage in Palo Alto, California ...

, before

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

's management of that company in 2002 took over

Compaq Compaq Computer Corporation was an American information technology, information technology company founded in 1982 that developed, sold, and supported computers and related products and services. Compaq produced some of the first IBM PC compati ...

. *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 businessman and investor. He is the founder and controlling shareholder of Icahn Enterprises, a public company and diversified conglomerate holding company based in Sunny Isles Beach, ...

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

Time Warner Warner Media, LLC ( doing business as WarnerMedia) was an American multinational mass media and entertainment conglomerate owned by AT&T. It was headquartered at the 30 Hudson Yards complex in New York City. It was established as Time Warne ...

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

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

and the

New York Central Railroad The New York Central Railroad was a railroad primarily operating in the Great Lakes region, Great Lakes and Mid-Atlantic (United States), Mid-Atlantic regions of the United States. The railroad primarily connected New York metropolitan area, gr ...

, 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 He was born into a Jewish family. Enthralled with the radical left ...

'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 or proxy voting advisory businesses (PVABs)) provides services to shareholders (in most cases an institutional inv ...

s play a key role in many proxy fights. In many cases, the proxy firms end up determining the result of the contest. The Securities Exchange Act of 1934 also gave the

Securities and Exchange Commission The United States 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. Its primary purpose is to enforce laws against market m ...

(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 Takeover defense

Examples

Key players

See also

References