What is a Proxy Fight?

A proxy fight is a situation in which people attempt to take control of a corporation by gathering shareholders together and using their proxy votes in a block. Proxy votes allow shareholders to vote on issues of importance to the company, with shareholders using an authorized agent known as a proxy to cast votes on their behalf. When shareholders work together, it increases the power of their votes, and sometimes they can enact change in a company.

Most classically, a proxy fight is used in an attempted corporate takeover. If Company A wishes to take over Company B, agents of Company A might try to convince Company B shareholders that it is in their best interest to oust the current corporate board and elect new board members. These new board members, of course, would be carefully selected to ensure that they would support the takeover.

Shareholders may also use a proxy fight if they feel that a company is being run poorly. In this instance, they agree to work together as a team to remove board members in the interest of finding new board members who will set better policies for the company. Companies which fail to meet the needs of changing times may find themselves subject to a proxy fight, and proxy fights have also been used to pressure companies into making certain policy decisions.

Most companies do not welcome proxy fights. Board members usually fight back in a variety of ways in an attempt to stymie the attempted proxy fight. For example, they may establish staggered elections, ensuring that only one board member can be replaced each year, and thereby prolonging the proxy fight considerably. They may also use their day to day control of the company to cement their position, in the hopes of holding on long enough for the proxy fight to be abandoned.

These corporate battles often make the news when they involve major companies, because the general public sometimes has an interest in the fate of big companies. While members of the public cannot participate in proxy fights, unless they own stock, they may follow the twists and turns of a corporate takeover out of general interest, or because they believe that they may be personally affected. For example, users of certain software may feel threatened when another software company threatens to take over the company which manufactures their favorite products.