Proxy fight
Encyclopedia
A proxy fight or proxy battle is an event that may occur 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 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. However, it has been recently noted that proxy fights waged by hedge funds are successful more than 60% of the time.
Stockholder dissidents opposed to an impending takeover in the view that it will dilute value may also use a proxy fight to stop it. An example of a proxy fight took place within Hewlett-Packard
, when the management of that company sought to take over Compaq
. Opponents of the Compaq takeover lost the fight. The management, under Carly Fiorina
, remained in place, and the merger went ahead.
In the absence of any looming takeover, proxy fights can come about because dissidents are unhappy with management, as with Carl Icahn
's effort in 2005-2006 to oust a majority of the board of Time Warner
.
An early history of proxy fighting, detailing such 1950s battles as the fight for control of some of America'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.
Proxy voting
Proxy voting has two forms: delegable voting and delegated voting, which are procedures for the delegation to another member of a voting body of that member's power to vote in his absence, and/or for the selection of additional representatives, as in the case with transitive proxies...
(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 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. However, it has been recently noted that proxy fights waged by hedge funds are successful more than 60% of the time.
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.Stockholder dissidents opposed to an impending takeover in the view that it will dilute value may also use a proxy fight to stop it. An example of a proxy fight took place within Hewlett-Packard
Hewlett-Packard
Hewlett-Packard Company or HP is an American multinational information technology corporation headquartered in Palo Alto, California, USA that provides products, technologies, softwares, solutions and services to consumers, small- and medium-sized businesses and large enterprises, including...
, when the management of that company sought to take over Compaq
Compaq
Compaq Computer Corporation is a personal computer company founded in 1982. Once the largest supplier of personal computing systems in the world, Compaq existed as an independent corporation until 2002, when it was acquired for US$25 billion by Hewlett-Packard....
. Opponents of the Compaq takeover lost the fight. The management, under Carly Fiorina
Carly Fiorina
Carly Fiorina is an American business executive and a former Republican candidate for the United States Senate representing California. Fiorina served as chief executive officer of Hewlett-Packard from 1999 to 2005 and previously was an executive at AT&T and its equipment and technology spinoff,...
, remained in place, and the merger went ahead.
In the absence of any looming takeover, proxy fights can come about because dissidents are unhappy with management, as with Carl Icahn
Carl Icahn
Carl Celian Icahn is an American business magnate and investor.-Biography:Icahn was raised in Far Rockaway, Queens, New York City, where he attended Far Rockaway High School. His father was a cantor, his mother was a schoolteacher...
's effort in 2005-2006 to oust a majority of the board of Time Warner
Time Warner
Time Warner is one of the world's largest media companies, headquartered in the Time Warner Center in New York City. Formerly two separate companies, Warner Communications, Inc...
.
An early history of proxy fighting, detailing such 1950s battles as the fight for control of some of America's largest corporations, including the Bank of America
Bank of America
Bank of America Corporation, an American multinational banking and financial services corporation, is the second largest bank holding company in the United States by assets, and the fourth largest bank in the U.S. by market capitalization. The bank is headquartered in Charlotte, North Carolina...
and the New York Central Railroad
New York Central Railroad
The New York Central Railroad , known simply as the New York Central in its publicity, was a railroad operating in the Northeastern United States...
, can be found in David Karr
David Karr
David Harold Karr, born David Katz was a controversial American journalist, businessman, and Communist....
's 1956 volume, Fight for Control.