Proxy Voting 

Proxy voting is one of the most basic aspects of corporate governance. It allows shareholders to be engaged and vote on the organisation’s key decisions without having to attend meetings, ensuring that shareholder interests are reflected in the company’s policies, operations, and long-term strategy. The article intends to provide an elaborate description of proxy voting, its types, challenges, and examples in simple, easy-to-understand language. 

What is Proxy Voting? 

The voting of proxies is the assignment of voting rights from the shareholder to another individual or organisation, called a proxy, to represent him during meetings with shareholders. Due to distance and schedule differences between the two places, the owner of the shares cannot necessarily be present in meetings and needs proxy voting for a stronger presence of their interest. 

A proxy may be a person, for example, a trusted advisor, or an organisation, such as a proxy advisory firm. Through this process, shareholders can influence the decisions of a corporation, for instance: 

Election of board members 

• Approval of mergers or acquisitions 

• Changes in policies on corporate governance 

• Decisions on executive compensation packages 

The one granting the voting authority is called the “principal,” while the one assigned with the voting authority is referred to as the “proxy.”  

Understanding Proxy Voting 

Proxy voting is the conduit between shareholders and the company in its decision-making process. It operates in a sequence: 

1. Distribution of Proxy Materials

Before the meeting, shareholders obtain proxy materials from the company. These usually consist of a proxy statement explaining the agenda schedule, a proxy card through which voting is done, and instructions on how to vote. 

2. Proxy voting

Shareholders can attend the meeting personally and vote or complete their proxy card and indicate their views regarding the matters they submit. Ballots are frequently submitted by mail or telephone or even on the internet from the company’s business. 

3. Tally Votes

After the meeting, all proxy and in-person votes cast are tabulated. Sometimes, an independent auditor or even an internal team handles the process to ensure accuracy. 

4. Legal Compliance

Legal frameworks such as the Securities and Exchange Commission allow proxy voting in the United States. Thus, they guard against all shareholders receiving unequal treatment by making the transaction practice clear and fair. 

Proxy voting allows shareholders to participate despite being absent in person, and therefore, their voices are included in governance. 

Types of Proxy Voting 

There are several types of proxy voting mechanisms to suit the different needs of the shareholders:  

1. General Proxy.

A general proxy gives the proxy holder, often a company representative or a designated proxy agent, full authority to vote on all matters presented at the shareholder meeting. These include resolutions, elections of directors, and other important decisions. The proxy holder exercises discretion in voting, acting in the shareholder’s best interest. 

2. Limited Proxy

A limited proxy will provide more explicit instructions to the proxy holder. Shareholders can specify how they want their shares voted on specific agenda items. In this manner, control over the voting process is more pronounced and ensures that the proxy holder carries out the shareholder’s wishes. 

3. Blank Proxy

A blank proxy allows the proxy holder to vote on all meeting matters. Shareholders may choose this method if they do not have specific instructions or rely on the proxy holder’s judgment. Of course, this does not always work in the shareholder’s best interest. 

4. Electronic Proxy Voting

This allows the shareholders to vote through an electronic system with the advancement of technology. Benefits of this e-proxy method of voting: 

• Advantage: It allows someone to vote from any location with internet access while also preventing the attendance and mailing of paper proxies. 

• Security: This online system has a mechanism to safeguard shareholder information and ensure fairness in voting. 

• Efficiency: E-voting makes it easier and saves on administrative costs and processing time to have a voting procedure for shareholders and companies. 

The proxy voting mechanism chosen depends on several factors, such as the level of shareholder involvement, the complexity of the issues to be voted on, and the degree of trust in the proxy holder. Understanding the different types of proxy voting allows shareholders to make informed decisions and actively participate in corporate governance. 

Challenges and Issues in Proxy Voting

Although proxy voting bears merits, some problems are identified in the following. 

1. Information Complexity

Annual reports, financial data, and proxy statements are often detailed documents often received by retail investors from shareholders. Understanding what their votes mean in this context can become quite confusing for them. 

2. Proxy Advisory Firms Influence

Proxy advisory firms like ISS and Glass Lewis guide shareholders in voting in a particular direction. While such firms give precious guidance, they might tend to unduly influence the votes. Issues regarding potential conflicts of interest arise as the same advisory firm also offers consultancy services to the same firms it appraises. 

3. Electronic Voting Security Threats

The threat of cybersecurity also lives in electronic voting. Therefore, hacking the computerised voting system would pose an immediate threat to the integrity and confidentiality of a vote. 

4. Legal Compliance

Several regulations govern proxy voting. These include distributing materials to shareholders within time, reporting on the votes’ outcome, and complying with disclosure requirements. However, these can be quite cumbersome and expensive to follow, mainly for small firms. 

5. Shareholder Indifference

Most retail shareholders are careless when using their proxy, so participation rates in this process remain low. In such cases, decisions become imbalanced for the other shareholders, particularly institutions or activists. 

Proper shareholder education, robust rules and regulations, and secure voting processes may improve such issues. 

Examples of Proxy Vote 

Example 1: Kirkland Lake Gold and Detour Gold Acquisition 

In 2019, a Canadian gold mining company, Kirkland Lake Gold, announced a plan to buy Detour Gold by an all-share offer. The proposal needed the approval of both companies from the shareholders. 

The shareholders were furnished with detailed proxy materials explaining why the acquisition should be made, its benefits, and its effects on the financial statements of both companies. The proxy vote helped win the needed approval. This case shows how proxy voting empowers shareholders to vote on major corporate decisions even if they cannot attend meetings. 

Example 2: Procter & Gamble Proxy Fight 

Perhaps the most famous proxy fight was between Procter & Gamble (P&G) and activist investor Nelson Peltz in 2017. Trian Partners, the firm of Peltz, wanted a board seat to be heard on the strategic direction of P&G. 

Peltz campaigned aggressively and challenged investors to vote him into power by proxy. P&G’s management opposed his move for the seat and launched its effort to stay in charge. The battle ended up as one of corporations’ costliest and most bitter shareholder contests ever. It was a testimony that proxy voting is essential in resolving governance disputes. 

Frequently Asked Questions