Proxy voting

A key element of contemporary corporate governance, proxy voting has become a potent tool for shareholders to express their influence and affect the direction of the firms they invest in. Shareholders can actively engage in critical decision-making processes, hold management responsible, and represent their interests by assigning their voting rights to proxies. Proxy voting has developed from a formal requirement to a crucial instrument that empowers shareholders, encourages ethical behaviour, and boosts long-term value.  

What is proxy voting? 

A proxy vote occurs when a person (the proxy) votes on behalf of a party not present at the meeting or of an organisation with authorisation. When a voter cannot attend a meeting for a legitimate cause, it is often done by that entity.  

Proxy voting is when shareholders transfer their voting rights to another party, often the company’s management or a proxy advice firm, to vote on their behalf at shareholder meetings. Institutional investors, individual shareholders, or proxy advisory companies that review company proposals and vote on behalf of shareholders may all cast proxies.  

Understanding proxy voting 

Proxy voting begins with the shareholders’ responsibility to hold publicly listed firms accountable. Additionally, businesses demonstrate their accountability by disclosing details of their operations during annual meetings. These businesses report to the shareholders during the meetings about the board of directors (or any changes made), the executives’ salaries, expansion, merger, acquisition, etc.  

The businesses invite the shareholders to vote for the course of action they believe to be best and disclose the essential facts about the organisation. The proxy statement outlining the ballot items, the annual report, and a proxy card are issued to shareholders before the annual meetings. The instructions for voting are on this proxy card.  

Most shareholders and investors cannot attend the annual meeting to cast their votes for or against the option. Hence this arrangement has been devised. To cast their votes by their instructions, each shareholder selects a representative. Any member of the company’s management group might be this individual. It enables the shareholder to make the best decision, such as approving the auditor’s report or choosing the best directors.  

When voting by proxy, shareholders often have four alternatives to select from. “Not voted,” “abstained,” “against,” and “for” are the options. 

Rules of proxy voting 

The following are the various rules of proxy voting: 

• A company’s shareholders can use a proxy to transfer their voting rights to another party. You can accomplish this by filling out a proxy form or proxy card the business will issue. 

• Companies must give shareholders proxy materials, such as proxy statements or circulars that outline how to cast a proxy vote and contain information on the issues being voted on. 

• By filling out and submitting a proxy form or according to the company’s instructions, shareholders can designate a proxy to cast their votes on their behalf.  

• Shareholders can use proxy voting to cast a vote for, against, or abstain on particular issues. The choices relate to mergers and acquisitions, directors’ election, auditors’ approval, and other crucial business decisions. 

• The advice of proxy advisory services on how to vote on various issues may be given to shareholders. Shareholders must not abide by these suggestions but may consider them when voting. 

• Regulatory organisations like the Securities and Exchange Commission, or SEC, in the United States regulate and monitor proxy voting. These rules aim to guarantee shareholders’ fairness, openness, and protection during the proxy voting process. 

• At shareholder meetings, proxy votes are generally in person or via proxy. Shareholders who cannot attend the meeting may instruct their proxy to cast their vote.  

Importance of proxy voting 

The following are the importance of proxy voting: 

• Shareholders can exercise their rights and have a say in business decisions by using proxy voting. Shareholders can influence the board of directors’ membership, have a voice in significant business policy, and hold management accountable by voting on various issues. 

• The process of proxy voting aims to safeguard the interests of shareholders. Shareholders can express their thoughts and grievances through this. 

• Shareholders can match their investments to their ideals using proxy voting. Shareholders can approve or oppose resolutions based on governance, social, or environmental concerns, pressuring businesses to adopt more environmentally friendly practices and solve social issues. 

• Participation of shareholders in corporate governance is made possible via proxy voting. It promotes communication and interaction between shareholders and management, allowing for the expression of concerns, the request for clarification, and the promotion of changes that are in the firm’s and its shareholders’ best interests. 

• By promoting ethical business behaviour, proxy voting can help create long-term value. Shareholders can utilise their voting rights to support initiatives that support ethical behaviour, sustainable practices, and efficient risk management. 

Example of proxy voting 

The following example can help to understand the idea of proxy voting. The acquisition of Detour Gold by Kirkland Lake Gold (KL) in an all-stock agreement was announced on November 25, 2019, by KL. Following the merger of the two businesses, Kirkland Lake Gold shareholders would retain about 73% of the combined entity, leaving 27% for Detour Gold stockholders.  

Shareholders might still vote on the purchase even though the board members of each business unanimously supported the agreement. According to the instructions, shareholders were advised to vote themselves or designate someone else to do so. All eligible shareholders got voting and proxy information. In January 2020, the transaction was completed. As a consequence of the agreement, Kirkland Gold acquired Detour Gold, and as a result, the company’s shares were delisted in February 2020. 

Frequently Asked Questions