This is part 3 in our blog series on what ESG professionals and CSOs need to know about proxies and shareholder proposals in advance of the 2024 proxy season.
Proxy Contests
A proxy contest or fight is when a shareholder or group of shareholders, who collectively own a certain percentage of the company’s shares, attempts to gain control of the company’s board of directors by soliciting proxy votes from other shareholders. This is done by providing a competing slate of director nominees and proxy statement to shareholders and encouraging them to vote for their nominees instead of the company’s nominees.
Starting last year, in proxy fights for board seats, both sides had to use a new “universal” proxy card listing all company and dissident nominees. This change may make it easier for a dissident to win a board seat, and some analysts think it will prompt more proxy contests. Not only that, but new participants – such as ESG activists who in years past might have simply sought to include a resolution in the company’s proxy statement – may enter the fray and try to win a board seat. That didn’t prove to be the case during the first year of the universal proxy regime, but as activists gain more experience, these and other changes to the traditional proxy contest may evolve.
A proxy contest can be a sign of dissatisfaction with management and performance, leading to significant changes in strategy and operations. However, they can also be costly and time-consuming for the company and its shareholders. Shareholders that lead these contests are also known as activist investors.
The next blog in this series will discuss how companies manage proxy contests, along with a new legal approach that may significantly deter shareholders from filing proposals.
If you would like more information about proxies, shareholder proposals/activism or US securities law in general, check out TheCorporateCounsel.net (membership required). If you aren’t a member, sign up now and take advantage of our no-risk “100-Day Promise” – during the first 100 days as an activated member, you may cancel for any reason and receive a full refund.
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