Proxy voting: Overview, definition, and example
What is proxy voting?
Proxy voting is a process in which a shareholder of a company authorizes another person (the proxy) to vote on their behalf at a shareholders' meeting. This allows shareholders who are unable to attend the meeting to participate in the voting process. The proxy can be given specific instructions on how to vote on various resolutions or given general authority to vote as they see fit.
For example, a shareholder who owns stock in a company but cannot attend the annual general meeting (AGM) can designate a trusted individual, such as a lawyer or company representative, to cast their vote according to their preferences.
Why is proxy voting important?
Proxy voting is important because it enables shareholders to have a voice in corporate decisions even if they cannot be physically present at the meeting. It enhances shareholder participation, improves democratic processes in corporate governance, and ensures that decisions are made in the best interest of the company and its shareholders.
For businesses, allowing proxy voting ensures broader shareholder involvement, strengthens governance, and helps reach quorum requirements for decision-making. It also allows shareholders who might not be able to attend meetings due to location or scheduling constraints to express their opinions.
Understanding proxy voting through an example
Imagine a publicly traded company holding its annual general meeting (AGM). Shareholders are asked to vote on key resolutions, such as electing board members or approving executive compensation. Since one of the shareholders is out of town and cannot attend the meeting, they fill out a proxy form and designate a representative to vote on their behalf. The proxy votes according to the instructions provided by the shareholder, allowing their interests to be represented in the decision-making process.
In another scenario, a mutual fund allows its investors to vote by proxy on various issues during the annual meeting of the companies it holds shares in. The fund’s manager may cast votes according to the fund’s investment strategy or according to the wishes of its investors.
Example of a proxy voting clause
Here's an example of how a proxy voting clause may look like in a contract:
"Each shareholder shall be entitled to appoint a proxy to attend and vote at the Annual General Meeting on their behalf, by submitting a signed proxy form to the Company at least [X] days prior to the meeting. The proxy shall vote in accordance with the instructions provided by the shareholder or, in the absence of such instructions, at their discretion."
Conclusion
Proxy voting enables shareholders to exercise their voting rights even when they cannot attend meetings in person. It ensures increased shareholder participation, promotes effective corporate governance, and allows shareholders to remain engaged in decision-making processes that impact the company’s future. By including clear proxy voting clauses in shareholder agreements, companies can facilitate smooth voting and maintain shareholder involvement.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.