A proxy fight, proxy contest or proxy battle is an unfriendly contest for control over an organization. The event usually occurs 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. [1]
In a proxy fight, incumbent directors and management have the odds stacked in their favor over those trying to force the corporate change. [2] 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; except those waged more recently by hedge funds, which are successful more than 60% of the time. [3] However, previous studies have found that proxy fights are positively correlated with an increase in shareholder wealth. [4] : 8
Due to their out-sized influence with many institutional investors, proxy advisors play a key role in many proxy fights. In many cases, the proxy firms end up determining the result of the contest. [7] The Securities Exchange Act of 1934 also gave the Securities and Exchange Commission (SEC) the power to regulate the solicitation of proxies. [8] : 4 Some of the rules the SEC has since proposed, like the universal proxy, have been controversial because opponents have suggested that they would increase the amount of proxy fights. [8] : 61
A board of directors is an executive committee that supervises the activities of a business, a nonprofit organization, or a government agency.
A shareholder rights plan, colloquially known as a "poison pill", is a type of defensive tactic used by a corporation's board of directors against a takeover.
Carl Celian Icahn is an American businessman, investor, and philanthropist. He is the founder and controlling shareholder of Icahn Enterprises, a public company and diversified conglomerate holding company based in Sunny Isles Beach, Florida. Icahn's business model is to take large stakes in companies that he believes will appreciate from changes to corporate policy. Subsequently, Icahn then pressures management to make the changes that he believes will benefit shareholders, and him. Widely regarded as one of the most successful hedge fund managers of all time and one of the greatest investors on Wall Street, he was one of the first activist shareholders and is credited with making that investment strategy mainstream for hedge funds.
Corporate governance are mechanisms, processes and relations by which corporations are controlled and operated ("governed").
Shareholder activism is a form of activism in which shareholders use equity stakes in a corporation to put pressure on its management. A fairly small stake may be enough to launch a successful campaign. In comparison, a full takeover bid is a much more costly and difficult undertaking. The goals of shareholder activism range from financial to non-financial. Shareholder activists can address self-dealing by corporate insiders, although large stockholders can also engage in self-dealing to themselves at the expense of smaller minority shareholders.
Greenmail or greenmailing is a financial maneuver where investors buy enough shares in a target company to threaten a hostile takeover, prompting the target company to buy back the shares at a premium to prevent the takeover.
A proxy statement is a statement required of a firm when soliciting shareholder votes. This statement is filed in advance of the annual meeting. The firm needs to file a proxy statement, otherwise known as a Form DEF 14A, with the U.S. Securities and Exchange Commission. This statement is useful in assessing how management is paid and potential conflict of interest issues with auditors.
The Williams Act (USA) refers to 1968 amendments to the Securities Exchange Act of 1934 enacted in 1968 regarding tender offers. The legislation was proposed by Senator Harrison A. Williams of New Jersey.
Richard C. Breeden is a former chairman of the U.S. Securities and Exchange Commission, hedge fund manager, and corporate chairman.
Samuel J. Heyman was an American businessman and hedge fund manager best known for his longtime chairmanship of the GAF Materials Corporation and International Specialty Products Inc. (ISP).
Proxy voting is a form of voting whereby a member of a decision-making body may delegate their voting power to a representative, to enable a vote in absence. The representative may be another member of the same body, or external. A person so designated is called a "proxy" and the person designating them is called a "principal". Proxy appointments can be used to form a voting bloc that can exercise greater influence in deliberations or negotiations. Proxy voting is a particularly important practice with respect to corporations; in the United States, investment advisers often vote proxies on behalf of their client accounts.
With respect to public companies in the United States, a shareholder resolution is a proposal submitted by shareholders for a vote at the company's annual meeting. Typically, resolutions are opposed by the corporation's management, hence the insistence for a vote. "Voting has long been recognized as one of the primary rights of shareholders." For publicly held corporations in the United States, the submission and handling of resolutions is regulated by the Securities and Exchange Commission (SEC).
Staggered elections are elections where only some of the places in an elected body are up for election at the same time. For example, United States senators have a six-year term, but they are not all elected at the same time. Rather, elections are held every two years for one-third of Senate seats.
United States corporate law regulates the governance, finance and power of corporations in US law. Every state and territory has its own basic corporate code, while federal law creates minimum standards for trade in company shares and governance rights, found mostly in the Securities Act of 1933 and the Securities and Exchange Act of 1934, as amended by laws like the Sarbanes–Oxley Act of 2002 and the Dodd–Frank Wall Street Reform and Consumer Protection Act. The US Constitution was interpreted by the US Supreme Court to allow corporations to incorporate in the state of their choice, regardless of where their headquarters are. Over the 20th century, most major corporations incorporated under the Delaware General Corporation Law, which offered lower corporate taxes, fewer shareholder rights against directors, and developed a specialized court and legal profession. Nevada has attempted to do the same. Twenty-four states follow the Model Business Corporation Act, while New York and California are important due to their size.
Glass, Lewis & Co. is a major American proxy advisory services company. As of spring 2019, Glass Lewis controlled 28% of the proxy advisory market for mutual funds; this makes it the second-largest company in the market behind Institutional Shareholder Services. The primary services provided by Glass Lewis are research and recommendations for shareholder votes by institutional investors, including a digital platform for managing these votes and reporting. A large fraction of those investors follow the recommendations of Glass Lewis in lockstep, giving it outsize importance and impact on governance across the corporate sphere.
Paulson & Co., Inc. is a family office based in New York City. Previously, it was a hedge fund established by John Paulson in 1994. Specializing in "global mergers, event arbitrage, and credit strategies", the firm had a relatively low profile on Wall Street until its hugely successful bet against the subprime mortgage market in 2007. At one time the company had offices in London and Dublin.
Institutional Shareholder Services Inc. (ISS) is a proxy advisory firm. Hedge funds, mutual funds and similar organizations that own shares of multiple companies pay ISS to advise regarding share holder votes. As the leading firm in the industry, ISS commands a 48 percent market share as of 2021, with its nearest rival, Glass Lewis, holding a 42 percent market share.
Fund governance refers to a system of checks and balances and work performed by the governing body (board) of an investment fund to ensure that the fund is operated not only in accordance with law, but also in the best interests of the fund and its investors. The objective of fund governance is to uphold the regulatory principles commonly known as the four pillars of investor protection that are typically promulgated through the investment fund regulation applicable in the jurisdiction of the fund. These principles vary by jurisdiction and in the US, the 1940 Act generally ensure that: (i) The investment fund will be managed in accordance with the fund's investment objectives, (ii) The assets of the investment fund will be kept safe, (iii) When investors redeem they will get their pro rata share of the investment fund's assets, (iv) The investment fund will be managed for the benefit of the fund's shareholders and not its service providers.
Trading of shareholder votes is the practice of exchanging one's shareholder votes in corporate elections for cash or other forms of payment. Trades may involve multiple shareholders with varying interests in corporate matters, but may be of particular value to activist investors or a company's board of directors.
Shareholder democracy is a concept relating to the governance structure of modern corporations. In this structure, shareholders bear ultimate controlling authority over the corporation, as they are the owners and may exercise control within their economic rights. Although shareholders own the corporation, they generally take a passive interest in managing the day-to-day operations of the company. Shareholders who are interested in actively influencing corporate affairs are called activist shareholders.
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