What is a Proxy Vote?
The term “proxy vote” refers to the method of ballot cast in which a single individual or firm can attend a company’s shareholder meeting on behalf of its shareholders who may not be able to attend the meeting for various reasons. Typically, the shareholders of a company receive a proxy ballot in the mail along with other related documents, such as proxy statements, issues to be discussed and voted on during the meeting, etc.
How does it work?
All publicly-traded companies must report their activities and performance to their shareholders through annual general meetings. Before these annual meetings, the shareholders are sent information about the topics to be voted on during the meeting. Typically, proxy materials provided by the companies include annual reports, proxy statements, and proxy cards with specific voting instructions. The investors who own the voting shares in the company are eligible to vote on the issues discussed in these meetings.
In many cases, some shareholders choose not to physically participate in the shareholder meeting and instead elect someone from the company’s management team or a firm to vote on their behalf. The designated individual or firm is known as a proxy and is expected to cast a proxy vote per the shareholder’s instructions on the proxy card. It can be broadcast via mail, phone, or online, but it should be before the cut-off time.
Examples of Proxy Vote
Now, let us look at the following example to understand the concept of proxy voting.
On 25th November 2019, Kirkland Lake Gold announced its plan to acquire Detour Gold in an all-stock deal, after which the two companies will merge to become a single entity. In this entity, the shareholders of Kirkland Lake Gold will own around 73% of the merged entity’s shares, while the shareholders of Detour Gold will own the remaining 27%.
Although the members unanimously approved the deal by the company’s board, the shareholders were offered the opportunity to vote for or against the acquisition. All the eligible shareholders were sent the voting and the proxy information, which stated that the shareholders could cast their vote or appoint a proxy to vote on their behalf. The acquisition deal was finally closed in January 2020.
Reasons for Proxy Vote
Although there can be multiple reasons for different people, the following are the two most common reasons for which people opt for proxy vote:
Delegate to someone who knows more than the principal
In most cases, the shareholders have limited access to the company information time, making it difficult to analyze and understand what is happening within the organization. Hence, they prefer to delegate their voting rights to someone likely to be more informed than them.
The principal can’t attend the meeting in person.
In some cases, the shareholders are required to attend the meetings in person, which is not feasible for many shareholders due to various logistical constraints. So, in the absence of remote voting, proxy voting seems to be a viable option to fulfill the voting responsibilities of the principal.
How to apply for it?
If the principal can’t cast their vote in person, they must assign someone to vote on their behalf. All the shareholders with voting rights are sent the information about voting and proxy. The principal can ask anyone to act as their proxy as long as the latter is registered to vote.
Advantages of Proxy Vote
Some of the major advantages are as follows:
- First, it is useful for the shareholders who stay in remote places.
- It is an easier option for shareholders who are sick or have major disabilities.
- A principal with limited understanding can assign the voting rights to a well-informed person, resulting in better corporate decisions.
Disadvantages of Proxy Vote
Some of the major disadvantages are as follows:
- There is no privacy in the vote between the principal and the proxy
- There are chances that the proxy may coerce the principal to obtain the authorization to vote on their behalf.
- The proxy may vote as per their inclinations, ignoring the original voter’s preferences.
- Some shareholders may be unable to find an appropriate individual or firm to trust with their vote.
Some of the key takeaways of the article are:
- A proxy vote is a method cast by an individual or firm on behalf of a company’s shareholder who either doesn’t want to vote on an issue or can’t attend the meeting in person.
- Before a company’s annual general meeting, the eligible shareholders are sent the voting and proxy information.
- A principal with a limited understanding of the issues can select a well-informed person to cast a proxy vote.
- A designated proxy is expected to cast a proxy vote as per the shareholder’s instructions provided on the proxy card. However, the proxy may ignore the original voter’s will and decide to vote as per their inclinations.
So, it can be seen that a proxy vote is an important tool for shareholders to influence the decisions of a company in the right way. The shareholders should understand their rights under the proxy voting mechanism and exercise them responsibly to help the company go forward.
This is a guide to Proxy Vote. Here we also discuss the definition, working, examples, reasons, and how to apply for Proxy Vote, along with advantages and disadvantages. You may also have a look at the following articles to learn more –