Proxy Voting: Definition & Guidelines

Instructor: Martin Gibbs

Martin has 16 years experience in Human Resources Information Systems and has a PhD in Information Technology Management. He is an adjunct professor of computer science and computer programming.

Just a voter can cast an absentee ballot in an election, a shareholder can vote on company decisions even if they cannot be present during the decision-making process. This lesson will define proxy voting and provide guidelines for its use.

Shareholder Voting

Many publicly traded companies hold shareholder meetings. These meetings are used for reporting activities, discussing financial performance, and decision-making. This is where the voting comes into play.

Shareholders often have the right (and privilege) of voting for any number of items: change in the board of directors, executive pay, re-organization, etc. Voting on issues is a powerful tool that shareholders have. However, not all shareholders can physically attend the shareholder meetings. Further, other groups within the company may want to ensure certain items are voted on in a certain way. Proxy voting is a way to solicit votes and to influence decisions.

Your Vote Counts (Even if You Aren't Here)

A proxy vote is like an absentee ballot. It is a vote cast by one person of behalf of another shareholder in the company. Before the meeting, shareholders will receive a packet in the mail called a proxy statement, which covers the issues being discussed and voted upon. In that packet is a proxy ballot that can be filled out and sent back to the company or shareholder(s) requesting the proxy.

How Does My Vote Work?

You vote with your shares. In other words, if you own one share, you have one vote; if you own 3,500 shares, those shares are used as part of the voting. That is, you have one vote per share.

Unlike a general election, you are not actually casting the ballot! Instead you are actually granting your voting powers to another person to vote her shares or interest. This person is the proxy holder.

When you authorize your vote to be made by the proxy holder, you are allowing them to vote for you. They will state their intention on the ballot. Let's look at a quick example to highlight what we mean.

For example, management decides to hold a meeting to discuss hiring another board member: A group of other shareholders does NOT want the additional director. They send out a packet of information along with a proxy statement. If you agree with this group, you send the proxy ballot back. Your shares are used to vote against the measure.

If you do not vote, or do not submit a proxy vote, your votes are abstained. They don't count either for or against any proposal, or for or against any candidate.

Proxy Voting Guidelines

Technically, any shareholder who wants a third party vote can issue a proxy letter. This statement must include the following information:

  • Name of shareholder seeking the proxy
  • The person who will actually vote
  • The number of shares they hold
  • Their vote: Yes/No, or the name of the person they'd be voting for, e.g., a new director
  • The proxy period; how long the proxy will be in effect

Duration and Scope

A proxy vote is not an open, limitless invitation. Proxies are restricted in terms of the items being voted on, and the length of the proxy. Most states have rules that automatically limit the proxy period to a maximum of 11 months. The shareholder can also define the terms of the proxy; that is, the item(s) being discussed.

Let's say that a meeting has been called: The company will vote on the sale of a subsidiary, and elect new board members. If the proxy issuer wants the sale to go through, they can issue a proxy on the approval of the sale, but not the election of the board members.

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