Proxy

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What is a proxy?

A proxy is an agent legally authorized to act on behalf of another party or in a format that allows an investor to vote without being physically present at the meeting. Shareholders who do not participate in a company’s annual general meeting (AGM) can vote by proxy by authorizing another person to vote on their behalf, or they can vote by mail.

How does a proxy work?

Although proxy voting is often an option, management encourages shareholders to vote in person. If the shareholder cannot participate, proxy voting is another option. In order for a person to act as an agent for a person, official documentation may be required that indicates the extent to which the agent can speak on behalf of the person. A formal power of attorney may be required to provide the necessary authorizations to perform certain actions. The shareholder signs a proxy and extends the official authorization to the person designated to vote on behalf of the shareholder declared at the annual meeting.

A proxy cannot vote if the shareholder arrives late and decides to vote for himself.

Proxy statements

Before the annual shareholders’ meeting, all shareholders receive a package of information containing the proxy. Proxy documents provide shareholders with the information they need to vote knowingly on matters important to the performance of the business. A proxy statement provides shareholders and potential investors with an overview of corporate governance and management operations. The proxy discloses important information on the agenda of the annual meeting, lists the qualifications of the members of the management and the board of directors, serves as a ballot for the elections to the board of directors, lists the main shareholders of a company’s shares and provides detailed information on executive compensation. There are also proposals from management and shareholders.

Proxy statements must be filed with regulatory authorities, such as the Securities and Exchange Commission (SEC) in the United States, on an annual basis prior to the company’s annual meeting.

When voting by proxy by distance, shareholders may be authorized to vote by mail, telephone or the Internet. Shareholders use the information contained in proxy statements to facilitate the decision-making process.

Anyone can view the proxy for a public business through the SEC website under the name “DEF 14A”.

Reasons why shareholders vote by proxy

Management ensures that participations are fully represented by often encouraging shareholders who cannot attend annual meetings to vote by proxy. Information presented at annual meetings often affects the future direction of the business, which can have a direct impact on the value of a shareholder’s participation in the business.

Key points to remember

  • An agent is an agent legally authorized to act on behalf of another party.
  • The proxy may also allow an investor to vote without being physically present at the annual meeting of shareholders.
  • Management ensures that participations are fully represented by encouraging shareholders who cannot attend annual meetings to vote by proxy.
  • A proxy is a set of documents that provide shareholders with the information they need to vote knowingly on matters important to the performance of the business.
  • The information presented at annual meetings often affects the future direction of a company, thus directly impacting the value of a shareholder’s participation in the company.

Example from the real world

On November 15, 2020, SEC Finance and Investment Management staff at the SEC held a roundtable to address concerns about the efficiency of the proxy voting process, including accuracy and transparency of the process, and the role played by proxy consulting firms. Participants included investors, issuers, voting advisers and other market participants. Discussions focused on current proxy voting mechanisms and technology, the shareholder proposal process and the role of proxy consulting firms.

The results of the roundtable included suggestions for improving current “proxy plumbing issues”, such as implementing the 2020 proposal for universal proxy voting cards, which are used in a contested election for give shareholders the opportunity to vote by proxy for their preferred combination of board candidates. . In addition, although the majority of participants agreed that reform of the proxy process is necessary, there was disagreement on the changes to be made.

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