What Is a Proxy Vote?
A proxy vote is a ballot cast by one person or firm on behalf of a shareholder of a corporation who may not be able to attend a shareholder meeting, or who otherwise desires not to vote on an issue. Shareholders receive a proxy ballot in the mail along with an information booklet called a proxy statement, which describes the issues to be voted on during the shareholder meeting. In a shareholder meeting, shareholders may be casting votes about who to elect as directors of the board, approving a merger or acquisition, or approving a stock compensation plan.
Registered investment management companies may also be in the position to cast proxy votes on behalf of mutual fund shareholders or high net worth investors in separately managed accounts.
- A proxy vote is a ballot cast by one person or firm on behalf of a shareholder of a corporation who may not be able to attend a shareholder meeting, or who otherwise desires not to vote on an issue
- Prior to a company's annual meeting, eligible shareholders may receive voting and proxy information in advance of their shareholder vote.
- Rather than physically attending the shareholder meeting, investors may elect someone else–such as a member of the company's management team–to vote in their place.
- A person designated as a proxy will cast a proxy vote in line with the shareholder's directions as written on their proxy card.
How a Proxy Vote Works
Publicly-traded companies report their activities to shareholders through their annual meetings. Before those meetings, shareholders receive information on topics to be voted on at the meeting, such as share ownership, the structure of the board of directors (BOD), and executive salary and benefits. Investors who own applicable voting shares in the company as of the company’s record date may be eligible to vote on these issues.
The company may make proxy materials available online, which typically includes an annual report, a proxy statement describing the issues to be voted on, and a proxy card with voting instructions. Materials may also be sent in the mail to investors who are eligible to vote at the annual meeting.
Rather than physically attending the shareholder meeting, investors may elect someone else–such as a member of the company's management team–to vote in their place. This person is designated as a proxy and will cast a proxy vote in line with the shareholder's directions as written on their proxy card. Proxy votes may be cast by mail, phone, or online before the cutoff time, which is typically 24 hours before the shareholder meeting. Responses may include "For," "Against," "Abstain" or "Not Voted."
When a company is electing its board of directors, sometimes a plurality vote applies. In the case of a plurality vote, the winning candidate simply needs more votes than a competitor. Therefore, an unopposed director needs only one vote to be elected. If shareholders are opposed to the candidate, they may withhold their voting rights. In some instances, the decision is made based on a majority voting system. When a majority vote applies, directors need to receive a majority of the votes in order to be elected. Because abstaining from voting can impact whether or not a director is elected, the company’s proxy statement must detail how abstained or withheld votes will affect the voting results.
For issues involving topics other than electing directors, such as voting on shareholder proposals, a majority of the votes is what typically leads to approval of the issue.
Example of a Proxy Vote
On November 25, 2019, Kirkland Lake Gold Ltd (KL) announced that it intended to acquire Detour Gold Corporation (DGC.TO) in an all-stock deal. The two companies would be become one company, with the Kirkland Lake Gold shareholders owning roughly 73% of the resulting company and the Detour Gold Corporation shareholders owning roughly 27%.
All board members of the two companies approved the deal, but shareholders were still eligible to vote on the acquisition. All eligible shareholders received voting and proxy information, and per the instructions, shareholders were informed that they could cast their own ballot or appoint someone else to do it for them.