What Is a Proxy?

A proxy is an agent legally authorized to act on behalf of another party or a format that allows an investor to vote without being physically present at the meeting. Shareholders not attending a company's annual general meeting (AGM) may vote their shares by proxy by allowing someone else to cast votes on their behalf, or they may vote by mail.

How Does a Proxy Work?

While proxy voting is often an option, management encourages shareholders to vote in person. If the shareholder cannot attend, voting by proxy is another option. For a person to act as a proxy for an individual, formal documentation may be required that outlines the extent to which the proxy can speak on the individual's behalf. A formal power of attorney document may be required to provide the permissions to complete certain actions. The shareholder signs a power of attorney and extends official authorization to the designated individual to vote on behalf of the stated shareholder at the annual meeting.

A proxy cannot vote if the shareholder arrives late and decides to vote for him or herself.

Proxy Statements

Before the annual shareholder meeting, all shareholders receive a packet of information containing the Proxy Statement. The proxy documents provide shareholders with the information necessary to make informed votes on issues important to the company's performance. A Proxy statement offers shareholders and prospective investors insight into a company's governance and management operations. The proxy discloses important information on agenda items for the annual meeting, lists the qualifications of management and board members, serves as a ballot for elections to the board of directors, lists the largest shareholders of a company's stock, and provides detailed information about 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 before the company's annual meeting.

When voting by proxy remotely, shareholders may be eligible to vote by mail, phone or internet. Shareholders use the information in the proxy statements to aid in the decision-making process.

Anyone can look up a public company's proxy statement via the SEC website under the name "DEF 14A."

Reasons for Shareholders to Vote by Proxy

Management ensures that ownership interests are fully represented by often encouraging shareholders that are unable to attend annual meetings to vote by proxy. Information presented during annual meetings often affects the future direction of the company, which can directly impact the value of a shareholder’s stake in the company.

Key Takeaways

  • A proxy is an agent legally authorized to act on behalf of another party.
  • The proxy may also allows an investor to vote without being physically present at the annual shareholder's meeting.
  • Management ensures ownership interests are fully represented by encouraging shareholders who are unable to attend annual meetings to vote by proxy.
  • A Proxy Statement is a packet of documents that provide shareholders with information necessary to make informed votes on issues important to the company's performance.
  • The information presented at annual meetings often affects a company's future direction, thus directly impacting the value of a shareholder's stake in the company.

Real World Example

On Nov. 15, 2018, the SEC Division of Corporation Finance and Investment Management staff held a roundtable to address concerns about the efficiency of the proxy voting process, including the accuracy and transparency of the process, and the role played by proxy advisory firms. Participants included investors, issuers, proxy advisers, and other market participants. Discussions focused on the current proxy voting mechanics and technology, the shareholder proposal process, and the role of proxy advisory firms.

Results of the roundtable included suggestions to improve current "proxy plumbing problems," such as implementing the 2016 proposal for universal proxy voting cards, which are used in a contested election to give shareholders the ability to vote by proxy for their preferred combination of board candidates. Also, although the majority of participants agreed that reform of the proxy process is necessary, there was disagreement about what changes should take place.