Proxy Fight

Proxy Fight Definition

Proxy Fight is a situation when shareholders group together to vote out the current management, and it usually happens when shareholders are not happy with the current management of the company.


Suppose shareholders are not happy with the capital structure of the company. It may happen that the company is taking too many debts, which are jeopardizing the ownership of equity shareholdersEquity ShareholdersShareholder’s equity is the residual interest of the shareholders in the company and is calculated as the difference between Assets and Liabilities. The Shareholders' Equity Statement on the balance sheet details the change in the value of shareholder's equity from the beginning to the end of an accounting more. So to prevent this from happening, shareholders can group together and start fighting for a common cause.

So as they are fighting against the management, they will have to replace few or all members of the board. For this to take place, shareholders do have to group together and fight for a common cause and vote against the board of directorsBoard Of DirectorsBoard of Directors (BOD) refers to a corporate body comprising a group of elected people who represent the interest of a company’s stockholders. The board forms the top layer of the hierarchy and focuses on ensuring that the company efficiently achieves its goals. read more.

Proxy Fight

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How Does Proxy Fight Work?

When a company goes public, the management acts as an employee for the shareholders. So basically, management is being hired by shareholders to run the company on behalf of shareholders. The problem starts when management stops working for the shareholders and starts to think of short term strategies to increase its remuneration. This situation is very critical for the company.

Say that shareholders are not happy with management’s dividend policyDividend PolicyDividend policy is the policy that the company adopts for paying out the dividends to the company's shareholders, which includes the percentage of the amount at which the dividend is to be paid out to the stockholders and how frequent the company pays the dividend more and other policies, and they want to change the management. So first of all, shareholders will have to make a group, who all are ready to vote against the management. Sometimes the ownership of stocks is not with the shareholders but with the brokers as they lie in the Broker’s account. So once all of them have cast their votes or have given the power to someone to proxy vote, then the results are submitted to the company’s Stock Transfer Agents.

The transfer Agent submits the result to the company’s corporate secretary before the shareholder’s meeting. If shareholders have the majorityShareholders Have The MajorityA majority shareholder or controlling shareholder is an individual or a corporation that owns the majority of the company's stock (more than 50%) and therefore enjoys more voting power than other shareholders. These shareholders are in a position to influence the company's more and there is no such policy in place to safeguard the board, then the management will be replaced.

Example of Proxy Battle

Guyana Goldfield, a Canadian company, shocked everyone when they announced at their Aurora mine in Guyana the production declined by almost 1.7 million ounces, compared to estimates a year ago. Shareholders were not satisfied with the result and went for a proxy fight to change the management.

After a long battle, the dispute was settled, and the company’s CEO lost his job. As part of the agreement, the mining company appointed two independent directorsIndependent DirectorsThe term "independent director" refers to a member of the board who is not associated with the organization and who provides a neutral opinion because he or she is not tied to the current more and two other long-serving directors stepped down.

Reasons for a Proxy fight

There could be several reasons for a proxy fight. Few are mentioned below:

Say a company ABC wants to buy company XYZ. ABC tried to negotiate the deal with company XYZ’s management, and they are not ready to sell the company. If ABC can convince the shareholders of XYZ that ABC’s management will be able to manage the company better than the existing management, then XYZ’s shareholders can go for Proxy Fight and replace the board with new members supporting the takeover.

Strategy for Proxy Fights

The strategy for proxy fight is always to arrange maximum support from shareholders. Mutual funds and Hedge funds hold a large number of shares of any company. So it becomes really vital to convince the fund managers to participate in a proxy fight.

They have the largest share base as they club investors’ money and invest on behalf of them. They have the right to vote on behalf of investors, so they have a large proxy base.

How to Avoid a Proxy Fight?

There are several measures being taken by management to safeguard themselves in case of the proxy fight:


Proxy Fight is an important tool that is in the hands of shareholders. It protects them from removing the management if the latter is not performing for the benefit of shareholders. Principal Agent issue is very common in most public listed companies. If management works for the best interest of shareholders, then there will never be a need for proxy Fight as shareholders know that their money is in safe hands.

This has been a guide to Proxy Fight and its definition. Here we discuss how does proxy fights work along with the strategies and examples. We also discuss how to avoid a proxy fight. You may also have a look at the following articles –