Proxy Vote

What Is Proxy Vote?

A proxy vote is when a person (proxy) casts a vote on behalf of a person not present at the meeting or an organization after obtaining permission to cast such a vote. This vote shall be counted as if the person himself castes the vote. It is done usually in meeting in any entity where the particular voter is not able to be present due to some valid reason.

It is a very common practice in meetings of companies where the shareholders need to cast votes for electing the directors or approving any acquisition and mergers of the company. This voting method is also prevalent in political meetings where urgent decision needs to be taken.

• A proxy vote is one that someone (the proxy) votes on behalf of someone (the absentee) or an organization after being given the authorization to do so. This vote shall be deemed to have been cast by the voter himself.
• The issues discussed can be essential to ordinary decisions like getting the approval to decide merger or acquisition, selecting the appropriate Board of Directors, receiving the consent of a stock-based compensation plan, etc. 
• Voting must be completed on or before the annual meeting. It can be completed on the phone, online, or by mail.
• Usually, there are four options that shareholders can choose while casting their proxy votes: "not voted," "abstain," "against," and "for."

Proxy Vote Explained

Proxy vote is a process of voting during meetings of any organization where some urgent decision must be made. In the process, a member who cannot be present during the meeting may authorize another member who is present to cast a vote on his behalf.

It might be used for profit or non-profit organizations, or any corporations where the members are not present but they have a right to express their interest in the decision. However, the proxy holder may vote as per the instruction of the member or may use their own discretion.

Whenever a public company needs to make an important decision, a proxy ballot and a booklet are sent to every company shareholder through e-mail. The booklet is called a proxy statement. It contains information about the issues that the shareholders need to vote on.

The issues can be very critical to normal decisions. For example, we can talk about: -

• Getting the approval of the decision to merge or acquire.
• Selecting the right Board of Directors.
• Obtaining the consent of a plan of stock-based compensation etc.

Rules

Some rules to be followed while implementing the proxy rules are as follows:

Proxy Holder’s appointment- It is important that a member who wants to vote through proxy should appoint another suitable member to vote on their behalf and give them the authorization to do it.

Proxy appointment deadline – The entity may have a deadline within which the appointment fro proxy voting has to be done. It is important to honor that deadline.

Eligibilty – The proxy holder should be eligible to vote by proxy on behalf of another member. The criterias for te eligibility is usually clarified in the entity’s governing documents.

Power of proxy holder- The limitations of the proxy holder’s power and specific matter on which it can be implemented are mentioned in the bylaws of the organizations.

Revocation – It is also possible to revoke the power of a proxy vote given to any member by another before the meeting is conducted and the vote is cast.

Example

Let us try to understand the process with an example. We assume that ABC Ltd which is a pharmaceutical company manufacturing medicines. It is planning to acquire XYZ Ltd, which is a retail chain selling medicines and other pharmaceutical products.

ABC Ltd needs to hold a meeting urgently to decide about the acquisition process and whether the company should go ahead or not. Thus, in the meeting all members of the management should vote. However, one director named Smith could not attend the meeting, who authorized Jack, another director to cast the vote on his behalf.  

During the voting process, Jack cast hos own vote and also voted for Smith as a proxy as per the authorized process.

From this example, the process of this kind of voting can be understood clearly.

Steps

Knowing only about the proxy vote is not enough. It is also important to find out how proxy voting works. Let us dive in.

• It all starts with the accountability of publicly traded companies to their shareholders. And the companies showcase their responsibility by sharing information about their activities in annual meetings.
• During the meetings, these companies report to the shareholders about the Board of Directors (or any changes made), Executives' salaries, expansion, merger, acquisition, etc.
• Along with reporting the organization's critical information, the companies also ask the shareholders to vote for whatever they think is the right option.
• Before the annual meetings, the shareholders are sent the proxy statement stating the options to be voted on, the annual report, and a proxy card. This proxy card contains voting instructions.
• This arrangement is made because most shareholders/investors cannot arrive at the annual meeting to vote for/against the option. That is why each shareholder chooses a person to vote per the shareholder's direction. This person can be anyone from the management team of the company.
• It allows the shareholder to choose the right option – approving the auditor's report, electing the right directors, etc.
• One should cast it on or 24 hours before the annual meeting. It can be done online, by phone, or by mail.
• There are usually four options that shareholders can choose while casting their proxy votes. They are "not voted", "abstain", "against", and "for."

Importance

As shareholders of publicly traded companies, we should know what a proxy vote is and how it works. If we are not aware, it will be difficult in dealing with a situation where the member would be asked to cast the proxy vote, and they wouldn't have any idea.

That is why we need to ask the company how the proxy vote works while purchase the shares. No matter from whom we buy the shares, we need to know the rights as shareholders and how we would be contacted if there is a need for proxy voting.

The broker or the company should inform the voter about proxy voting procedures.

Frequently Asked Questions (FAQs)

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This article is a guide to what is Proxy Vote. We explain the rules of the process, along with an example, its steps and importance. You may also have a look at these articles to learn more -

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