A proxy fight involves persuading a group of shareholders to cast their votes for a specific action as part of a corporate vote. This fight is usually started by a corporate outsider who wants to gain control of a company's board of directors, usually so that the new board will accept a takeover bid. It is also possible that a proxy fight is initiated so that a few board seats will change hands, allowing outside investors to at least discuss issues directly with other board members. For example, the new board members could advocate spinning off certain subsidiaries or taking other actions to increase the stock price.
A proxy fight is usually conducted on behalf of dissident shareholders by a proxy solicitation firm. This firm contacts shareholders to state the case of the dissident shareholders, and asks for their proxy votes in an upcoming corporate vote. The resulting votes are tallied by the company's stock transfer agent, which provides a voting summary to the corporate secretary. The vote results are announced at the next shareholders' meeting.
Representatives of the proxy solicitation firm can examine incoming votes for irregularities, such as unclear or multiple votes, and request that these votes not be counted.
A proxy fight is usually unsuccessful, since shareholders typically vote in accordance with the recommendations of the company. However, they are more likely to vote in accordance with the wishes of the dissidents if the firm has been performing poorly.
Company managers and directors can fight off proxy fights by staggering board elections. In staggered elections, only a portion of the board is elected each year. This means that dissident shareholders would have to wage multiple proxy battles over several years in order to win control of the board of directors.