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Proxies are essentially the corporate law equivalent of absentee balloting. Essentially, it is the delegation to another member of a voting body of that member's power to vote in his absence and/or for the selection of additional representatives. Proxies allow shareholders to vote on certain matters prior to a meeting or assign the voting right to another person who will be present at the meeting. The person who designates someone else as the voter is called a "principal" and the person designated to vote is the "proxy." Right to vote

Proxy voting is sometimes utilized in closely held small, and quasi-public corporations. In publicly held corporations, proxy voting is used extensively (indeed, in nearly every corporation and on at least an annual basis). Frequently, in a large coropration, only a few shareholders attend the annual meetings or special meetigns that may be called at times other than the annual meeting.

Prior to the meeting, the incumbent management of the corporation solicits proxies from shareholders. Those proxies authorize two or three of the incumbent managers to vote the shareholder's shares at the annual meeting, principally for election of the slate of directors nominated by incumbent management but also for other items listed on the proxy card (appointment of auditors and approval of stock option plans for management are two frequent items) and on "such other business as may properly combe fore the meeting or any adjournment thereof.

Shareholders send in a card (called a proxy card) on which they mark their vote. The card authorizes a proxy agent to vote the shareholder's stock as directed on the card. The proxy card may specify how shares are to be voted or may simply give the proxy agent discretion to decide how the shares are to be voted. Under Securities Exchange Commission Rule 14a-3, the incumbent board of directors' first step in soliciting proxies must be the distribution to shareholders of the firm's annual report. An insurgent may independently prepare proxy cards and proxy statements, which are sent to the shareholders.

Delaware law and other state laws also permit shareholders to act without a meeting through the use of written consents or consent solicitation. The consent soliciation seeks the requisite vote without a meeting and once obtained, the action is approved. However, even the consent merchanism may not be used to replace the annual meeting. The internet provides opportunites to change the voting process. For example. Delaware allows the participation in shareholder meetings using remote communication or the use of online meetings. In addition, a shareholder can designate the proxy holder by electronic means. Managers send out proxies to the shareholders requesting their votes for issues to be voted on at the shareholder meeting. Managers need to solicit proxies in order to have a quorum at the meeting and to be reelected and remain in power.

One would assume that managers would always be concerned with their reelection and retention because they need to obtain shareholder votes. But managers have control over corporate information and the corporation's proxy materials, and solicitations are at corporate expense. In addition, shareholders in publicly traded corporations are viewed as passive with a preference to exit by selling rather than using their voice to challenge management.

The right to vote for directors is the most significant right that the shareholders of publicly traded corporations possess especially when there is no control group. But the rights to amend the by lawys to try to mandate changes and to propose precatory proposal for change are also significant. If there exists a group which opposes management for election of their views, that group may send its own proxy material which results in a "proxy fight ."

The SEC shareholder proxy proposal rule: SEC Rule 14a-8

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