A Proxy Is Not A Vote And Why It Matters

As discussed in this prior post, the Securities and Exchange Commission recently proposed rule amendments to implement the Dodd-Frank Act’s executive compensation advisory votes mandates. Regrettably, the SEC’s proposal perpetuates the common misconception that executing a proxy is the same as voting. For example, the SEC’s proposed Rule 14a-4(b)(3) refers to “[a] form of proxy which provides for a shareholder vote on the frequency shareholder votes to approve the compensation of executives . . .”.

The California General Corporation Law makes a clear distinction between a proxy and a vote by defining a proxy as “a written authorization signed or an electronic transmission authorized by a shareholder or the shareholder’s attorney in fact giving another person or persons power to vote with respect to the shares of such shareholder”. Cal. Corp. Code § 178. The agent is called a “proxyholder”. See Legislative Comment to Cal. Corp. Code § 604. California’s definition is not out of the mainstream. In fact, its statutory definition of “proxy” is substantively the same as that enunciated by the Delaware Supreme Court: “[T]he relationship between grantor and recipient of a proxy is one of agency . . .”. Moran v. Household Int’l, Inc., 500 A.2d 1346, 1355 (Del. 1985).

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