I May Be Pettifogging, But I Have to Ask: Is It Time To Dump The Proxy And Give Shareholders A Ballot?

The proxy is the most misunderstood and mischaracterized of all instruments.  For the record, a “proxy” is “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.  Fundamentally, a proxy “is evidence of an agent’s authority to vote shares owned by another.”  Eliason v. Englehart, 733 A.2d 944 (Del. 1999).  This isn’t new learning, the Delaware Court of Chancery said as much 74 years ago in Duffy v. Loft, 151 A. 223, 227 (Del. Ch. 1930), aff’d. 152 A. 849 (Del. 1930) (stating that “the paper writing which we call a proxy is nothing more than evidence of a relationship. It is not the relationship. It simply testifies that A. has constituted B. his agent to act for him in a vicarious capacity”).

The one thing that a proxy is not is a vote.  This is clear because an agent can always fail to carry out her responsibilities.  Id.  In real life, a client once had a shareholder file its own proxy statement, solicit proxies, come to the meeting but fail to turn in a ballot.

Nonetheless, virtually every proxy statement equates the giving of a proxy as voting.  For example, many proxy statements include statements such as the following:

All shareowners of record also can vote by touchtone telephone within the U.S., U.S. territories and Canada, using the toll-free telephone number on the notice or proxy card, or through the Internet, using the procedures and instructions described on the notice or proxy card.

Other proxy statements describe how a shareholder may change her vote.  What is really going on is that shareholders can give voting instructions to a proxy and can change those instructions.

If the world is committed to using proxy and vote interchangeably, maybe the answer is to get rid of the proxy and simply have people execute ballots.  This mechanism is already available to, and used by, some nonprofit public benefit corporations pursuant to Section 5513 of the California Corporations Code.