Proxy contests for board representation or control have increased in frequency as activist strategies have become an established feature of the investment and governance landscape. In recent years, dissident stockholders have been consistently successful in using proxy contests to achieve strategic or governance changes. US public companies and their advisors therefore need to understand the dynamics of the proxy contest process, risk mitigation strategies and how to maximize their chances of prevailing.

A proxy contest is a campaign to solicit votes (or proxies) in opposition to management at an annual or special meeting of stockholders or through action by written consent. Over the past ten years there has been an 87% increase in frequency of proxy contests. On average, 60 proxy contests were initiated at US public companies each year for the period 2001–2005 and 112 for the period 2006–2010 (Proxy Fight Trend Analysis, SharkRepellent).

Today the most common types of proxy contests are those seeking board representation or control by activist stockholders seeking short-term profits. The proxy contest serves as a tool to drive change, including:

*Adding directors who are sympathetic to the activist’s goals or bring fresh perspectives to the board, orchestrating a change in executive management and securing other changes in corporate governance.

*Catalyzing changes in strategy, changes in capital allocation, a sale or break-up of the company or other value-enhancing transactions.

In recent years, dissidents who initiated a proxy contest have gained one or more board seats by running a successful campaign or settling before the vote in more than 50% of contests at listed companies.

Besides traditional proxy contests, investors today have other tools available to express dissatisfaction and drive change, including “withhold the vote” campaigns. Assuming the current litigation challenge to the SEC’s new proxy access rule, Securities Exchange Act Rule 14a-11, is ultimately dismissed, another important mechanism will be available for dissidents to contest elections of directors (see Box, A Note on Proxy Access).

Given the increased frequency of proxy contests and other forms of dissident stockholder campaigns, it is important for general counsels and securities lawyers to develop a familiarity with the dynamics of a proxy contest, including the:

- Investor relations environment.

- Importance of advance preparation.

- Timing and strategic considerations.

- Key legal considerations.

- Methods of fighting a proxy campaign.

- Settlement options.