Definition
In finance, a proxy is a written authorization given by a shareholder for someone else, usually the company’s management, to represent their vote at a shareholder meeting. It can also refer to the document itself that grants that authority. Proxies provide a way for absent shareholders to participate in the voting process.
Phonetic
The phonetics of the word “Proxy” are: /ˈprɒk.si/
Key Takeaways
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Importance
In the world of business and finance, the term “Proxy” is of significant importance. It refers to an agent legally authorized to represent or act on behalf of a shareholder in company matters, especially during a voting process at the meeting of shareholders. Through the use of proxies, individuals can exercise their voting rights without personally attending shareholder meetings, enhancing democratic participation and decision-making for those unable to be physically present. Proxies are especially important for maintaining the integrity of corporate governance, where shareholder’s interests need to be represented fairly. They also ensure the efficient functioning of businesses by enabling informed decisions, reflecting the collective opinion of all shareholders.
Explanation
The purpose of a proxy in the realm of finance and business is specifically tied to shareholder voting rights. A proxy gives shareholders who are unable or unwilling to attend a company’s annual meetings a route to still exercise their right to vote. This is viewed as including a larger number of shareholder inputs into important decisions, thereby promoting broader governance and equity within the corporation. Hence, a proxy is instrumental in ensuring that every stakeholder has a chance to have their voice heard and their vote count in the organization’s pertinent decisions.Proxies are also used more widely, as tools that stand in for something or someone else. For instance, in investment, a proxy can be an aggregated metric such as GDP or the CPI that analysts use to make informed predictions or decisions about market trends. Proxies in this sense are used as gauges or indicators in extrapolating or forecasting larger, more complex trends or patterns. Thus, whether in the specific sense of shareholder rights or the more general concept of “standing in” for something else, proxies form an essential tool in financial and business operations.
Examples
1. Shareholder Voting: In many publicly traded companies, shareholders don’t directly vote on corporate matters. Instead, they delegate their voting rights to a proxy, often a member of the company’s management team, to vote on their behalf. This is usually done during the annual general meeting where key decisions about the company like selecting a board of directors or approving a merger are decided.2. Investment Decisions: In the finance world, a financial advisor, fund manager, or robo-advisor can act as a proxy for an investor. They will make buy or sell decisions based on what they believe to be in the client’s best interests.3. Corporate Takeovers: It is common during hostile takeover attempts for an acquiring company to use proxy solicitation. The company will reach out to shareholders in the target company to convince them to vote their shares as a proxy in favor of the takeover. This is often done if the management of the targeted company is resistant to the takeover.
Frequently Asked Questions(FAQ)
What does the term proxy mean in finance and business?
A proxy refers to a person legally authorized to represent another party, generally a shareholder at a shareholders meeting. It can also denote a written authorization allowing one person to act on behalf of another.
How is a proxy used in voting?
In a corporate setup, if a shareholder cannot attend a meeting, they can use a proxy, authorizing another individual to vote on their behalf. This ensures shareholders can still influence decisions without needing to be present in person.
Who can serve as a proxy?
Technically, any individual could be a proxy. However, typically, the board of directors or individuals specified by shareholders work as proxies due to their knowledge and understanding of the company’s matters.
What is a proxy fight?
A proxy fight, also known as a proxy battle or proxy contest, happens when a group of shareholders join forces and pool their shareholder proxy votes to install new management or influence a specific decision.
Can a shareholder change his/her proxy?
Yes, a shareholder can typically change or revoke his/her proxy unless the proxy form explicitly states that it is irrevocable. The shareholder would have to notify the company or their proxy, depending on the company’s bylaws.
What is a proxy statement?
A proxy statement is a document with data that a publicly-traded company is required to distribute to shareholders, outlining the matters of business to be decided at an annual shareholder meeting. The statement typically includes information about directors and executive compensation, among other things.
Why are proxies important in business?
Proxies are a critical tool in maintaining corporate governance. They allow for clear decisions to be made when all shareholders can’t physically be present, they also ensure that all shareholders, regardless of their geography, have a voice in important business matters.
Related Finance Terms
- Shareholder Voting Rights
- Proxy Statement
- Proxy Agent
- Proxy Fight
- Proxy Server
Sources for More Information
