Proxy fight: Definition, examples and how to avoid one
When a group of shareholders band together to sway a corporate vote, it can trigger a proxy fight. While proxy fights aren’t always hostile, they indicate an unresolved disagreement between shareholders and management.
Research from SEC filings shows that proxy fights cost companies an average of $3.9 million in direct expenses — with some contests reaching $35 million for the company alone — not including management distraction, market volatility, and reputational damage that can persist for years.
A proxy fight also impacts director guidance. According to the National Association of Corporate Directors (NACD), director time commitments have reached 300+ hours annually, meaning boards have less capacity for guidance when proxy fights consume attention.
This article will help you create a collaborative environment that can ward off proxy fights by explaining:
- The definition and modern context of proxy fights
- How a proxy fight differs from a hostile takeover
- Why proxy fights occur and their mechanisms
- Recent high-profile examples and outcomes
- How to avoid proxy fights
- How AI technology transforms proxy fight management
What is a proxy fight?
A proxy fight is a contest for corporate control in which a group of shareholders seeks to gain influence by persuading other shareholders to vote against management’s recommendations, often by proposing alternative board candidates or policy changes.
These contests represent fundamental disagreements between shareholders and management about corporate direction, performance, or governance practices.
Proxy fights are most common during a merger or acquisition. Still, they can occur anytime the shareholders are unhappy with management’s decisions and feel the board of directors failed to address their concerns adequately.
Proxy fight vs. hostile takeover
In a hostile takeover, one company acquires another company without the approval of that company’s board of directors. Because the company doesn’t support the acquisition, it’s considered “hostile” in nature.
A proxy fight is not a hostile takeover, but hostile takeovers can invoke a proxy fight to acquire a target company. In this case, shareholders might use a proxy fight to replace any board members opposed to the takeover.
How proxy fights have transformed
Contemporary proxy fights occur in a dramatically different environment than historical contests, particularly for large public companies facing sophisticated activist campaigns.
The implementation of US universal proxy rules in 2022 represents the most significant regulatory shift. These regulations require companies to list all director nominees — both management's and activists' — on a single proxy card, enabling shareholders to vote for individual directors rather than entire slates. This change eliminated management's traditional advantage and democratized shareholder voting by putting proxy voters on equal footing with those attending meetings in person.
Shareholders can now mix and match candidates from different slates, focusing on individual qualifications rather than accepting predetermined packages. This flexibility has increased activist success rates while forcing companies to enhance individual director profiles and qualifications.
Technology has amplified these regulatory changes, with activists using AI-powered analytics to:
- Identify target companies
- Assess vulnerabilities
- Develop persuasive narratives targeting enterprise boards
Additionally, the influence of major institutional investors continues to shape contest outcomes at large companies. The "Big Three" asset managers — BlackRock, Vanguard, and State Street — collectively control substantial voting power that can determine proxy fight results. Their support patterns significantly influence other institutional investors, creating momentum effects that can shift campaign trajectories even at Fortune 500 companies.
Why proxy fights occur
A proxy fight occurs when shareholders are unhappy with the company’s direction. If they disapprove of some aspect of corporate governance and no longer trust the board to act in their favor, shareholders might initiate a proxy fight to right those wrongs — perceived or otherwise.
These contests typically result from accumulated frustrations rather than isolated incidents, so early identification and resolution are crucial for avoiding escalation.
1. Financial performance concerns
Shareholders initiate proxy fights when companies consistently underperform peer benchmarks or fail to meet investor expectations. Poor earnings, declining market share, or strategic missteps can trigger activist attention, particularly when boards appear unresponsive to performance issues.
To identify these underperforming targets, modern activists conduct financial analysis to build compelling investment cases. They leverage data analytics to:
- Benchmark performance
- Identify operational inefficiencies
- Quantify potential value creation from proposed changes
This makes their campaigns more credible with institutional investors who control significant voting power.
2. Governance deficiencies
Weak governance practices create vulnerability to proxy fights by signaling board ineffectiveness or management entrenchment. Issues include:
- Inadequate board diversity
- Lack of relevant expertise
- Poor risk oversight
- Insufficient shareholder engagement
The expansion of director responsibilities across cybersecurity, environmental, social and governance (ESG), and AI governance creates additional areas where boards may appear inadequately equipped. This expertise gap provides activists with compelling arguments for board composition changes.
3. Strategic disagreements
Shareholders may challenge management's strategic direction through proxy contests when they believe different approaches would create superior value. These disagreements often involve capital allocation decisions, merger and acquisition strategies, or business portfolio composition.
The rise of ESG-focused activism reflects evolving shareholder priorities and regulatory requirements. Nearly 100% of S&P 500 companies now provide ESG disclosures, yet quality and comprehensiveness vary significantly. Activists exploit these gaps to challenge management's ESG commitment or performance, particularly in industries facing environmental scrutiny.
How proxy fights work in the universal proxy era
Modern proxy fights follow more complex procedures than historical contests due to universal proxy requirements and enhanced disclosure obligations. Understanding these mechanics helps boards prepare effective responses and shareholders evaluate campaign merits.
Campaign initiation and disclosure
Proxy fights begin when dissidents file preliminary proxy statements with the SEC, typically 45-60 days before shareholder meetings.
These filings must disclose nominee information, campaign rationale, and solicitation plans while meeting strict formatting requirements under Rule 14a-19. Universal proxy rules require dissidents to solicit holders of at least 67% of voting power, creating a meaningful threshold that serious campaigns must meet.
Dissidents must provide detailed nominee backgrounds and qualifications, making individual director credentials more important than slate composition. This focus on individual qualifications has forced both activists and companies to invest more heavily in director recruitment and profile enhancement.
Solicitation and engagement
Both sides conduct intensive shareholder outreach to build voting support, using proxy solicitation firms, institutional investor meetings, and public campaigns. Digital platforms enable more sophisticated targeting and messaging while providing real-time feedback on shareholder sentiment. The universal proxy format requires careful attention to voting instructions and shareholder education about new procedures.
Voting and resolution
Shareholders vote using universal proxy cards that list all nominees alphabetically within nominating party groups. This format enables split-ticket voting where shareholders can select management nominees for some positions and activist nominees for others. The complexity of universal proxy voting requires enhanced shareholder education and clear voting instructions.
Settlement negotiations often occur throughout the process, with many campaigns resolving before final votes. These settlements may include:
- Board seats for activist nominees
- Governance enhancements
- Commitments that address shareholder concerns.
Recent examples of proxy fights
There are many examples of proxy fights, largely because they’re increasingly common. While landmark proxy fights like the Canadian Pacific Railway are widely known, others fly under the radar.
These examples illustrate different activist strategies and company responses:
Disney's successful defense (2024)
Disney's victory against Nelson Peltz's Trian Fund Management represents a successful defense against a well-funded activist campaign.
Despite Peltz's criticism of Disney's streaming strategy and board composition, the company maintained shareholder support by articulating a clear strategic vision and demonstrating operational improvements. Disney's comprehensive stakeholder engagement and communication strategy helped counter activist arguments.
The contest highlighted the importance of individual director qualifications under universal proxy rules.
Disney enhanced its proxy disclosures to emphasize each director's distinctive skills and their relevance to the company’s strategy. This approach helped shareholders understand why existing directors provided superior value compared to activist alternatives.
Illumina and Carl Icahn (2023-2024)
Carl Icahn's campaign against Illumina demonstrates how activists leverage regulatory challenges and what they consider strategic missteps to build compelling cases for change.
Icahn successfully placed one nominee on Illumina's board while removing the existing chairman, achieving partial victory despite the company's resistance.
The campaign focused on Illumina's acquisition of GRAIL and subsequent regulatory challenges, which provided clear evidence of strategic execution failures. Icahn's targeted approach — nominating three directors rather than seeking control — proved more palatable to institutional investors concerned about board stability.
Salesforce settlement dynamics (2023)
Elliott Management's approach to Salesforce was a prime example of settlement strategies that achieve activist objectives without divisive proxy contests. Elliott withdrew its director nominations after Salesforce announced significant cost-cutting measures and strategic focus initiatives that addressed investor concerns.
This outcome demonstrates how proactive management responses can resolve activist challenges before proxy fights escalate. Salesforce's willingness to engage with Elliott and implement operational improvements prevented a costly proxy fight while delivering value that satisfied both activists and other shareholders.
ExxonMobil vs. Engine No. 1 (2021)
Engine No. 1's campaign against ExxonMobil represents a watershed moment in ESG-focused activism. The small activist firm holding less than 0.02% of ExxonMobil's stock launched a proxy campaign pushing for climate risk management and strategic direction changes. This was triggered by Exxon's underperformance and lack of a credible energy transition strategy.
Engine No. 1 nominated four independent directors with expertise in energy and renewables, building broad coalition support from major institutional investors, including BlackRock, Vanguard, and State Street.
In a stunning result, three of Engine No. 1's nominees were elected to the board despite management opposition.
This victory demonstrated that ESG-focused activism could win backing from the world's largest investors and has since influenced governance approaches across the oil and gas industry.
Why proxy fights remain challenging
Despite activist successes, proxy fights face structural obstacles that limit their effectiveness and make prevention strategies valuable for companies. Understanding these challenges helps boards assess vulnerability and develop appropriate responses:
- Institutional investor influence: Major institutional investors control significant voting power that can determine proxy fight outcomes regardless of campaign quality or shareholder sentiment. The "Big Three" asset managers' voting patterns significantly influence other institutional investors, creating concentration effects that can overwhelm activist campaigns despite compelling arguments.
- Governance structures and entrenchment: Many companies maintain governance structures that impede shareholder influence, including staggered boards, supermajority voting requirements, and restrictive bylaws. These provisions make it difficult for activists to achieve meaningful change even with substantial shareholder support.
- Settlement pressures: The trend toward negotiated settlements may limit proxy fights' potential impact by encouraging compromise rather than fundamental change. While settlements avoid the costs and disruption of contested elections, they may not fully address the underlying issues that motivated activist attention.
How to avoid a proxy fight
In some instances, a proxy fight may be unavoidable. Many shareholders are spurred to action when company performance subsides — something that isn’t always within management’s control.
At the same time, there are many practices that boards and senior leadership can implement to avoid proxy fights and create a more constructive relationship between the corporation and its shareholders.
1. Engage with shareholders: It’s not enough to know who your shareholders are. Why did they invest in your company? What does good performance mean to them? What are they motivated by? Understanding how they view governance and their investments will help boards and management speak their shareholders’ language — a fundamental way to show shareholders they don’t need to initiate a proxy fight to create change.
2. Be proactive: Shareholder discontent usually brews under the surface for a long time. Reacting once they’ve expressed their view may be too little too late. Instead, actively communicate with shareholders and seek their feedback about critical decisions. This is the best way to catch — and resolve — their frustrations before they evolve into a proxy fight.
3. Manage executive compensation: How much you pay your executives isn’t just an issue of public image. It can be the impetus for a proxy fight. Closely assess the relationship between pay and performance, ensure pay is commensurate with the job description, and disclose all data to your shareholders. Executive compensation tools can automate much of this process.
4. Have clear succession plans: It’s uncommon for shareholders to be content with all board members all the time. Implementing clear governance practices around board succession will reassure shareholders about the company’s long-term strategy and how it aligns with its investment goals.
5. Create transparency: Shareholders want to be kept in the loop. This helps them cast informed votes at annual meetings and assures them that their investment is in good hands. Proxy fights can happen when shareholders are unclear about the company’s strategy or management’s decision-making. Leverage secure and collaborative governance tools to offer shareholders the transparency they need.
6. Invest in modern governance infrastructure: Investing in modern governance technology platforms enables better board operations, risk management, and stakeholder communication. Digital governance systems provide real-time access to board materials, automate routine administrative tasks, and support secure collaboration among directors and management. These capabilities demonstrate governance sophistication while improving decision-making quality.
How AI technology transforms proxy fight management
AI governance platforms enable companies to predict activist threats, enhance stakeholder engagement, and streamline complex proxy contest management.
Predictive threat assessment
AI-powered analytics identify potential activist targets by analyzing multiple data sources, including stock performance, governance metrics, shareholder composition, and market conditions.
Diligent's Smart Risk Scanner exemplifies how AI technology transforms risk identification by automatically reviewing board materials and flagging potential vulnerabilities before they become activist focal points.
Automated stakeholder communication
AI platforms streamline proxy contest communication by generating personalized messaging for different shareholder segments.
Diligent’s Smart Board Book Builder capabilities enable rapid creation of comprehensive proxy defense materials by synthesizing historical performance data, strategic achievements, and governance improvements into compelling narratives. This automation reduces preparation time from weeks to hours while ensuring materials meet professional standards and regulatory requirements.
Enhanced decision support
AI-driven analytics provide sophisticated scenario modeling and outcome prediction that inform strategic decisions throughout proxy contests. These insights enable more informed decision-making about campaign tactics, resource allocation, and negotiation approaches.
Diligent Market Intelligence provides real-time shareholder activism and proxy voting data that enables boards to:
- Benchmark governance performance
- Analyze voting patterns
- Assess shareholder sentiment before contests escalate
This comprehensive data solution helps companies identify potential activist targets in their peer group, understand voting behavior trends, and develop evidence-based defense strategies that resonate with institutional investors.
Building resilient governance frameworks with Diligent
Successful proxy fight prevention requires understanding that these contests represent governance system failures, not just isolated activist attacks. Companies that invest in governance excellence reduce proxy fight vulnerability while enhancing long-term stakeholder relationships.
Diligent's integrated AI governance platform combines Smart Risk Scanner threat assessment, Smart Board Book Builder preparation, and Market Intelligence data to help companies spot and manage proxy fights before they escalate. Through proactive governance technology adoption, companies can turn these situations into opportunities for stakeholder alignment.
Ready to strengthen your governance infrastructure? Schedule a demo to see how Diligent's platform can help your board stay ahead of activist threats.
