In what way does a proxy give significant power to a corporation’s management?

A proxy is a combination absentee ballot and assignment of vote. Proxies are solicited by management prior to a corporation’s annual meeting. One reason is to ensure that a majority of shares are represented at the annual meeting, either in person or by proxy, thus constituting a quorum and permitting the meeting to take place. However, in a widely-held company, it is normal for only a small percentage of stockholders to attend the annual meeting; the vast majority of shares are represented by proxies. This gives power to management in two ways.

First, the proxy form is usually printed to favor management. For yes-no-abstain votes, the proxy typically identifies management’s preferred outcomes, often in large bold type.

For the election of directors, the typical proxy only gives shareholders two choices:

(1) vote for all of management’s preferred candidates, or
(2) vote for all of management’s preferred candidates except those whose names the shareholder writes into a small space on the proxy. With these limited, awkward alternatives, it is difficult for management’s candidates to lose.

Second, collecting proxies permits management to cast a majority of the votes on any issue not listed on the proxy that comes before the meeting. Management has total control of these issues and while dissenting shareholders may speak out, they cannot change management’s position.