A proxy contest, or proxy fight, is a campaign instigated by one or more dissident shareholders in order to encourage changes to the board of directors, management, or company strategy. The goal is generally to improve the company’s performance. Conducting a proxy fight can be a lengthy process that includes launching media campaigns, garnering support from other investors, and making filings with the Securities and Exchange Commission (SEC).

A company should remain aware of the composition of its shareholder base. It should know roughly what percentage of its shareholder base is composed of hedge fund investors, company insiders, index funds, and retail investors. The company should also monitor SEC filings by major shareholders. For example, certain hedge funds and institutional investors are required to file a Form 13F within 45 days after the end of each quarter that indicates its securities ownership in different companies. Companies should be vigilant about detecting when a particular shareholder accumulates a significant ownership stake over a short time period.

There are a variety of structural defenses a company can put in place to protect themselves in the event of a proxy fight. They can implement a classified board structure, also referred to as a staggered board, in which only a subset of the directors will be up for reelection each year. This contrasts with the default approach of reelecting the entire board each year. A company can also draft their charter or bylaws to limit the instances in which shareholders have the ability to call a special meeting of shareholders.

Proxy fights often occur in relation to a company’s annual meeting of shareholders, rather than at a special meeting. The dissident shareholder will issue a “fight letter” right after the company files its definitive proxy statement in connection with the annual meeting. This can be followed by additional fight letters. The initial fight letter will often outline the dissident shareholder’s key arguments, while subsequent fight letters will focus on certain topics that are deemed to have more persuasive appeal to other shareholders. A proxy solicitor can help with soliciting different groups of investors through coordinating calls, emails, and in-person presentations. A proxy solicitor serves a particularly useful role when a company has a highly diversified investor base.

It is important to keep in mind the prominent role proxy advisory firms, such as Institutional Shareholder Services (ISS) and Glass Lewis, can play in proxy fights. When ISS makes a recommendation for or against voting for particular dissident candidates, their recommendation can prove influential. Many institutional investors vote based on ISS’s guidance. The proxy advisory firms perform their own research and analysis in coming to their recommendations.

A Form PX14A6G is a Notice of Exempt Solicitation that is filed with the SEC in proxy fights in order to persuade investors to vote in a particular way. The Form PX14A6G is a communication to investors that is exempt from the traditional solicitation rules. Rule 14a-6(g)(1) of the Securities Exchange Act of 1934 permits shareholders owning more than $5 million of the company’s securities that is subject to solicitation to file a Notice of Exemption Solicitation on Form PX14A6G.