PROXY FIGHTS AND FAIR ELECTIONS

Depending upon whose side you are on, a proxy fight is usually intended to either oust an existing board or prevent a group of dissidents from taking over. Each side attempts to obtain proxies from as many shareholders or unit-owners as possible.

Problems arise when, for instance, there are duplicate proxies signed by the same shareholder/unit-owner, usually because that resident didn't want to antagonize anyone by refusing to sign a proxy. Or, a group will walk into the meeting with more than enough proxies to elect a board, but then lose the election and assume the vote was rigged when, in fact, they either voted incorrectly or some shareholders who signed proxies attended the meeting and voted differently.

Communicate Early and Often

In many instances, proxy fights arise from an existing board's failure to communicate with the shareholders/unit-owners during the year, creating a vacuum that the dissidents fill. A board may be doing the best job imaginable, but could still be ousted by a small group of angry residents who will use a small issue as their rallying cry. So, any board that does not distribute, say, a quarterly letter to the shareholders/unit-owners is asking for a proxy fight. Such letters do not have to be elaborate newsletters or magazines, but a simple one- or two-page missive from the board advising the owners what is going on and the things the board is considering. Of course, sometimes boards make colossal mistakes, but with sufficient communication, even those can be explained.

Nonetheless, obtaining a valid proxy from a shareholder or unit-owner is meaningless if that resident attends the meeting. And frankly, if the fight merits all of the sturm und drang of two sides fighting for each proxy, then every shareholder/unit-owner should probably attend the meeting to learn firsthand what is going on instead of relying on the rumors and innuendo that tend to circulate through buildings before such meetings. There is no fact-checker reviewing the accuracy of pre-election letters, memos and flyers that get shoved under the door, and few things are more disturbing than unsigned diatribes from the often-named "Committee of Concerned Shareholders" alleging all sorts of wrongdoing. If the writers believe in what they are saying, then they should append their names to give at least a shred of validity.

The other complexity in proxy fights is determining whether the board or the dissidents have enough proxies and votes to elect a majority of the board. This apparently straightforward concept seems to escape the attention of many of the warriors, who do not need to elect all members to fill all the seats — just a majority of the seats. The key is merely electing a majority of the board members, which enables that side to elect the officers and enact whatever resolutions the majority side deems relevant.

Two Kinds of Voting

Voting can be accomplished in one of two ways. Most boards are elected by straight voting, although some cooperative boards are elected through a process called cumulative voting.

With a seven-member board and straight voting, each shareholder or unit-owner can vote for up to seven candidates, and each candidate can receive no more votes than are equal to the shareholder's shares or the unit-owner's common interests.

In cumulative voting, each shareholder can multiply his or her shares by the number of board seats being elected. So, for example, if the board has seven directors and a shareholder has 200 shares, then that shareholder has 1,400 votes and either gives all the votes to one candidate or spreads them among multiple candidates.

The cumulative method is intended to enable a minority of voters to elect a candidate to the board, because in straight voting, whichever side has a majority of the shares can elect the entire board. Cumulative voting is a problem in proxy fights because it is so complicated, and so it's easy for shareholders to vote incorrectly since they have to multiply their shares by the number of board members and then divide that number by the number of candidates for whom they want to vote.