Handling Director Elections and Other Proxy Contests

What does handling director elections and other proxy contests entail?

Handling director elections and proxy contests involves the processes and strategies used to elect directors to a corporation’s board and address shareholder disputes. In the context of Florida corporate governance, handling these matters typically requires adhering to the provisions laid out in the Florida Business Corporation Act. This act sets the rules and guidelines for conducting elections, voting procedures, and other related matters.

One example of when corporate executives or boards of directors require counsel on handling director elections is during contested elections. In this case, shareholders may nominate alternative candidates to challenge the incumbent directors, leading to a proxy fight. Another example is when shareholders propose resolutions that could significantly affect the company’s strategy or governance, requiring the board to navigate complex legal and procedural issues.

Need help with a matter related to handling director elections and other proxy contests? Schedule your consultation today with a top corporate and board of directors’ governance and operations attorney.

Which Florida and federal laws and regulations apply to director elections and other proxy contests?

In Florida, the Florida Business Corporation Act (FBCA) provides the primary legal framework for handling director elections and proxy contests within corporations. During these processes, the FBCA outlines requirements for director nominations, quorum, voting procedures, and the rights and responsibilities of shareholders and directors.

At the federal level, the Securities Exchange Act of 1934, enforced by the Securities and Exchange Commission (SEC), also significantly impacts director elections and proxy contests for publicly traded companies. It contains rules regarding proxy solicitation, disclosures, and other matters related to shareholder voting and director elections.

What issues regarding director elections and other proxy contests commonly lead to litigation?

The following issues are among the most common in litigation involving handling director elections and other proxy contests:

• Disputes Over Nomination Procedures: Conflicts may arise when shareholders allege that a company has unfairly restricted their ability to nominate director candidates, violating the rules outlined in the company’s bylaws or the FBCA.
• Insufficient or Misleading Disclosures: Shareholders may sue if they believe that proxy materials contain false or misleading statements, omissions, or inadequate disclosures about director nominees or other proxy matters, violating federal securities laws.
• Allegations of Director Misconduct: Shareholders may bring lawsuits against directors for alleged breaches of fiduciary duties, such as conflicts of interest, self-dealing, or failure to act in the best interests of the company during the proxy process.
• Proxy Solicitation Violations: Proxy contests may lead to litigation if a party engages in improper solicitation tactics, such as failing to comply with the Securities Exchange Act of 1934’s proxy solicitation and disclosure requirements.
• Vote Manipulation: Shareholders may challenge the outcome of a director election or proxy contest if they suspect that the company or other parties have manipulated voting results, for example, by improperly counting or disregarding votes.

What are effective measures to minimize the risk of litigation over director elections and other proxy contests?

Implementing the following may help mitigate risk:

• Adherence to Bylaws and Legal Requirements: Ensure that nomination procedures, disclosures, and voting processes adhere to the company’s bylaws, the FBCA, and federal securities laws.
• Transparency: Provide shareholders with clear, accurate, and comprehensive information about director nominees, proposals, and other proxy-related matters.
• Independent Review of Proxy Materials: Have proxy materials reviewed by independent legal counsel to ensure compliance with relevant laws and regulations and identify and correct any potential issues before distribution.
• Engage with Shareholders: Foster open communication with shareholders to address concerns and facilitate constructive dialogue before disagreements escalate into litigation.
• Board Education and Training: Regularly train board members on their fiduciary duties, conflicts of interest, and other legal and ethical obligations to help prevent misconduct during the proxy process.
• Implement Safeguards Against Vote Manipulation: Employ secure voting systems and independent oversight of voting processes to minimize the risk of vote manipulation and ensure the integrity of director elections and proxy contests.

When a set of facts is appropriate to meet litigation requirements, there are many paths a claimant may take. We are value-based attorneys at Jimerson Birr, which means we look at each action with our clients from the point of view of costs and benefits while reducing liability. Then, based on our client’s objectives, we chart a path to seek appropriate remedies.

To determine whether your unique situation may necessitate litigation, please contact our office to set up your initial consultation.

Frequently Asked Questions

1. What triggers a proxy contest in the context of director elections?

A proxy contest may trigger due to shareholder dissatisfaction with the current board composition or governance practices, leading to the nomination of alternative director candidates by activist shareholders.

1. Can companies adopt measures to deter proxy contests?

Companies can adopt shareholder rights plans or “poison pills,” which may make it more difficult or costly for activist shareholders to initiate a proxy contest. However, companies must carefully craft these rules to comply with Florida and federal laws and regulations.

1. How can companies avoid proxy contests related to director elections?

Companies can avoid proxy contests by proactively engaging with shareholders, maintaining strong governance policies, regularly evaluating board composition, and addressing potential areas of shareholder concern before they escalate into a proxy contest.

Have more questions about governance or operations for your business?

Crucially, this overview of handling director elections and other proxy contests does not begin to cover all the laws implicated by this issue or the factors that may compel the application of such laws. Every case is unique, and the laws can produce different outcomes depending on the individual circumstances.

Jimerson Birr attorneys guide our clients to help make informed decisions while ensuring their rights are respected and protected. Our lawyers are highly trained and experienced in the nuances of the law, so they can accurately interpret statutes and case law and holistically prepare individuals or companies for their legal endeavors. Through this intense personal investment and advocacy, our lawyers will help resolve the issue’s complicated legal problems efficiently and effectively.

Having a Jimerson Birr attorney on your side means securing a team of seasoned, multi-dimensional, cross-functional legal professionals. Whether it is a transaction, an operational issue, a regulatory challenge, or a contested legal predicament that may require court intervention, we remain a tireless advocate every step of the way. Being a value-added law firm means putting the client at the forefront of everything we do. We use our experience to help our clients navigate even the most complex problems and come out the other side triumphant.

If you want to understand your case, the merits of your claim or defense, potential monetary awards, or the amount of exposure you face, you should speak with a qualified Jimerson Birr lawyer. Our experienced team of attorneys is here to help. Call Jimerson Birr at (904) 389-0050 or use the contact form to schedule a consultation.

Here are some blogs written by JB attorneys that provide more information about handling director elections and other proxy contests:

• Sole Proprietorships, Corporations and LLC’s: Choosing the Entity Form that is Right for you
• Important Things to Know When Serving on a Board of Directors (jimersonfirm.com)
• Manager Managed v. Member Managed LLCs