Title

Irrevocable Proxies

Document Type

Article

Comments

The most up-to-date version of this piece can be found in the Duke Law Scholarship

Abstract

This short article explores the circumstances under which the power to vote shares owned by another may be made irrevocable. Irrevocable proxies often serve as integral ingredients within corporate governance arrangements because they serve as mechanisms that enable alliances among shareowners or enhance the holder’s voting power in disproportion to the holder’s residual economic interest in the corporation. The rights and duties of holders of irrevocable proxies are best understood against a background of common-law agency relationships, in which agent and principal always have the power–albeit having contracted otherwise–to terminate their relationship and the agent’s actual authority. Courts in the United States have long recognized the existence of less fragile relationships in which one party holds a power that may be used to affect the legal position of another party but which are not agency relationships as defined by common-law agency. An irrevocable proxy is a prime example. From this vantage point the article identifies potentially problematic governance implications of irrevocable proxies. The article concludes with analysis of a recent opinion from Delaware’s Court of Chancery, In re IAC/Interactive Corp., in which an irrevocable proxy was central to the parties’ governance arrangements.

Date of Authorship for this Version

April 2008



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