Limited, directed, dated: what you should know to qualify –
and disqualify – missing voters.
Drafting the proxy form may seem like a prosaic chore, but the scribe who trivializes this task acts at his own peril. Inattention to detail or failure to comply with the arcane requirements of the Business Corporation Law when composing the form can invalidate the proxy and thus alter the course of an election (for want of a date, the proxy battle was lost). If you think details don’t matter when drafting a proxy form, read on.
Several years ago, I represented a beleaguered board at an annual meeting that featured a hotly contested election. The leader of the insurgent group handed me a stack of proxies representing 60 percent of the co-op’s outstanding shares, and confidently stated that they were being voted on behalf of his slate of opposition candidates. However, none of his proxies were dated in a legally proper manner. Accordingly, each was disqualified, and the incumbent board was re-elected – despite its apparent lack of support.
The moral of this story is that adherence to legal technicalities when designing the proxy form does matter. Deviation from these requirements may well lead to disqualification of the proxy.
Proxies are statements by a shareholder or unit-owner authorizing another person (the proxy-holder) to vote his/her shares or common interests. Since the issuing apartment-owner is not typically present at the association’s meeting to affirm his statement, the proxy must be in writing. The document must contain language empowering the proxy holder to cast the issuing apartment-owner’s votes.
The written proxy form must designate a specific proxy-holder; the failure of an issuing apartment owner to deputize a particular person to cast his votes renders the proxy form useless. Since the proxy is a personal delegation of power, it must be issued to an individual. Thus, any proxy issued to “The Management Company” or to “The Board” is invalid. Proxy-holders need not be shareholders or unit-owners of the association, but they themselves must be physically present at the meeting to exercise their issuer’s voting power.
Generally, proxies are required to be signed by the issuing apartment-owner as a means of validating his/her delegation of voting power to the holder. However, the Business Corporation Law permits issuance of proxies via “telegram, cablegram, or other means of electronic transmission.” Such electronically transmitted proxies cannot be physically signed, but they must at least “set forth or be submitted with information from which it can be reasonably determined” that the document was authorized by the issuer.
Proxies must be dated as of the time of their issue for two reasons. First, unless otherwise specified in the proxy form, the term of the authority granted to the holder is 11 months. Without an issuing date, it is impossible to determine whether the proxy has become stale by the time it is used. Moreover, apartment-owners have a legal right to revoke any proxy up until the election. One of the recognized means of revocation is issuing another proxy. Unless a proxy is properly dated, revoking it is impossible. (In the anecdote related earlier, the insurgents’ proxies each contained a pre-printed date, which was the date of the annual meeting. Thus, the shareholders were effectively deprived of their right to revoke their proxies between the time of their actual issue and the election.)
Proxies issued by an executor, administrator, guardian, or conservator on behalf of the owner are valid provided the instrument is accompanied by the letters or a judicial order substantiating their claim. When the apartment-owner has issued a “power of attorney” (POA) authorizing another person to vote his/her shares or common interest, a copy of that document, together with an affidavit attesting that the POA is still in effect, must accompany the proxy.
Any proxy form that complies with these basic legal requirements is valid and must be recognized irrespective of the language or format of the document. However, proxy forms can be, and often are, embellished with additional features in order to enhance their use. For instance, when the proxies are designed, they can either have a blank space that gives the apartment-owner the discretion to insert his/her own designee or print the name of a desired proxy-holder. The former alternative is used when the objective is to foster a completely “open” election, whereas the latter is typically utilized by incumbent boards or insurgent groups whose goal is to influence the outcome by eliciting large numbers of proxies in favor of a friendly holder. Proxy designers can also pursue a middle course, printing the name of a designated proxy-holder, but also providing a blank space so that the issuing apartment owner has the option of deleting the name of the designated holder and inserting his/her own choice.
Designers of proxy forms should provide for multiple proxy-holders in case one of them cannot make the meeting because of an unanticipated emergency. When multiple bearers are named, they should be designated in the alternative (i.e., “A or B, with full powers of substitution”), so that any one of them can vote the shares/common interests represented by the proxy without the others being present at the meeting.
Sometimes, apartment-owners refuse to furnish a proxy because they do not want to take a stand on a contested vote. Such an attitude can account for the failure to achieve a quorum; however, providing space on the proxy form in which the holder is instructed to record a vote “for quorum purposes only” can circumvent this obstacle.
A statement on the proxy form that the apartment-owners’ votes “may be cast at any adjourned meeting” will preclude legal challenges to their use in the event the election in question is not held on the scheduled date. Reference to the owner’s apartment number and vote allocation on the proxy form will facilitate its tabulation.
Whenever I am called upon to design a proxy, I ask the client whether his objective is to influence the outcome of the election or to insure a completely “open” process. In the former instance, I craft a “general” proxy. In the latter, I draw up a “directed” proxy. The first is one in which the apartment-owner gives the holder unfettered discretion to cast his/her votes as the holder sees fit. In this fashion, the holder is able to harness the combined voting power represented by all the proxies he collects. The second method, a directed proxy, is one in which the apartment-owner provides his/her holder with explicit instructions as to how and for whom his votes are to be cast. When a directed proxy is used, the holder’s role at the association’s meeting is reduced to that of a ministerial messenger who merely reflects the owner’s voting preferences. A hybrid format can also be used in which the proxy is general in nature, but space is provided for specific directions to the proxy-holder (i.e., “Vote for A, B, and C, but refrain from voting for D).
Designation of the building’s property manager as a proxy-holder is appropriate when a directed proxy is used, because his role is ministerial in nature. However, designation of the property manager as holder of a general proxy gives him/her power to influence the election of those who oversee his performance.
Irrespective of what kind of form is utilized or which of the optional features are incorporated, the document should be in plain English. A confusing form steeped in legalese will tend to intimidate apartment-owners, thereby discouraging their use of the device. A cover letter to apartment-owners explaining what the form and how it should be filled out minimizes confusion and maximizes owners’ comfort level with the process. Where cumulative voting prevails, an explanation of that procedure is vital. This is especially true when a directed proxy is used, because owners must be able to instruct their holders how to distribute their allocation of votes. When a general proxy is employed, a statement as to how the holder intends to cast his/her votes is appropriate.
Bruce Cholst is a partner in Rosen & Livingston.