What is a 'proxy' in corporate governance?

In corporate governance, a 'proxy' specifically refers to the authority granted to a person to act on behalf of a shareholder, particularly in the context of voting at a company’s annual meetings or special meetings. This mechanism allows shareholders who may not be able to attend the meeting in person to still have their votes represented and counted. The proxy can either be a fellow shareholder or another designated individual, and it can also involve submitting a written document that specifies the voting preferences of the shareholder.

This process is an important aspect of corporate governance as it ensures that shareholder voices can still be heard even if they are not present physically, thereby promoting democratic participation in corporate decision-making. The use of proxies is common in various decisions, such as electing directors, approving corporate actions, and other matters requiring shareholder votes.

In contrast, the other options presented do not accurately capture the function of a proxy in this context. A legal contract for corporate mergers, for instance, pertains to the agreements between companies for consolidation and does not involve individual shareholder voting authority. A document outlining corporate compliance policies is related to regulatory adherence rather than governance voting rights. Lastly, a financial instrument representing shareholder interest refers to stocks or shares, not the process of voting on behalf of a shareholder. Thus