A proxy fight occurs when a major shareholder decides to challenge existing management usually over a key issue such as divesting under performing businesses or cutting costs.
If management fails to satisfy the shareholder's complaints he can attempt to organize a group of shareholders to vote their proxies for his slate of members of the board of directors or for shareholder initiatives. The competiton for these proxies is known as a proxy fight. Usually the proxies are to be voted at the company's annual meeting, but if the issue is time critical, sometimes a special shareholder meeting is called.
The terms of the corporation by-laws usually determine how easy it is for the raider to take over the corporation. Various poison pill defenses are usually in place to make hostile takeovers difficult. A common one is interlocking director terms, making it impossible to change the complete board composition at a single annual meeting. But control of the board can result in favorable changes to the by-laws as well as changes in management and the ability to select a new CEO.
Although the methods described are those of a corporate raider or a hostile takeover, sometimes the desire for change or reform comes from within as from a group of dissident shareholders. They are not necessarily raiders, but success does suggest a change in management will follow. The end result may be essentially the same even though the company is not acquired by an outsider in the process.