[Federal Register Volume 81, Number 218 (Thursday, November 10, 2016)]
[Proposed Rules]
[Pages 79122-79186]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-26349]



[[Page 79121]]

Vol. 81

Thursday,

No. 218

November 10, 2016

Part II





 Securities and Exchange Commission





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17 CFR Part 240





 Universal Proxy; Proposed Rule

  Federal Register / Vol. 81 , No. 218 / Thursday, November 10, 2016 / 
Proposed Rules  

[[Page 79122]]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 240

[Release No. 34-79164; IC-32339; File No. S7-24-16 ]
RIN 3235-AL84


Universal Proxy

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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SUMMARY: We are proposing amendments to the federal proxy rules to 
require the use of universal proxies in all non-exempt solicitations in 
connection with contested elections of directors other than those 
involving registered investment companies and business development 
companies. Our proposal would require the use of universal proxies that 
include the names of both registrant and dissident nominees and thus 
allow shareholders to vote by proxy in a manner that more closely 
resembles how they can vote in person at a shareholder meeting. We 
further propose amendments to the form of proxy and proxy statement 
disclosure requirements to specify clearly the applicable voting 
options and voting standards in all director elections.

DATES: Comments should be received on or before January 9, 2017.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/proposed.shtml);
     Send an email to [email protected]. Please include 
File Number S7-24-16 on the subject line; or
     Use the Federal eRulemaking Portal (http://www.regulations.gov). Follow the instructions for submitting comments.

Paper Comments

     Send paper comments to Brent J. Fields, Secretary, 
Securities and Exchange Commission, 100 F Street NE., Washington, DC 
20549-1090.

All submissions should refer to File Number S7-24-16. This file number 
should be included on the subject line if email is used. To help us 
process and review your comments more efficiently, please use only one 
method. The Commission will post all comments on the Commission's 
Internet Web site (http://www.sec.gov/rules/proposed.shtml). Comments 
are also available for Web site viewing and printing in the 
Commission's Public Reference Room, 100 F Street NE., Washington, DC 
20549-1090 on official business days between the hours of 10:00 a.m. 
and 3:00 p.m. All comments received will be posted without change; we 
do not edit personal identifying information from submissions. You 
should submit only information that you wish to make available 
publicly.
    Studies, memoranda or other substantive items may be added by the 
Commission or staff to the comment file during this rulemaking. A 
notification of the inclusion in the comment file of any such materials 
will be made available on the SEC's Web site. To ensure direct 
electronic receipt of such notifications, sign up through the ``Stay 
Connected'' option at www.sec.gov to receive notifications by email.

FOR FURTHER INFORMATION CONTACT: Tiffany Posil, Special Counsel, or 
Christina Chalk, Senior Special Counsel, in the Office of Mergers and 
Acquisitions, at (202) 551-3440, or Steven G. Hearne, Senior Special 
Counsel, in the Office of Rulemaking, at (202) 551-3430, Division of 
Corporation Finance, Securities and Exchange Commission, 100 F Street 
NE., Washington, DC 20549.

SUPPLEMENTARY INFORMATION: We are proposing new Rule 14a-19 and 
amendments to Rules 14a-2,\1\ 14a-3,\2\ 14a-4,\3\ 14a-5,\4\ 14a-6,\5\ 
14a-101 \6\ under the Securities Exchange Act of 1934 (``Exchange 
Act'').\7\
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    \1\ 17 CFR 240.14a-2.
    \2\ 17 CFR 240.14a-3.
    \3\ 17 CFR 240.14a-4.
    \4\ 17 CFR 240.14a-5.
    \5\ 17 CFR 240.14a-6.
    \6\ 17 CFR 240.14a-101.
    \7\ 15 U.S.C. 78a et seq.
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Table of Contents

I. Introduction
    A. Background
    B. Current Proxy Voting Process in Contested Elections
    C. Recent Feedback on the Proxy Voting Process
    D. Need for Proposed Amendments
II. Proposed Amendments
    A. Bona Fide Nominees and the Short Slate Rule
    1. Revision to the Consent Required of a Bona Fide Nominee
    2. Elimination of the Short Slate Rule
    3. Solicitation Without a Competing Slate
    B. Use of Universal Proxies
    1. Mandatory Use of Universal Proxies in Non-Exempt 
Solicitations in Contested Elections
    2. Dissident's Notice of Intent To Solicit Proxies in Support of 
Nominees Other than the Registrant's Nominees
    3. Registrant's Notice of Its Nominees
    4. Minimum Solicitation Requirement for Dissidents
    5. Dissemination of Proxy Materials
    6. Form of the Universal Proxy
    7. Timing of Universal Proxy Solicitation Process
    C. Additional Revisions
    1. Director Election Voting Standards Disclosure and Voting 
Options
    D. Investment Companies
III. General Request for Comment
IV. Economic Analysis
    A. Background
    B. Baseline
    1. Affected Parties
    2. Contested Director Elections
    3. Other Methods to Seek Change in Board Representation
    C. Broad Economic Considerations
    D. Discussion of Economic Effects
    1. Effects on Shareholder Voting
    2. Potential Effects on Costs of Contested Elections
    3. Potential Effects on Outcomes of Contested Elections
    4. Potential Effects on Incidence and Threat of Contested 
Elections
    5. Specific Implementation Choices
V. Paperwork Reduction Act
    A. Background
    B. Summary of Proposed Amendments' Impact on Collection of 
Information
    C. Estimate of Burdens
    D. Request for Comment
VI. Small Business Regulatory Enforcement Fairness Act
VII. Initial Regulatory Flexibility Act Analysis
    A. Reasons for, and Objectives of, the Proposed Action
    B. Legal Basis
    C. Small Entities Subject to the Proposed Rules
    D. Projected Reporting, Recordkeeping and Other Compliance 
Requirements
    E. Duplicative, Overlapping or Conflicting Federal Rules
    F. Significant Alternatives
    G. Solicitation of Comment
VIII. Statutory Authority and Text of Proposed Rule Amendments

I. Introduction

A. Background

    A shareholder's ability to participate in the election of directors 
has been recognized as a fundamental part of state corporate law.\8\ 
State statutes require corporations to hold an annual meeting of 
shareholders for the purpose of electing directors.\9\ Today, few 
shareholders of companies with a class of securities registered under 
the Exchange Act attend a registrant's meeting to vote in person. 
Rather, the primary way for shareholders to learn

[[Page 79123]]

about matters to be decided on at a meeting and to vote on the election 
of directors is through the proxy process.
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    \8\ See Preston v. Allison, 650 A.2d 646, 649 (Del. 1994); see 
also Blasius Indus., Inc. v. Atlas Corp., 564 A.2d 651, 659 (Del. 
Ch. 1988) (``The shareholder franchise is the ideological 
underpinning upon which the legitimacy of directorial power 
rests.'').
    \9\ See, e.g., Model Bus. Corp. Act Sec.  7.01 (2008); Cal. 
Corp. Code Sec.  600(b) (2009); Del. Code. Ann. tit. 8, Sec.  211(b) 
(2009); N.Y. Bus. Corp. Law Sec.  602(b) (2009).
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    While state law typically authorizes the use of proxies to permit 
shares to be voted without shareholders attending the meeting,\10\ 
parties soliciting proxy authority to vote Exchange Act-registered 
securities must comply with the federal proxy rules pursuant to Section 
14 of the Exchange Act.\11\ Section 14 of the Exchange Act authorizes 
the Commission to establish rules and regulations governing the 
solicitation of any proxy or consent or authorization in respect of any 
security registered pursuant to Section 12 of the Exchange Act. 
Registrants with reporting obligations only under Exchange Act Section 
15(d) and foreign private issuers are not subject to the federal proxy 
rules. The congressional report accompanying the Exchange Act stated 
that ``[f]air corporate suffrage is an important right that should 
attach to every equity security bought on a public exchange.'' \12\ The 
congressional committees recommending passage of Section 14(a) proposed 
that ``the solicitation and issuance of proxies be left to regulation 
by the Commission'' \13\ and explained that Section 14(a) would give 
the Commission the ``power to control the conditions under which 
proxies may be solicited with a view to preventing the recurrence of 
abuses which have frustrated the free exercise of the voting rights of 
stockholders.'' \14\ Regulation of the proxy process has been a core 
function of the Commission since its inception. In discussing the 
regulation of the proxy process, Chairman Ganson Purcell explained to a 
committee of the House of Representatives in 1943: ``The rights that we 
are endeavoring to assure to the stockholders are those rights that he 
has traditionally had under State law. . . .'' \15\
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    \10\ See, e.g., Del. Code Ann. tit. 8, Sec.  212.
    \11\ 15 U.S.C. 78n(a).
    \12\ H. R. Rep. No. 73-1383, 2d Sess., at 13 (1934). See also 
Mills v. Elec. Auto-Lite Co., 396 U.S. 375, 381 (1970); J. I. Case 
Co. v. Borak, 377 U.S. 426, 431 (1964). The congressional report 
accompanying the Exchange Act further indicated that ``[i]nasmuch as 
only the exchanges make it possible for securities to be widely 
distributed among the investing public, it follows as a corollary 
that the use of the exchanges should involve a corresponding duty of 
according to shareholders fair suffrage.'' H. R. Rep. No. 73-1383, 
2d Sess., at 14 (1934).
    \13\ S. Rep. No. 73-792, 2d Sess., at 12 (1934).
    \14\ H.R. Rep. No. 73-1383, 2d Sess., at 14 (1934). Courts have 
found that the relevant legislative history also demonstrates an 
``intent to bolster the intelligent exercise of shareholder rights 
granted by state corporate law.'' Roosevelt v. E.I. Du Pont de 
Nemours & Co., 958 F.2d 416, 421 (D.C. Cir. 1992); see also Borak, 
377 U.S. at 431.
    \15\ Securit[ies] and Exchange Commission Proxy Rules: Hearings 
on H.R. 1493, H.R. 1821, and H.R. 2019 before the House Comm. on 
Interstate and Foreign Commerce, 78th Cong., 1st Sess. 172 (1943) 
(statement of SEC Chairman Ganson Purcell).
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    Enhancing the ability of shareholders to exercise their right to 
elect directors through the proxy process has been the focus of 
numerous rule proposals, staff reports and comment letters over the 
years.\16\ In the 1990s, the Commission conducted an extensive 
examination of the effectiveness of the proxy voting process and its 
effect on corporate governance. This review resulted in amendments to 
the federal proxy rules that sought to reduce regulatory constraints on 
communication among shareholders and the effective exercise of 
shareholder voting rights.\17\ In the 2000s, the Commission focused on 
the shareholder franchise by seeking public input through roundtables 
\18\ and engaging in rulemaking relating to the inclusion of 
shareholder nominees for director in the registrant's proxy 
materials.\19\ The current approach to shareholder proposals under Rule 
14a-8 permits proposals relating to bylaw amendments that would allow 
shareholder director nominees to be included in a registrant's proxy 
materials alongside the registrant's slate of director nominees.
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    \16\ See, e.g., Reexamination of Rules Relating to Shareholder 
Communications, Shareholder Participation in the Corporate Electoral 
Process, and Corporate Governance Generally, Release No. 34-13482 
(Apr. 28, 1977) [42 FR 23901 (May 11, 1977)]. See also Reexamination 
of Rules Relating to Shareholder Communications, Shareholder 
Participation in the Corporate Electoral Process, and Corporate 
Governance Generally, Release No. 34-13901 (Aug. 29, 1977) [42 FR 
44860 (Sept. 7, 1977)]; Staff Report: Review of the Proxy Process 
Regarding the Nomination and Election of Directors, U.S. Securities 
and Exchange Commission (July 15, 2003), available at https://www.sec.gov/news/studies/proxyrpt.htm, Security Holder Director 
Nominations; Release No. 34-48626 (Oct. 14, 2003) [68 FR 60784 (Oct. 
23, 2003)] (proposing rules to require companies to include 
shareholder nominees in their proxy materials in the event a 
director receives over 35 percent withhold votes or a shareholder 
proposal requesting access receives more than 50 percent of the 
votes); Shareholder Proposals, Release No. 34-56160 (July 27, 2007) 
[72 FR 43466 (Aug. 3, 2007)] (proposing rules relating to the 
inclusion of bylaw amendments regarding nomination procedures and 
the inclusion of shareholder nominees in the registrant's proxy 
materials); and Proxy Disclosure and Solicitation Enhancements, 
Release No. 34-60280 (July 10, 2009) [74 FR 35076 (July 17, 2009)] 
(proposing to modify the short slate rule to make it available to a 
non-management soliciting person seeking authority to vote for 
nominees named in the registrant's or in any other person's proxy 
statement).
    \17\ See Regulation of Communications Among Shareholders, 
Release No. 34-30849 (June 23, 1992) [57 FR 29564 (July 2, 1992)] 
(``Short Slate Rule Revised Proposing Release'') and Regulation of 
Communications Among Shareholders, Release No. 34-31326 (Oct. 16, 
1992) [57 FR 48276 (Oct. 22, 1992)] (``Short Slate Rule Adopting 
Release''). The amendments sought to address some of these concerns 
by establishing an exemption for persons not seeking proxy 
authority, establishing a safe harbor from the definition of 
solicitation for certain types of shareholder communications, and 
allowing dissident shareholders to seek proxy authority to vote for 
some of management's nominees when seeking minority representation 
on the board of directors.
    \18\ See, e.g., Roundtable on the Federal Proxy Rules and State 
Corporation Law (May 7, 2007) and Roundtable on Proxy Voting 
Mechanics (May 24, 2007). Materials related to the 2007 roundtables, 
including an archived broadcast and a transcript of the roundtable, 
are available online at https://www.sec.gov/spotlight/proxyprocess.htm.
    \19\ See, e.g., Facilitating Shareholder Director Nominations, 
Release No. 33-9046 (June 10, 2009) [74 FR 29024 (Jun. 18, 2009)] 
(proposing rules to require registrants to include shareholder 
nominees in a registrant's proxy materials); Facilitating 
Shareholder Director Nominations, Release. No. 33-9136 (Aug. 25, 
2010) [75 FR 56668 (Sept. 16, 2010)] (adopting rules to require, 
under certain circumstances, a registrant's proxy materials to 
provide shareholders with information about, and the ability to vote 
for, shareholder nominees for director). In 2011, the U.S. Court of 
Appeals for the District of Columbia vacated the part of the 2010 
rules that required, in certain circumstances, a registrant's proxy 
materials to provide shareholders with information about, and the 
ability to vote for, a shareholder's nominees for director. See Bus. 
Roundtable v. SEC, 647 F.3d 1144 (D.C. Cir. 2011) (vacating Exchange 
Act Rule 14a-11). Contemporaneous amendments to Exchange Act Rule 
14a-8 (17 CFR 240.14a-8) that permit bylaw amendments allowing 
shareholder nominees to be included in registrant proxy materials 
were not challenged in the litigation and remain in effect.
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    Despite these initiatives, under the current proxy rules, 
shareholders voting by proxy in a contested election \20\ may not be 
able to replicate the vote they could cast if they voted in person at a 
shareholder meeting because the choices available to shareholders 
voting for directors through the proxy process are not the same as 
those available to shareholders voting in person at a shareholder 
meeting. Shareholders voting in person at a meeting may select among 
all of the duly nominated \21\ director candidates proposed for 
election by any party and vote for any combination of those candidates. 
Shareholders voting by proxy, however, are limited to the selection of 
candidates provided by the party soliciting the shareholder's proxy. 
Although the current proxy rules allow a soliciting party to provide 
shareholders with the full selection of nominees if all such

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nominees have consented to being named on its proxy card, aspects of 
the current proxy rules \22\ and the parties' strategic interests 
typically result in limiting shareholders' choice to the slates of 
nominees chosen by the soliciting parties. Thus, shareholders voting by 
proxy are unable to make selections based solely on their preferences 
for particular candidates. As discussed in Section I.C. below, some 
shareholders have recently highlighted this limitation and requested 
Commission action.\23\
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    \20\ As used in this release, the term ``contested election'' 
refers to an election of directors where a registrant is soliciting 
proxies in support of nominees and a person or group of persons is 
soliciting proxies in support of director nominees other than the 
registrant's nominees. We recognize that a contested election can be 
defined in broader terms.
    \21\ A duly nominated director candidate is a candidate whose 
nomination satisfies the requirements of any applicable state or 
foreign law provision or a registrant's governing documents as they 
relate to director nominations.
    \22\ See infra Section I.B for a discussion of Rule 14a-4(d)(1), 
the bona fide nominee rule, and the definition of a bona fide 
nominee in Rule 14a-4(d)(4).
    \23\ See Letter from the Council of Institutional Investors 
(Jan. 8, 2014), available at https://www.sec.gov/rules/petitions/2014/petn4-672.pdf (requesting that the Commission eliminate the 
requirement to obtain a nominee's consent to be named on a proxy 
card in a contested election and allow shareholders to vote for 
their preferred combination of nominees on a single proxy card). See 
also Letter from the California Public Employees' Retirement System 
(Apr. 6, 2015), available at https://www.sec.gov/comments/4-681/4681-10.pdf (``We strongly believe that shareowners should have the 
ability to vote for any combination of director candidates in 
contested elections. . . . We believe that achieving this ideal 
requires the Commission to adopt necessary technical fixes to the 
bona fide nominee rule and adopt a mandatory universal proxy 
card.'').
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    The changes to the federal proxy rules we propose today would allow 
a shareholder voting by proxy to choose among director nominees in an 
election contest in a manner that reflects as closely as possible the 
choice that could be made by voting in person at a shareholder meeting. 
To this end, we are proposing to require the use of a ``universal 
proxy,'' or a proxy card that includes the names of all duly nominated 
director candidates for whom proxies are solicited, for all non-exempt 
solicitations in contested elections.\24\ We believe that shareholders 
should be afforded the opportunity to fully exercise their vote for the 
director nominees they prefer. This concept--that the proxy voting 
process should mirror to the greatest extent possible the vote that a 
shareholder could achieve by attending the shareholders' meeting and 
voting in person--has guided our efforts in proposing these 
changes.\25\ We have looked to this concept because we believe that 
replicating the vote that could be achieved at a shareholder meeting is 
the most appropriate means to ensure that shareholders using the proxy 
process are able to fully and consistently exercise the ``fair 
corporate suffrage'' available to them under state corporate law and 
that Congress intended our proxy rules to effectuate.\26\
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    \24\ Although investment companies are subject to the federal 
proxy rules, the amendments that we are proposing today would not 
apply to investment companies registered under Section 8 of the 
Investment Company Act of 1940 or business development companies as 
defined by Section 2(a)(48) of the Investment Company Act of 1940. 
See infra Section II.D.
    \25\ We recognize that the proxy process may not be able to 
perfectly replicate the vote in a director election that can be 
achieved by attending a meeting and voting in person. For example, 
the proposed mandatory universal proxy system would not enable 
shareholders to vote by proxy on a director nomination presented 
from the floor of the meeting and not included in a proxy statement. 
However, this is a rare occurrence due to the prevalence of advance 
notice bylaw provisions and the low chance for success of 
nominations from the floor without soliciting proxies. We further 
note that the proposed universal proxy system does not seek to 
replicate the voting choices a shareholder would have on non-
election proposals if voting in person at a shareholder meeting. The 
current proxy rules do not limit shareholders' exercise of their 
voting rights on non-election proposals to the same extent they 
limit the exercise of shareholders' rights on election proposals 
because parties can include another party's non-election proposal on 
the proxy card without such party's consent. As a result, our 
rulemaking efforts have focused on director election proposals.
    \26\ See supra notes 12 and 15.
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B. Current Proxy Voting Process in Contested Elections

    Shareholders that attend a meeting in person generally vote by 
casting a written ballot provided at the meeting that includes the 
names of all duly nominated candidates for the board of directors.\27\ 
Thus, in a contested election, shareholders attending the meeting in 
person and casting a written ballot can vote for the nominees of their 
choice from each party's slate of nominees, up to the specified number 
of board seats up for election. In contrast, in the proxy solicitation 
process for an election contest, the registrant's director nominees 
\28\ are typically presented as one slate in the registrant's proxy 
statement and proxy card, and the dissident's \29\ full or partial 
slate \30\ of nominees is presented in the dissident's proxy statement 
and proxy card. Unlike submitting ballots when a shareholder attends a 
meeting in person, a shareholder generally may not validly submit two 
separate proxy cards, even when the total number of nominees for which 
the two cards are marked does not exceed the number of directors being 
elected. In general, under state law, a later-dated proxy card revokes 
any earlier-dated one and invalidates the votes on the earlier-dated 
card.\31\ Shareholders voting by proxy are therefore effectively 
required to submit their votes on either the registrant's or the 
dissident's proxy card and cannot pick and choose from nominees on both 
cards.
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    \27\ Based on the staff's conversations with parties frequently 
engaged in the tabulation of ballots for contested elections.
    \28\ We recognize that a registrant's board of directors (or a 
nominating committee it creates) commonly nominates directors for 
election to the board. For ease of reference, we refer to those 
nominees as ``registrant nominees'' throughout this release.
    \29\ The term ``dissident'' as used in this release refers to a 
soliciting person other than the registrant who is soliciting 
proxies in support of director nominees other than the registrant's 
nominees.
    \30\ ``Partial slate'' as used in this release refers to the 
nomination of a number of director candidates that is less than the 
number of directors being elected at the meeting. ``Full slate'' as 
used in this release refers to the nomination of a number of 
director candidates that is equal to the number of directors being 
elected at the meeting.
    \31\ See, e.g., Standard Power & Light Corp. v. Inv. Assocs., 51 
A.2d 572, 608 (Del. 1947); Parshalle v. Roy, 567 A.2d 19, 23 (Del. 
Ch. 1989). See also R. Franklin Balotti, et al., Delaware Law of 
Corporations and Business Organizations, Sec.  7.20 (3d ed. 2015) 
(``Except in the case of irrevocable proxies, a subsequent proxy 
revokes a former proxy. In determining whether a proxy is 
subsequent, the date of execution controls.'').
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    Additionally, shareholders voting by proxy are generally limited in 
their choice of nominees by Exchange Act Rule 14a-4(d)(1), the ``bona 
fide nominee rule,'' \32\ which provides that no proxy shall confer 
authority to vote for any person to any office for which a ``bona fide 
nominee is not named in the proxy statement.'' The term ``bona fide 
nominee'' is defined as a nominee who has ``consented to being named in 
the proxy statement and to serve if elected.'' \33\ Thus, in an 
election contest, one party may not include the other party's nominees 
on its proxy card unless the other party's nominees consent. In the 
staff's experience, such consent is rarely provided. Because contested 
elections are usually contentious, the nominees may refuse to consent 
to being included on the opposing party's card because of a perceived 
advantage to forcing shareholders to choose between the competing 
slates of nominees. A party's nominees may also refuse to consent to 
being named on the opposing party's proxy card because the nominees do 
not want to appear to support the opposing party's position or director 
nominees. As a result, shareholders are limited in their ability to 
vote for directors from both the registrant's and the dissident's 
slate.
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    \32\ 17 CFR 240.14a-4(d)(1).
    \33\ 17 CFR 240.14a-4(d)(4).
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    Moreover, since neither party is required to include the other 
party's nominees, even if a nominee consents to being named on the 
other party's proxy card, that other party can determine whether to 
include the nominee for strategic or other reasons. In the staff's 
experience, a party will seek to have its nominees included on the 
opposing party's proxy card when the party

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believes its slate is at a disadvantage in the election contest. The 
party that appears to have an advantage in the contest then has no 
strategic incentive to include the other party's nominees on its proxy 
card.\34\ Thus, even though a mechanism exists where shareholders could 
receive a proxy card listing all of the nominees in a contested 
election, because competing parties rarely have an incentive to include 
the other party's nominees on their card, shareholders today are almost 
always required to choose between competing proxy cards.
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    \34\ For example, when a proxy advisory firm recommends a vote 
for some, but not all, dissident nominees, in the absence of a 
universal proxy shareholders seeking to cast a vote for the 
recommended dissident nominees must use the dissident's proxy card. 
In that circumstance, a registrant may want to use a universal proxy 
to allow shareholders to vote for some registrant nominees while 
voting for some dissident nominees in accordance with the proxy 
advisory firm's recommendation. The dissident nominees, however, may 
have no incentive to consent to their inclusion on a universal proxy 
if they believe it is strategically advantageous to have 
shareholders choose between the two cards because it may result in 
shareholders voting on the dissident card and, as a result, more 
dissident nominees being elected.
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    Currently, for shareholders to be assured that they can vote for 
the mix of registrant and dissident nominees that they choose (i.e., to 
``split their vote''), they generally must attend the meeting in person 
and vote. Shareholders that hold their securities in street name are 
required to take the additional step of obtaining a legal proxy from 
their broker before they are permitted to vote at the meeting. We 
understand that in some close elections, proxy solicitors and parties 
to the contest have helped shareholders who hold a large stake in the 
registrant split their votes by arranging for an in-person 
representative to vote their shares at the meeting on the ballots used 
for in-person voting. Since the ballots provided at the meeting include 
the names of both registrant and dissident nominees, this arrangement 
allows those shareholders to choose from all duly nominated 
candidates.\35\ However, these options for splitting votes are either 
not made available to or are impractical for most other shareholders 
who are, therefore, more limited in their ability to vote for their 
preferred combination of director nominees.
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    \35\ In those instances, the proxy solicitor creates a 
provisional ballot to reflect the split vote. We are also aware of 
instances where proxy solicitors have sought to facilitate vote 
splitting for some shareholders who hold a large stake in the 
registrant by instructing them to obtain a legal proxy and modify 
the registrant's proxy card to indicate their preferred combination 
of nominees by striking any registrant nominee they do not support 
and indicating the dissident nominee they wish to support. Parties 
to contested elections have questioned whether this approach is 
consistent with the current definition of a bona fide nominee in 
Rule 14a-4(d)(4).
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    Rule 14a-4(d)(4), the ``short slate rule,'' was adopted in 1992 to 
permit a dissident seeking to elect a minority of the board to ``round 
out its slate'' by soliciting proxy authority to vote for some 
registrant nominees on the dissident's card. Prior to adopting this 
rule, shareholders voting using the proxy card of a dissident seeking 
to elect a partial slate were disenfranchised with respect to the 
remaining seats on the board, which served as a disincentive for 
shareholders to grant proxies to that dissident.\36\ As the Commission 
noted in adopting the short slate rule, the bona fide nominee rule 
``has acted to prevent the form of proxy from being used to allow 
shareholders to exercise their state law right through the proxy 
process, and as a result, has both cut off shareholder rights and 
greatly disadvantaged shareholder nominees seeking minority 
representation on the board of directors.'' The Commission adopted the 
short slate rule to mitigate the disadvantage that dissidents faced 
when putting forth a partial slate of nominees.\37\
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    \36\ See Short Slate Rule Revised Proposing Release, at 29573 
(noting that ``shareholders may be unwilling to execute a proxy that 
does not contain authority to vote for all seats up for election, 
absent cumulative voting, since the shareholder would not be 
exercising its full voting power.'')
    \37\ See Short Slate Rule Adopting Release.
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    The short slate rule permits a dissident to indicate on its card 
that it intends to use its proxy authority to vote for the registrant 
nominees other than the nominees named on the card and thereby allows 
shareholders to vote for the registrant nominees other than those 
specified. The shareholder also is provided an opportunity to write in 
the names of any other registrant nominees with respect to which the 
shareholder withholds voting authority, although to do so, the 
shareholder must consult the registrant's soliciting materials in order 
to obtain the names of all registrant nominees. The short slate rule is 
available only in election contests in which the dissident is seeking 
to elect nominees that would constitute a minority of the board and it 
applies only to the dissident.\38\ In addition, the short slate rule 
permits the dissident, not the shareholder, to select which, if any, of 
the registrant nominees to vote for using the short slate proxy card.
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    \38\ Registrants are not permitted to rely on the short slate 
rule to solicit authority to vote for some of the dissident's 
nominees. Theoretically, a registrant might wish to rely on the 
short slate rule if it was proposing a partial slate of nominees 
that would constitute a minority of the board. However, as a 
practical matter, such solicitations very rarely occur.
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    As originally proposed, Rule 14a-4(d) would have permitted 
proponents to include the names of registrant nominees on the proponent 
proxy card.\39\ Commenters from the registrant community opposed the 
amendment, suggesting that including registrant nominees on the 
dissident's card could imply that the registrant nominees supported the 
dissident's position, that it would confuse shareholders, and that 
minority representation on the board would cause the board to be less 
effective. The Commission responded by adopting the current version of 
the short slate rule that permits the dissident to name the registrant 
nominees for whom the dissident will not vote. The Commission also 
stated that commenters' concerns that the election of dissident 
nominees to the board could hinder the board's effectiveness are 
arguments best made to the shareholders and determined in an 
election.\40\ In taking this measured step of adopting a modified short 
slate rule, the Commission noted the appeal of a universal proxy in 
permitting shareholders to exercise their vote in the same manner as at 
a shareholder meeting.\41\
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    \39\ See Short Slate Rule Revised Proposing Release.
    \40\ See Short Slate Rule Adopting Release, at 48288.
    \41\ Id. While neither proposing nor adopting a universal proxy, 
the Commission acknowledged that requiring a registrant to include 
dissident nominees in the registrant's proxy statement ``would 
represent a substantial change in the Commission's proxy rules.''
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    While the short slate rule provides the opportunity, in a contested 
election where a dissident is seeking election of a minority of the 
board, for a shareholder to use a proxy card to vote for all seats up 
for election, it does not provide that shareholder the opportunity to 
choose among all registrant and dissident nominees. To address this 
limitation, in recent years, proxy solicitors for registrants and 
dissidents have facilitated vote splitting to allow a few large 
shareholders to choose among all registrant and dissident nominees in a 
contested election. In addition, some commentators have suggested the 
possibility of requiring both parties to include each other's nominees 
on their own proxy cards.\42\ We believe it is

[[Page 79126]]

appropriate to now consider a more direct route for shareholders to 
exercise the same vote as they could if voting in person at a 
shareholder meeting. Revising our rules to facilitate the full exercise 
of the shareholder franchise would reduce the costs for shareholders to 
vote for their choice of director nominees and provide all shareholders 
of the company the same voting opportunities currently available to 
only certain shareholders.
---------------------------------------------------------------------------

    \42\ See, e.g., Richard J. Grossman & J. Russel Denton, Never 
Mind Equal Access: Just Let Shareholders ``Split Their Ticket'', The 
M&A Lawyer (Jan. 2009) (discussing the issue of shareholders seeking 
to split their votes and recommending requiring the use of a 
universal proxy card in bona fide election contests); Tom Ball, The 
Quest for Universal Ballots: Might Boards Benefit Too?, Deal Lawyers 
(Nov.-Dec. 2014), available at http://www.morrowco.com/wp-content/uploads/2015/01/Deal-Lawyers-article-on-Universal-Ballots-Nov-Dec-20141.pdf (suggesting universal proxy could have strategic benefits 
for registrants in certain situations).
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C. Recent Feedback on the Proxy Voting Process

    In 2013, the Commission's Investor Advisory Committee (``IAC'') 
\43\ recommended that we explore revising our proxy rules to provide 
proxy contestants with the option to use a universal proxy card in 
connection with short slate director nominations.\44\ In early 2014, we 
received a rulemaking petition (``Rulemaking Petition'') requesting 
that we require the use of a universal proxy that would allow 
shareholders to vote for their preferred combination of registrant and 
dissident nominees in contested director elections.\45\ In response to 
this feedback, the Commission staff undertook a review of the proxy 
rules and the Commission held a roundtable in February 2015 to explore 
ways to improve proxy voting, including through the adoption of 
universal proxies.\46\
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    \43\ The IAC was established in April 2012 pursuant to Section 
911 of the Wall Street Reform and Consumer Protection Act [Pub. L. 
111-203, sec. 911, 124 Stat. 1376, 1822 (2010)] (``Dodd-Frank Act'') 
to advise the Commission on regulatory priorities, the regulation of 
securities products, trading strategies, fee structures, the 
effectiveness of disclosure, initiatives to protect investor 
interests and to promote investor confidence and the integrity of 
the securities marketplace. The Dodd-Frank Act authorizes the 
Investor Advisory Committee to submit findings and recommendations 
for review and consideration by the Commission. The IAC made its 
universal proxy card recommendation at its July 25, 2013 meeting. 
See Recommendations of the Investor Advisory Committee Regarding SEC 
Rulemaking to Explore Universal Proxy Ballots (Jul. 25, 2013), 
available at https://www.sec.gov/spotlight/investor-advisory-committee-2012/universal-proxy-recommendation-072613.pdf (``IAC 
Recommendation'').
    \44\ A ``short slate director nomination'' occurs where 
dissident nominees, if elected, would constitute a minority of the 
board of directors. See Rule 14a-4(d).
    \45\ See Letter from the Council of Institutional Investors 
(Jan. 8, 2014), available at http://www.sec.gov/rules/petitions/2014/petn4-672.pdf. The Rulemaking Petition requested that the 
Commission eliminate the requirement to obtain a nominee's consent 
to be named on a proxy card in a contested election and to allow 
shareholders to vote for their preferred combination of nominees on 
a single proxy card.
    \46\ See Proxy Voting Roundtable, U.S. Securities and Exchange 
Commission (Feb. 19, 2015), available at http://www.sec.gov/spotlight/proxy-voting-roundtable.shtml.
---------------------------------------------------------------------------

    The IAC has observed that many retail and institutional investors 
do not have the practical ability to attend shareholder meetings in 
person and vote by ballot, which would permit them to choose among all 
of the candidates who are duly nominated.\47\ The IAC recommended that 
the Commission explore revising the bona fide nominee rule to permit 
the use of universal proxies. In reaching this recommendation, the IAC 
noted that the effect of the bona fide nominee rule, in conjunction 
with state corporate law voting provisions, is that shareholders voting 
by proxy have no practical ability to vote for a combination of 
dissident nominees and registrant nominees, in contrast to 
shareholders' ability to pick among all of the duly nominated 
candidates when they vote in person at a meeting.\48\
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    \47\ See IAC Recommendation, at 1.
    \48\ See IAC Recommendation. In addition, the IAC recommended 
that the Commission explore whether all or only a portion of duly 
nominated candidates must or may appear on a universal proxy card.
---------------------------------------------------------------------------

    The Rulemaking Petition requested that the Commission amend the 
proxy rules to remove the requirement to obtain the consent of the 
opposition's nominees prior to including those nominees on a proxy card 
and require the use of a universal proxy that would allow shareholders 
to vote for their preferred combination of registrant and dissident 
nominees. The Rulemaking Petition contended that such amendments are 
necessary to fully enfranchise shareholders. It also noted that 
universal proxy cards would be less likely to confuse shareholders and 
less complex than proxy cards under the short slate rule, thus 
resulting in a less cumbersome voting process.
    At the February 2015 proxy voting roundtable,\49\ one panel 
addressed the current state of contested elections and whether changes 
should be made to the federal proxy rules to facilitate the use of 
universal proxy cards. The discussion focused on, among other things, 
whether universal proxies would increase the frequency of election 
contests or provide an advantage to one party or the other in a 
contested election. Some panelists stated that universal proxies would 
result in more contests; \50\ others stated that they could facilitate 
settlements or accommodations with dissidents before a contest arose 
resulting in fewer contests.\51\ Several panelists asserted that 
adopting universal proxy would more closely replicate the vote that 
could be made by voting in person at a shareholder meeting,\52\ while 
another asserted that such a change should not be made in a vacuum 
without more broadly addressing the proxy voting process.\53\ While 
panelists differed on many aspects of the universal proxy card, the 
fundamental concept that the proxy system should allow shareholders to 
vote by proxy as closely as possible to how they could vote in person 
at a shareholder meeting was generally acknowledged.\54\
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    \49\ See supra note 46.
    \50\ See, e.g., Unofficial Transcript of the Proxy Voting 
Roundtable (Feb. 19, 2015) (``Roundtable Transcript''), comments of 
David A. Katz, Partner, Wachtell, Lipton, Rosen & Katz LLP, at 41, 
Anne Simpson, Senior Portfolio Manager and Director of Global 
Governance, CalPERS, at 43 and Steve Wolosky, Partner, Olshan Frome 
& Wolosky, LLP, at 48-49, available at http://www.sec.gov/spotlight/proxy-voting-roundtable/proxy-voting-roundtable-transcript.txt.
    \51\ See, e.g., Roundtable Transcript, comments of Michelle 
Lowry, Professor, Drexel University, at 60 and Lisa M. Fairfax, 
Professor, George Washington University Law School, at 48.
    \52\ See, e.g., Roundtable Transcript, comments of Lisa M. 
Fairfax, Professor, George Washington University Law School, at 30 
and Anne Simpson, Senior Portfolio Manager and Director of Global 
Governance, CalPERS, at 35-36, 73.
    \53\ See, e.g., Roundtable Transcript, comments of David A. 
Katz, Partner, Wachtell, Lipton, Rosen & Katz LLP, at 74. We note, 
however, that the panelist did not specify what other parts of the 
proxy system should be addressed.
    \54\ In a comment letter following the roundtable, one commenter 
reiterated its recommendation that the Commission propose rules to 
facilitate the use of universal proxies for contested elections, 
contending that such a change would enfranchise shareholders by 
permitting them to vote for the combination of nominees that they 
believe best serves their economic interest, lessen shareholder 
confusion concerning the proxy and lower shareholders' costs to 
vote. See Letter from the Council of Institutional Investors (Mar. 
5, 2015), available at http://www.sec.gov/comments/4-681/4681-7.pdf. 
In contrast, another commenter suggested that mandating universal 
proxies would facilitate election contests that are disruptive to 
public companies and instead encouraged more robust communications 
between management and shareholders. See Letter from the Center for 
Capital Markets Competitiveness (Feb. 18, 2015), available at http://www.sec.gov/comments/4-681/4681-6.pdf.
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D. Need for Proposed Amendments

    We believe the proxy system should allow shareholders to achieve by 
proxy the vote they could cast in person at a shareholder meeting. We 
believe that the right to vote is of particular importance when 
shareholders are deciding among candidates in a contested election. 
While the Commission has taken some steps in the past to facilitate 
shareholders' ability to choose among the nominees in competing slates, 
such as through the adoption of the short slate rule, we are

[[Page 79127]]

concerned that the current proxy rules may not allow shareholders to 
fully exercise their voting rights. In particular, our rules may not 
permit shareholders to select their preferred combination of nominees 
through the proxy process, even though they could do so if they were to 
attend a shareholder meeting. In its review of proxy contests, the 
staff has become aware of parties engaging in practices to facilitate 
split voting for certain, typically large, shareholders.\55\ The staff 
has also observed other ``self-help'' measures intended to facilitate 
split voting, such as attempting to allow shareholders to ``write in'' 
their candidate of choice on a proxy card, or in the case of 
registrants that are at risk of losing a majority of the seats on the 
board, nominating less than the total number of directors up for 
election to effectively assure the election of some dissident nominees. 
We believe a universal proxy card would better enable shareholders to 
have their shares voted by proxy for their preferred candidates and 
eliminate the need for special accommodations to be made for 
shareholders outside the federal proxy process in order to be able to 
make such selections. We further believe that a universal proxy system 
would help to ensure that all shareholders of the company are 
consistently and uniformly afforded the ability to select the director 
candidates of their choice in contested elections.
---------------------------------------------------------------------------

    \55\ See supra note 35 and accompanying text.
---------------------------------------------------------------------------

    As a result, we are proposing to require the use of universal 
proxies in all non-exempt solicitations in connection with contested 
elections where a person or group of persons is soliciting proxies in 
support of director nominees other than the registrant's nominees. We 
are proposing this approach because our rationale for requiring the use 
of universal proxies--that the proxy voting process should allow as 
much as possible the voting choices that a shareholder would have when 
attending the meeting and voting in person--applies equally to all 
contested elections. We believe our rules should allow shareholders to 
select the combination of nominees that best aligns with their 
interests in any contested election.
    In proposing these changes, we are cognizant of concerns that have 
been raised that including one party's nominees on the other party's 
proxy card could cause shareholder confusion or imply that the 
soliciting party supports the other party's nominees. We believe that 
some of these concerns would be mitigated by the amendments we propose 
today, including the proposed requirement to clearly distinguish 
between the registrant and dissident nominees on the proxy card.\56\ To 
the extent that the proposed amendments do not fully alleviate these 
concerns, we believe they can be addressed through disclosure in the 
proxy statement.
---------------------------------------------------------------------------

    \56\ See proposed Rule 14a-19(e)(3).
---------------------------------------------------------------------------

    We are also mindful that some have expressed that dissident 
representation on a board could lead to a less effective board of 
directors due to dissension, loss of collegiality and fewer qualified 
persons being willing to serve. As explained in more detail in Section 
IV.D below, while the proposed amendments are expected to result in 
reduced costs for shareholders seeking to split their votes, it is 
unclear whether the amendments would affect the number of dissident 
nominees elected to the board.\57\ Similarly, it is unclear whether 
registrants would necessarily face an increased incidence of changes in 
board dynamics. If the proposed amendments result in additional 
dissident representation, it is difficult to predict whether such 
additional dissident representation would enhance or detract from board 
effectiveness and shareholder value.\58\ Similar concerns were 
expressed at the time the Commission adopted the short slate rule.\59\ 
As the Commission stated in adopting the short slate rule, arguments 
that the election of dissident nominees will hinder the board's 
effectiveness are best made to the shareholders for their consideration 
when making voting decisions and ``should not be a basis for imposing . 
. . regulatory barriers to the full exercise of the shareholder 
franchise.'' \60\ Nevertheless, we solicit comment on the possible 
positive or negative impact the amendments could have on board 
performance. In particular, we solicit data on the effect of the 
proposed amendments on both the number of proxy contests and the 
resulting effect, if any, on dissident or incumbent director 
representation on boards. For the reasons discussed throughout this 
release, we preliminarily believe that facilitating the full exercise 
of the shareholder franchise by a broader group of shareholders may 
justify mandating the use of universal proxies in contested elections.
---------------------------------------------------------------------------

    \57\ See infra Section IV.D.3 (discussing potential economic 
effects on outcomes of contested elections).
    \58\ See infra Section IV.C (discussing broad economic 
considerations).
    \59\ See Short Slate Rule Adopting Release.
    \60\ See Short Slate Rule Adopting Release, at 48288.
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II. Proposed Amendments

    Section 14 of the Exchange Act authorizes the Commission to 
establish rules and regulations governing the solicitation of any proxy 
or consent or authorization in respect of any security registered 
pursuant to the Exchange Act. In regulating the proxy process, we have 
sought to facilitate the rights shareholders have traditionally had 
under state law. We believe the current proxy rules could be improved 
to allow shareholders to more efficiently and fully exercise these 
rights in contested elections. To that end, we are proposing amendments 
to our proxy rules that would permit shareholders to vote by proxy for 
any combination of candidates for the board of directors, as they could 
if they attended the shareholder meeting in person and cast a written 
ballot.\61\
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    \61\ As discussed in Section II.D, the amendments we are 
proposing today to implement a mandatory universal proxy system 
would not apply to investment companies registered under Section 8 
of the Investment Company Act of 1940 or business development 
companies as defined by Section 2(a)(48) of the Investment Company 
Act of 1940.
---------------------------------------------------------------------------

    In order to provide for the use of universal proxy cards in 
contested elections, we are proposing to amend the proxy rules to 
establish new procedures for the solicitation of proxies, the 
preparation and use of proxy cards and the dissemination of information 
about all director nominees in contested elections. Specifically, we 
are proposing amendments that would:
     Revise the consent required of a bona fide nominee;
     Eliminate the short slate rule;
     Require the use of universal proxy cards in all non-exempt 
solicitations in connection with contested elections;
     Require dissidents to provide registrants with notice of 
intent to solicit proxies in support of nominees other than the 
registrant's nominees and the names of those nominees;
     Require registrants to provide dissidents with notice of 
the names of the registrant's nominees;
     Prescribe a filing deadline for dissidents' definitive 
proxy statement;
     Require dissidents to solicit the holders of shares 
representing at least a majority of the voting power of shares entitled 
to vote on the election of directors; and
     Prescribe requirements for universal proxy cards.
    We also are proposing additional improvements to the proxy voting 
process by making changes to the form of proxy. Consistent with our 
goal of facilitating shareholder voting in

[[Page 79128]]

director elections, we are proposing additional amendments that would 
apply to all director elections. First, we are proposing to amend Rule 
14a-4(b) to mandate that proxy cards include an ``against'' voting 
option when applicable state laws give effect to a vote against. We are 
similarly proposing amendments to require proxy cards to give 
shareholders the ability to ``abstain'' in an election where a majority 
voting standard is in effect. Finally, we are also proposing amendments 
to the proxy statement disclosure requirements to mandate disclosure 
about the effect of a ``withhold'' vote in an election.

A. Bona Fide Nominees and the Short Slate Rule

    The current proxy rules limit the ability of parties in a contested 
election to include the names of all nominees on their proxy card. 
Exchange Act Rules 14a-4(d)(1) and 14a-4(d)(4) provide that no proxy 
may confer authority to vote for any nominee unless that nominee has 
consented to being named in the proxy statement and to serve if 
elected. As a result, a party in a contested election cannot include on 
its proxy card a nominee from the opposing party without the express 
authorization of that nominee, which is rarely provided. These proxy 
rules, along with state law rules regarding the effect of later-dated 
proxy cards, effectively create a system in which parties to a 
contested election distribute their own proxy cards that include only a 
subset of all director nominees. Ultimately, these limitations restrict 
the voting choices available to shareholders using the proxy process, 
as these shareholders are unable to use a proxy to vote for a 
combination of nominees of their choice.
    The Commission sought to address some of the concerns about 
shareholders' inability to split their vote between the registrant's 
and the dissident's proxy cards through the adoption of the short slate 
rule.\62\ The short slate rule permits a dissident seeking to elect a 
minority of the board to solicit authority to vote for some of the 
registrant's nominees on its proxy card. However, to comply with Rule 
14a-4(d)(4), the dissident is only permitted to include on its proxy 
card the names of the registrant's nominees for whom it will not vote. 
While this rule provides shareholders with some additional choices in 
the proxy voting process, shareholders wishing to vote for nominees for 
all of the board seats up for election are still limited to voting by 
proxy for the combination of nominees that either the dissident or 
registrant chooses. Moreover, the short slate rule does not contemplate 
a registrant proposing a partial slate of nominees (or nominating less 
than the total number of directors to be elected), a tactic that may be 
advantageous for some registrants.\63\
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    \62\ See Short Slate Rule Adopting Release.
    \63\ See Ronald Barusch, Dealpolitick: Management Takes Page 
from Activist Playbook with ``Short Slates,'' Wall St. J. (July 31, 
2014), available at http://blogs.wsj.com/moneybeat/2014/07/31/dealpolitik-management-takes-page-from-activists-playbook-with-short-slates/ (referencing a new trend among registrants that are at 
risk of losing a majority of the seats on the board in which the 
registrant nominates less than the total number of directors up for 
election to effectively assure the election of some dissident 
nominees).
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1. Revision to the Consent Required of a Bona Fide Nominee
    To allow for proxy cards that reflect the complete choice of 
candidates for election, we are proposing amendments to Rule 14a-4(d) 
to change the definition of ``bona fide nominee'' \64\ for registrants 
other than investment companies registered under Section 8 of the 
Investment Company Act of 1940 (``funds'') and business development 
companies as defined by Section 2(a)(48) of the Investment Company Act 
of 1940 (``BDCs'').\65\ Proposed Rule 14a-4(d)(1)(i) would define a 
bona fide nominee as a person who has consented to being named in a 
proxy statement relating to the registrant's next meeting of 
shareholders at which directors are to be elected. This would 
effectively expand the scope of a nominee's consent to include consent 
to being named in any proxy statement for the applicable meeting. By 
changing the requirement that a person consent to being named in ``a'' 
proxy statement instead of being named in ``the'' proxy statement,\66\ 
parties in a contested election will be able to include all director 
nominees on their proxy cards, rather than only those nominees who have 
consented to being named on that particular party's proxy card.\67\ 
This change would remove a current impediment to a registrant or a 
dissident including the other party's nominees on its proxy card.
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    \64\ See proposed Rule 14a-4(d)(1)(i).
    \65\ As discussed in Section II.D, the amendments we are 
proposing today to implement a mandatory universal proxy system 
would not apply to funds or BDCs. For purposes of the rules that 
apply to funds and BDCs, the definition of a bona fide nominee and 
the short slate rule in current Rule 14a-4(d)(4) would be retained 
in proposed Rule 14a-4(d)(1)(ii).
    \66\ We also are proposing a corresponding change from ``the'' 
proxy statement to ``a'' proxy statement in Rule 14a-4(c)(5).
    \67\ We are proposing these amendments at the same time we 
propose Rule 14a-19 that would require the use of universal proxies 
in non-exempt solicitations in all contested elections, assuming 
certain conditions are met. See infra Section II.B. We note, 
however, that the proposed amendments to the bona fide nominee rule 
could operate independently from the proposed requirement to use 
universal proxies. The proposed amendments to the bona fide nominee 
rule, standing alone, essentially would allow parties the option of 
providing a universal proxy or alternatively providing a proxy with 
just some of the opposing party's nominees. We request comment below 
about this approach, including whether there are additional changes 
we should make to our rules to better enable the amendments to Rule 
14a-4(d) to operate independently.
---------------------------------------------------------------------------

    We are cognizant of the concerns that have been raised about 
allowing the parties in an election contest to include the other 
party's nominees on their proxy card. These include concerns that 
listing registrant nominees on a dissident's proxy card could imply 
that registrant nominees support the dissident and would serve with 
dissident nominees, if elected, and objections about nominees being 
forced to lend their name, stature and reputation to the election 
campaign of a person with whom the nominee did not choose to run.\68\ 
Similarly, there may be a question as to whether listing dissident 
nominees on a registrant's proxy card could lend credibility to the 
dissident nominees or imply that the registrant supports the dissident 
nominees. We believe, however, that these concerns would be mitigated 
by the proposed requirement to clearly distinguish between the 
registrant and dissident nominees on the proxy card \69\ and through 
disclosure in each party's proxy statement. We also believe the 
proposed presentation and formatting requirements coupled with the fact 
that all nominees would be included on the card help to minimize these 
concerns. In contrast to the presentation of nominees on a dissident's 
proxy card under the short slate rule where the dissident's partial 
slate of nominees is presented together with certain registrant 
nominees (albeit in an indirect manner), the nominees of each party 
would be grouped together and presented on a universal proxy card as a 
separate slate of the nominating party. As a result, we believe it 
would be less likely under a universal proxy system

[[Page 79129]]

that shareholders would reasonably conclude that the registrant's 
nominees support the dissident simply because the registrant's nominees 
are included on the dissident's proxy card.
---------------------------------------------------------------------------

    \68\ The Commission noted these and other concerns when adopting 
the short slate rule in 1992. See Short Slate Rule Adopting Release, 
at 48288. We believe these concerns would be especially acute if we 
were to amend only Rule 14a-4(d) to change the consent required of a 
bona fide nominee, because such an amendment would allow the parties 
to choose which of the other party's nominees to include on their 
proxy card. We recognize that such concerns could be mitigated by 
the proposed requirement to clearly distinguish between each party's 
nominees, and registrants could further mitigate these concerns 
through disclosures in their soliciting materials. We request 
comment below regarding other ways to address them.
    \69\ See proposed Rule 14a-19(e)(3).
---------------------------------------------------------------------------

    We also believe that some of these issues would be less acute with 
the implementation of a mandatory system for universal proxies in all 
contested elections. If mandatory use of universal proxies is 
implemented, we believe it would be increasingly unlikely that 
shareholders would conclude that the registrant's nominees support a 
dissident's campaign simply because the registrant's nominees are 
included on the dissident's proxy card. We also believe that these 
concerns can be addressed through disclosure in the proxy statement.
    Proposed Rule 14a-4(d)(1)(i) would retain the requirement that a 
nominee consent to serve, if elected. The consent requirement would 
continue to help ensure that a registrant or dissident does not 
nominate a person who has not consented to serve as a director of the 
registrant.\70\ As the Commission indicated when adopting the short 
slate rule, a proxy statement should disclose if any nominee has 
determined to serve only if its nominating party's slate is elected or 
to resign if one or more of the opposing party's nominees were elected 
to the board of directors.\71\
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    \70\ While the proposed amendments to Rule 14a-4(d)(1) to change 
the consent required of a bona fide nominee could operate 
independently from proposed Rule 14a-19, which would require the use 
of a universal proxy card, we are not proposing a change to the 
consent requirement without mandatory use of universal proxy cards 
in contested elections. See infra Section II.B for a discussion of 
mandatory use of universal proxies.
    \71\ See Short Slate Rule Adopting Release, at 48289 n.78.
---------------------------------------------------------------------------

Request for Comment
    1. We are proposing to amend Rule 14a-4(d)(1) to change the 
requirement that a nominee consent to being named in ``the'' proxy 
statement to require that the nominee consent to being named in ``a'' 
proxy statement for the next meeting at which directors are to be 
elected. This change would enable parties in a contested election to 
include all director nominees on their proxy card, including nominees 
of an opposing party. Should we amend the requirement as proposed? Why 
or why not? Could there be potential concerns with opposing parties 
naming nominees of the other party on their proxy card? Please explain. 
How can we address or mitigate any such concerns?
    2. Should the proposed amendments to Rule 14a-4(d)(1) be adopted 
without proposed Rule 14a-19, which would require the mandatory use of 
universal proxies? \72\ Why or why not? If only the proposed amendments 
to Rule 14a-4(d)(1) were adopted and a party in a contested election 
had the option, but was not required, to include all director nominees 
on its proxy card, would proposed Rule 14a-4(d)(1) further the goal of 
effectively facilitating shareholders' ability to vote by proxy for 
director nominees as they could vote in person at a meeting? Why or why 
not?
---------------------------------------------------------------------------

    \72\ See infra Section II.B for a discussion of proposed Rule 
14a-19 and the proposed mandatory universal proxy system.
---------------------------------------------------------------------------

    3. If we were to adopt the proposed amendments to Rule 14a-4(d)(1) 
to permit the parties in an election contest to include the other 
party's nominees on their proxy card without mandating the use of 
universal proxies for all parties, are there other amendments that 
would need to be adopted to facilitate the operation of proposed Rule 
14a-4(d)(1)? For example, should we permit parties to decide whether to 
include some or all of the opposing party's nominees? Should we instead 
require a party seeking to include names of an opposing party's 
nominees on its proxy card to include the names of all of the opposing 
party's nominees? Should we consider rules that would require a party 
opting to use a universal proxy to provide notice of its intent to use 
a universal proxy and the names of its nominees or require the other 
party to provide a list of its nominees to the party seeking to use a 
universal proxy? Would other amendments be necessary, such as the 
proposed amendments concerning the form and format of the proxy card or 
additional disclosure requirements?
    4. Do the proposed amendments allow the soliciting parties in a 
contested election to adequately address the concerns raised about 
possible voter confusion arising from nominees of one party being 
placed on the proxy card of an opposing party or creating an 
implication that a party's nominees support the opposing party and 
would serve with the opposing party's nominees, if elected? Are there 
other ways that the amendments could address these concerns? For 
example, should we require a statement that inclusion of an opposing 
party's nominees on the proxy card should not be construed as an 
endorsement of the opposing party's views or nominees?
    5. When adopting the short slate rule, the Commission indicated 
that the possibility that nominees may not serve if elected with one or 
more of the opposing party's nominees is best addressed through 
disclosure. Should we adopt an amendment requiring disclosure about the 
possibility that nominees may refuse to serve if elected with any of 
the opposing party's nominees? Should we require disclosure describing 
how the resulting vacancy can be filled under the registrant's 
governing documents and applicable state law?
    6. Are there any additional disclosures that we should require in 
the proxy materials or on the proxy card or other steps we should take 
to address concerns with the proposed amendments to Rule 14a-4(d)(1) to 
permit opposing parties to name each other's director nominees on their 
proxy cards?
2. Elimination of the Short Slate Rule
    We are proposing revisions to Rule 14a-4(d) to eliminate the short 
slate rule for registrants other than funds and BDCs.\73\ The short 
slate rule was adopted to mitigate concerns about a dissident's 
inability to allow shareholders to vote on its proxy card for all board 
seats up for election when soliciting in support of a partial slate of 
nominees.\74\ Proposed Rule 14a-4(d)(1)(i) would permit a proxy to 
confer authority to vote for a nominee named on a proxy card if that 
nominee consented to being named in any proxy statement for the 
applicable meeting. Additionally, each party in a contested election 
would be required to include on its proxy card all candidates that have 
consented to being named on a proxy card for the applicable 
meeting.\75\ Thus, if a dissident solicits proxies in support of a 
partial slate of nominees, our proposed rules would permit shareholders 
to vote for any combination of registrant and dissident nominees in 
order to cast a vote for a full slate of directors.
---------------------------------------------------------------------------

    \73\ See supra note 65.
    \74\ See Short Slate Rule Adopting Release, at 48288.
    \75\ See infra Section II.B for a discussion of proposed Rule 
14a-19.
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    As a result, the short slate rule would no longer be necessary to 
accomplish its intended purpose. While the elimination of the short 
slate rule would take away the ability of a dissident to select the 
registrant nominees it prefers to round out its slate of nominees, the 
dissident still would have the ability to include recommendations for 
its preferred registrant nominees in its proxy materials. If the short 
slate rule is eliminated and mandatory universal proxy is adopted, 
shareholders would be able to select their preferred combination of 
nominees, including the registrant nominees, if any, when voting for 
directors using the dissident's proxy card.

[[Page 79130]]

Request for Comment
    7. If we change the consent required of a bona fide nominee, as 
proposed, is there any reason the short slate rule, or a modified 
version of the rule, should be retained? If so, what circumstances 
would warrant the continued use of the short slate rule and should it 
be modified to enhance its utility?
    8. While the short slate rule permits a dissident seeking to elect 
a minority of the board to solicit authority to vote for some of the 
registrant's nominees on its proxy card, the dissident is only 
permitted to include on its proxy card the names of the registrant's 
nominees for whom it will not vote. Should we consider modifying the 
short slate rule to enable a dissident soliciting in support of a slate 
that would constitute a minority of the board to round out its slate by 
soliciting authority to vote for the dissident's choice of registrant 
nominees whose names are included on the dissident's card instead of 
the current system of soliciting authority to vote for registrant 
nominees who are not named?
    9. Should we retain the short slate rule but modify it to make it 
available to dissidents soliciting authority to vote for a slate of 
nominees that, if elected, would constitute a majority of the board of 
directors?
    10. Should we retain the short slate rule but modify it to make it 
available to registrants as well as dissidents? A registrant can 
nominate less than the total number of directors up for election to 
ensure that some dissident nominees are elected. Should we make a 
modified short slate rule available to the registrant in that scenario?
    11. Should we consider any modified version of the short slate rule 
instead of a universal proxy system? Would a modified version of the 
short slate rule further the goal of effectively facilitating 
shareholders' ability to vote by proxy for director nominees as they 
could vote in person at a meeting? Please explain.
3. Solicitation Without a Competing Slate
    While the impetus for proposing amendments to Rule 14a-4(d), as 
described above, is to address situations in which there are competing 
slates for the board of directors, we note that the proposed amendments 
would affect the conduct of proxy contests even when a proponent is not 
nominating its own candidates for the board of directors. A proponent 
might, for example, seek authority to vote ``against'' one or more (but 
fewer than all) of the registrant nominees. In that situation, the bona 
fide nominee rule currently would prevent the proponent from naming, 
and soliciting votes ``for,'' any of the other registrant nominees 
because they have not consented to being named in the proponent's proxy 
statement. Furthermore, the short slate rule is not available for a 
proponent's solicitation of authority to vote ``against'' one or more 
of the registrant nominees.\76\
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    \76\ While the short slate rule currently permits a proponent to 
seek authority to vote for registrant nominees when the proponent is 
nominating at least one candidate (so long as the proponent's 
candidate or candidates would constitute a minority of the board of 
directors), the rule does not address a situation where a proponent 
is seeking votes solely with respect to registrant nominees. See 
Rule 14a-4(d)(4).
---------------------------------------------------------------------------

    Another situation in which a proponent might seek to solicit 
proxies without nominating its own candidates would be where a 
proponent wants to solicit votes for its own proposal that is unrelated 
to director elections (e.g., a corporate governance proposal). While a 
proponent in that case might want to include the registrant nominees on 
its proxy card so that shareholders supporting its proposal would be 
able to use the proponent's proxy card also to vote in the election of 
directors, the bona fide nominee rule currently would not permit the 
proponent to include the names of registrant nominees and solicit votes 
``for'' those individuals.\77\
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    \77\ While the proponent currently could include a proposal for 
the election of all of the registrant's nominees as a group without 
naming such nominees, the proponent still would have limited options 
in the way it could present this group on its proxy card without 
running afoul of the bona fide nominee rule (e.g., the proponent 
would not have the ability to present individual voting boxes for 
each of the registrant's nominees).
---------------------------------------------------------------------------

    In cases such as those described above, the proposed amendments to 
Rule 14a-4(d) would permit a proponent to solicit authority to vote on 
some or all of the named registrant nominees by providing that a person 
is a bona fide nominee as long as he or she consents to being named in 
``a'' proxy statement for the next meeting at which directors are to be 
elected. We are not proposing to require proponents conducting a 
solicitation without a competing slate to include the names of all 
registrant nominees on their proxy cards. These campaigns do not 
implicate our rationale for requiring the use of universal proxy cards 
in contested elections since shareholders can fully exercise their vote 
for the director nominees they prefer by using the registrant's proxy 
card. In addition, we believe that permitting proponents to solicit 
authority to vote on some, but not all, of the registrant nominees is 
appropriate because such campaigns do not implicate concerns that have 
been raised about allowing the parties in an election contest to 
include the other party's nominees on their proxy card. Commenters on 
the short slate rule proposed in 1992 raised concerns that modification 
of the bona fide nominee rule to permit inclusion of registrant 
nominees on a dissident's proxy card would force a registrant nominee 
to lend his or her name, stature, or reputation to the election 
campaign of a person with whom he or she does not choose to run; create 
an implication that the registrant nominees support a proponent's 
solicitation and would serve alongside proponent nominees if elected; 
and potentially confuse shareholders.\78\ These concerns do not arise 
in the context of solicitations without a competing slate.\79\ In this 
situation, there is no solicitation that will result in a registrant 
nominee serving alongside proponent nominees and shareholders can fully 
exercise their vote for the director nominees that they prefer by using 
the registrant's proxy card. We also do not believe that there is a 
potential for shareholder confusion in this situation because there is 
only one set of names for persons nominated to the board of directors; 
however, we solicit comment on this point below.\80\
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    \78\ See Short Slate Rule Adopting Release, at 48288.
    \79\ But see supra Section II.A.1 and infra Section II.B.6 for a 
discussion of these concerns in the context of contested elections 
that would trigger proposed Rule 14a-19 and mandatory universal 
proxies.
    \80\ We also believe that these concerns could be less acute 
with the implementation of our proposed rules for mandatory use of 
universal proxies in all contested elections. If mandatory use of 
universal proxies is implemented, we believe it would be 
increasingly unlikely that shareholders could reasonably draw any 
implication that a registrant nominee supports a proponent's 
campaign with respect to the proponent's non-election proposal 
simply because the names of registrant nominees appear on the 
proponent's proxy card.
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Request for Comment

    12. The proposed amendments to the bona fide nominee definition 
would permit proponents to include the names of some or all of the 
registrant's nominees on its proxy card even when the proponent is not 
nominating its own candidates. Should this be permitted? Why or why 
not? Are there additional or different changes that we should make to 
our rules that apply to a situation in which the proponent is not 
nominating its own candidates? For example, should we instead require 
those proponents to include the names of all registrant nominees? Why 
or why not?
    13. Would the inclusion of registrant nominees on a proponent's 
proxy card when the proponent is not nominating its own candidates 
imply that the

[[Page 79131]]

registrant nominees support the proponent's proposal? Would the 
inclusion cause shareholder confusion? If so, does the ability to 
provide disclosure in a party's soliciting materials sufficiently 
address this implication or possible confusion? Are there additional 
disclosures or are there other changes that would avoid or mitigate 
this implication or confusion? Please provide specific suggestions.

B. Use of Universal Proxies

    To update our proxy system to better facilitate shareholders' 
ability to vote for their choice of nominees, we also are proposing 
amendments to the federal proxy rules that would require each 
soliciting party in a contested election to distribute a universal 
proxy that includes the names of all candidates for election to the 
board of directors. The dissident in a contested election would be 
required to provide notice to the registrant of its intent to solicit 
proxies in support of director nominees, other than the registrant's 
nominees, and the names of those nominees, no later than 60 calendar 
days prior to the anniversary of the previous year's annual meeting 
date.\81\ Similarly, the registrant in a contested election would be 
required to notify the dissident of the names of the registrant's 
nominees no later than 50 calendar days prior to the anniversary of the 
previous year's annual meeting date.\82\
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    \81\ See proposed Rule 14a-19(a) and (b); infra Section II.B.2. 
In order to make shareholders aware of the notice deadline, we also 
are proposing to require registrants to disclose in their proxy 
statement the deadline for providing such notice for the 
registrant's next annual meeting. See proposed Rule 14a-5(e)(4).
    \82\ See proposed Rule 14a-19(d); infra Section II.B.3.
---------------------------------------------------------------------------

    In a contested election, after the dissident provides the above 
notice, it would be required to solicit the holders of shares 
representing at least a majority of the voting power of shares entitled 
to vote on the election of directors.\83\ We are additionally proposing 
that the dissident be required to file its definitive proxy statement 
with the Commission by the later of 25 calendar days prior to the 
meeting date or five calendar days after the date the registrant files 
its definitive proxy statement.\84\ To ensure that each party's 
nominees are presented in a clear and impartial manner, the proposed 
rules also would impose specific presentation and formatting 
requirements for all director election proposals on universal proxy 
cards.\85\
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    \83\ See proposed Rule 14a-19(a)(3); infra Section II.B.4.
    \84\ See proposed Rule 14a-19(a)(2); infra Section II.B.5.
    \85\ See proposed Rule 14a-19(e); infra Section II.B.6.
---------------------------------------------------------------------------

1. Mandatory Use of Universal Proxies in Non-Exempt Solicitations in 
Contested Elections
    We are proposing new Rule 14a-19(e) to require that proxy cards 
used in a non-exempt solicitation in connection with a contested 
election include the names of all duly nominated candidates for 
election to the board.\86\ Rule 14a-4(b)(2) currently requires that a 
form of proxy providing for the election of directors shall set forth 
the names of the persons nominated for election as directors, including 
certain shareholder nominees. Proposed Rule 14a-19(e), in conjunction 
with the proposed change to the consent required of a bona fide nominee 
discussed above, would require proxy cards used in contested elections 
to include the names of all nominees of the registrant, certain 
shareholders, and any dissident that has complied with proposed Rule 
14a-19. We believe this change would better enable shareholders to vote 
for their preferred combination of nominees in a contested election of 
directors and would allow the proxy process to more closely replicate 
the voting choices available at a shareholder meeting.
---------------------------------------------------------------------------

    \86\ Proposed Rule 14a-19(e) would require that the proxy card 
include the names of all persons nominated for election by the 
registrant, any person or group of persons that has complied with 
Rule 14a-19, and any person whose nomination by a shareholder or 
shareholder group satisfies the requirements of an applicable state 
or foreign law provision or a registrant's governing documents as 
they relate to the inclusion of shareholder director nominees in the 
registrant's proxy materials.
---------------------------------------------------------------------------

a. Mandatory Use of Universal Proxies
    We considered whether to propose the mandatory use of universal 
proxies or to allow each party to decide whether to use a universal 
proxy. We have received divergent recommendations on this issue and, as 
discussed below, in order to more effectively address the problem of 
shareholders' inability to vote by proxy for the combination of 
nominees of their choice, we have decided to propose a mandatory rule.
    The Rulemaking Petition recommended that the Commission require all 
duly nominated candidates be named in the universal proxy, noting that 
such requirement would ensure shareholders' ability to use either 
party's proxy card to vote for the combination of board candidates they 
prefer. The Rulemaking Petition also contended that simply repealing 
the consent required of a bona fide nominee might encourage parties to 
circulate semi-universal proxy cards featuring more, but not all, 
candidates.\87\
---------------------------------------------------------------------------

    \87\ See Rulemaking Petition.
---------------------------------------------------------------------------

    In contrast, the IAC recommended a rule in which proxy contestants 
would have the option (but not the obligation) to use a universal 
proxy,\88\ allowing one or both parties in an election contest to 
choose whether to use a universal proxy card that includes the names of 
the other party's nominees. The IAC noted that such a rule could allow 
a party to decide which bona fide nominees to include on its proxy card 
to accompany its own nominees, particularly when parties found all or 
certain individuals on a competing slate to be particularly 
objectionable. The approach recommended by the IAC could also give the 
parties in an election contest latitude to use a universal proxy card 
if and when it suits their strategic needs.\89\
---------------------------------------------------------------------------

    \88\ See IAC Recommendation.
    \89\ For example, if the registrant is concerned about a 
possible split recommendation from a proxy advisory firm, the 
registrant may opt to use a universal proxy to avoid the unintended 
consequences of a split vote recommendation. If a dissident is 
soliciting proxies in support of a full slate of nominees, a proxy 
advisory firm may decide that change is necessary on the board of 
directors, but not a change in the majority of directors, and 
recommend a split vote on the dissident's proxy card (e.g., vote 
``for'' three of the dissident nominees and ``withhold'' on six). 
Since shareholders following this recommendation would use the 
dissident proxy card to cast their votes on the election of 
directors, this could result in more dissident nominees being 
elected, a consequence the registrant might seek to avoid by opting 
to use a universal proxy. Additionally, if a registrant is at risk 
of losing a majority of the seats on the board of directors, the 
registrant might opt to use a universal proxy to garner more votes 
for the registrant's nominees than would have been achieved if the 
shareholders were forced to choose between voting for the 
dissident's slate on the dissident's proxy card or the registrant's 
slate on the registrant's proxy card.
---------------------------------------------------------------------------

    We are proposing a mandatory system for universal proxies in 
contested elections because it best replicates how a shareholder could 
vote by attending a shareholder meeting in person and leaves all 
discretion in the voting decision to the shareholder. Requiring 
universal proxies in contested elections would permit shareholders to 
select the combination of nominees that best aligns with their 
interests instead of limiting shareholders' choice to a slate of 
candidates chosen by a party in the contest.
    A mandatory system for universal proxies also would mitigate 
potential shareholder confusion and logistical issues that may result 
from allowing the parties in a contested election to choose whether to 
use a universal proxy. For example, under the proposed mandatory 
system, shareholders would receive proxy cards that include the names 
of all nominees rather than proxy cards

[[Page 79132]]

with only some of the nominees from which to choose. The inclusion of 
all nominees on all proxy cards should reduce the confusion of 
competing and differing cards and mitigate concerns that including one 
party's nominees on an opposing party's card could imply that those 
nominees support the opposing party.
    Further, a mandatory system would reduce the likelihood that the 
proxy card would be used as a tactical tool in the proxy contest. In 
contrast, under an optional system, if a soliciting person believed 
that it could receive more support for its slate by adding just one or 
two nominees from the other slate, it might solicit with a proxy card 
that only included those nominees. Similarly, a soliciting person under 
an optional system might decide not to use a universal card if it 
perceived an advantage in forcing a choice between the two competing 
slates. Both of these situations would limit shareholder voting 
options, which would be counter to the intended purpose of this 
rulemaking to facilitate shareholders' ability to vote for their 
preferred combination of director nominees as they could in person at a 
meeting. The mandatory system we are proposing would apply uniformly to 
all soliciting parties and to all election contests \90\ to prevent 
soliciting parties from selectively using universal proxies for 
tactical purposes.
---------------------------------------------------------------------------

    \90\ As discussed in Section II.D infra, the amendments we are 
proposing today to implement a mandatory universal proxy system 
would not apply to funds or BDCs.
---------------------------------------------------------------------------

    Shareholders seeking to have director nominees included in a 
registrant's proxy materials pursuant to state or foreign law 
provisions or a registrant's governing documents, such as the ``proxy 
access'' bylaws that some registrants have recently adopted,\91\ must 
comply with those requirements. Nominees included in a registrant's 
proxy materials in this way are commonly referred to as ``proxy access 
nominees.'' Because a mandatory universal proxy system may provide a 
less costly means for shareholders or their nominees to gain a form of 
access to a registrant's proxy card, some may view a universal proxy 
system as a substitute for proxy access bylaw provisions. However, we 
believe that the proposed mandatory universal proxy system differs in 
significant respects from proxy access because it would not provide 
shareholders or their nominees with access to a registrant's proxy 
materials in the same manner and extent provided by proxy access 
bylaws.
---------------------------------------------------------------------------

    \91\ See Sullivan & Cromwell LLP, Proxy Access: Developments in 
Market Practice, at 2 (Apr. 8, 2016), available at https://www.sullcrom.com/siteFiles/Publications/SC_Publication_Proxy_Access__Developments_in_Market_Practice.pdf 
(``S&C April Report'') (stating that 200 public companies had 
adopted some form of proxy access since the 2015 proxy season, 
compared to 15 companies prior to 2015).
---------------------------------------------------------------------------

    Proxy access bylaws commonly require the registrant to include in 
its proxy statement the names of the nominating shareholder's nominees, 
disclosure required by Schedule 14A about the nominating shareholder 
and its nominees, and a statement provided by the nominating 
shareholder in support of its nominees' election to the board.\92\ 
Nominating shareholders complying with proxy access bylaws are not 
required to prepare and file their own preliminary and definitive proxy 
statements, disseminate any proxy material or solicit any shareholders, 
while information about their nominees, including in many cases the 
nominating shareholder's own statement about its nominees, is included 
in the registrant's proxy materials and provided to shareholders along 
with the registrant's proxy card listing the names of the nominating 
shareholder's nominees.
---------------------------------------------------------------------------

    \92\ See, e.g., S&C April Report, at A-1 to A-8 (including a 
sample form of proxy access bylaw that reflects recent developments 
in market practice). If a registrant is required to include a proxy 
access nominee in its proxy materials pursuant to a proxy access 
bylaw, Item 7(f) of Schedule 14A would require the registrant to 
include in its proxy statement the disclosure required from the 
nominating shareholder under Item 6 of Schedule 14N about the 
nominating shareholder and the proxy access nominee. Nominating 
shareholders complying with proxy access bylaws must provide notice 
to the registrant on a Schedule 14N of their intent to have a 
nominee included in the registrant's proxy materials pursuant to the 
registrant's proxy access bylaw by the deadline set forth in Rule 
14a-18 and file that notice with the Commission on the date first 
transmitted to the registrant. 17 CFR 240.14a-18.
---------------------------------------------------------------------------

    In contrast, the proposed mandatory universal proxy system would 
require only that the registrant include the names of the dissident 
nominees on its proxy card.\93\ The registrant's proxy card would 
clearly distinguish those nominees from the registrant's nominees.\94\ 
No other disclosure about the dissident's nominees would be required by 
the registrant. For example, the registrant's proxy materials would not 
be required to include detailed information about the dissident or its 
nominees. Nor would the registrant be required to include any 
statements by the dissident in support of its nominees' election. 
Rather, the registrant would only be required to include a statement in 
its proxy statement directing shareholders to refer to the dissident's 
proxy statement for information required by Schedule 14A about the 
dissident's nominees.\95\ The dissident would be wholly responsible for 
disseminating information about its nominees to shareholders and 
soliciting proxies in support of its nominees. As a result, the 
dissident would need to undertake the time, effort and cost of 
preparing and filing a preliminary proxy statement, completing the 
staff review process, preparing and filing a definitive proxy statement 
by the deadline imposed by proposed Rule 14a-19,\96\ and soliciting the 
holders of shares representing at least a majority of the voting power 
of shares entitled to vote on the election of directors.\97\ Thus, the 
dissident's ``access'' in the proposed mandatory universal proxy system 
would be limited to the listing of nominee names on the proxy card and 
would be accompanied by the obligation to solicit on behalf of its own 
nominees.
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    \93\ See proposed Rule 14a-19(e)(1); infra Section II.B.6.
    \94\ See proposed Rule 14a-19(e)(3); infra Section II.B.6.
    \95\ See proposed Item 7(h) of Regulation 14A. As discussed in 
more detail in Section II.B.5.b infra, to provide shareholders with 
access to information about all nominees when they receive a 
universal proxy card, we are proposing a requirement that each party 
in a contested election refer shareholders to the other party's 
proxy statement for information about the other party's nominees and 
explain that shareholders can access the other party's proxy 
statement for free on the Commission's Web site. Registrants subject 
to election contests today routinely refer to the dissident, the 
dissident's nominees and the dissident's proxy materials in their 
proxy statements likely on the basis that the existence of 
alternative nominees is a material fact. See 17 CFR 240.14a-9. For 
example, based on a review of 72 proxy contests that the staff 
identified as involving competing slates of director nominees in 
calendar years 2014 and 2015, see infra note 115, the staff found 
that in 68 contests (or 94 percent of the contests), registrants 
identified the dissident in their proxy statements. As for the four 
contests where the registrants did not identify the dissidents, 
either the parties reached a settlement before the annual meeting or 
the registrant did not file a proxy statement for the annual meeting 
because it was acquired in an intervening transaction. As a result, 
we do not expect the proposed requirement to result in meaningfully 
new disclosure for registrants.
    \96\ See proposed Rule 14a-19(a)(2); infra Section II.B.5.a.
    \97\ See proposed Rule 14a-19(a)(3); infra Section II.B.4.
---------------------------------------------------------------------------

Request for Comment
    14. Should we mandate the use of universal proxies in contested 
elections, as proposed? Does such a requirement more effectively 
replicate in-person attendance at a shareholder meeting than the 
current proxy system? Are there additional changes we should make to 
our proxy rules to facilitate shareholders' ability to vote by proxy in 
the same manner they could vote in person at a meeting?
    15. Our proposal applies to all companies with a class of 
securities registered under Section 12 of the

[[Page 79133]]

Exchange Act but would not apply to funds and BDCs. Should we exclude 
any other types of registrants, such as smaller reporting companies 
and/or emerging growth companies? Why or why not?
    16. Would mandatory use of universal proxies impose additional 
costs on dissidents and/or registrants? If yes, please identify the 
costs and quantify them to the extent practicable. Would some of these 
costs be avoided under an optional system? If so, which ones and why? 
Would some of the benefits attributable to a mandatory system be 
reduced or eliminated under an optional system? If so, which ones and 
why?
    17. Would a mandatory universal proxy system result in investor 
confusion, such as confusion regarding which party a nominee supports? 
Would the proposed requirement to clearly distinguish between 
registrant and dissident nominees on the proxy card avoid or mitigate 
that confusion? Are there additional rule changes that we should make 
in this regard?
    18. Should we make the use of universal proxies optional rather 
than mandatory? Why or why not? Would an optional system further the 
goal of effectively facilitating shareholders' ability to vote by proxy 
for director nominees as they could vote in person at a meeting? If 
universal proxies were optional, we are interested in the views of both 
registrants and dissidents as to how frequently they would choose to 
use a universal proxy and why. Under what circumstances would one party 
choose to include the names of an opponent's nominees? Under an 
optional system, if one party opts to use a universal proxy, is the 
other party likely to follow suit? Would allowing for optional use of 
universal proxies result in confusion?
    19. If we were to adopt an optional system, should we require a 
party opting to use a universal proxy to include all of the other 
party's nominees on its card or should we allow each party to select 
which nominees to include? If we do not require all nominees to be 
listed, would shareholders be confused by the contrasting proxy cards? 
Would such a system lead to the parties utilizing universal proxies 
only when it offers them a strategic advantage?
    20. If we were to adopt an optional system, should both parties be 
permitted to decide whether to use a universal proxy card? If so, 
should this decision be made at the beginning of the contest before any 
proxy cards are distributed, or should a party be able to opt to use a 
universal proxy in the midst of a contest after it or the other party 
has distributed a conventional (non-universal) card? What, if any, of 
the other proposed amendments should we maintain in an optional system? 
For example, should we retain the proposed notice requirements and the 
dissident's definitive proxy statement filing deadline for universal 
proxy or some other variation of these proposed requirements? Should we 
retain the proposed amendments to the form of the universal proxy card?
    21. Should we instead adopt a hybrid system in which the use of 
universal proxies in contested elections is mandatory for one party but 
optional for the other? Would such a system effectively facilitate 
shareholders' ability to vote by proxy for director nominees as they 
could vote in person at a meeting? Under a hybrid system, which party 
should be required to use the universal proxy? For example, should we 
require the use of a universal proxy by dissidents but make it optional 
for registrants? This type of hybrid system would permit shareholders 
to select their preferred combination of dissident and registrant 
nominees on the dissident's proxy card while still requiring a 
dissident to conduct an independent solicitation. However, only those 
shareholders that a dissident elects to solicit would receive a 
universal proxy unless the registrant opted to use a universal proxy. 
Should we require the party using the universal proxy in a hybrid 
system to furnish a proxy statement to all shareholders to ensure that 
every shareholder receives a universal proxy and can vote for their 
preferred combination of nominees as they could if attending the 
shareholder meeting in person? In a hybrid system, would it be 
necessary or helpful to require dissidents to provide notice of the 
names of their nominees to registrants as we have proposed for the 
mandatory universal proxy system? What other requirements would be 
needed in a hybrid system? Under a hybrid system in which one party is 
required to use a universal proxy, is the other party likely to follow 
suit and elect to provide a universal proxy as well? Would a hybrid 
system provide advantages to one party or the other in an election 
contest? If so, which party would it benefit and why?
    22. If we do not adopt a mandatory system for universal proxies, 
how else could we enable shareholders to vote by proxy for their choice 
of nominees in a contested election?
    23. Would mandatory use of universal proxies increase the frequency 
of contested elections? Why or why not? Would the optional use of 
universal proxies have a similar impact? Why or why not?
    24. Would shareholders use mandatory universal proxy instead of a 
registrant's proxy access bylaw? Why or why not? What would be the 
implications of such use and should any additional rule changes be made 
in this regard?
b. Use in Contested Elections
    We are proposing to apply the requirement to use universal proxies 
to all non-exempt solicitations in connection with contested elections 
where a person or group of persons is soliciting proxies in support of 
director nominees other than the registrant's nominees.\98\ We are 
proposing this approach because our rationale for requiring the use of 
universal proxies--that the proxy voting process should mirror as much 
as possible the vote that a shareholder could make by attending the 
meeting and voting in person--applies equally to all types of contested 
elections. We believe our rules should permit shareholders to select 
the combination of nominees that best aligns with their interests in 
any contested election, whether a dissident is soliciting proxies in 
support of a number of nominees that would constitute a minority or a 
majority of the board of directors.
---------------------------------------------------------------------------

    \98\ As discussed in Section II.D infra, the amendments we are 
proposing today to implement a mandatory universal proxy system 
would not apply to funds or BDCs.
---------------------------------------------------------------------------

    We recognize that there are differing views on the types of 
contests that warrant the use of universal proxies. For example, the 
IAC recommended the use of universal proxies only in connection with 
short slate director nominations, while the Rulemaking Petition 
recommended the use of universal proxies in all contested 
elections.\99\ We considered limiting the requirement to use universal 
proxies to contests where the election could not result in a change in 
a majority of the board of directors. We are aware that where a contest 
results in a change in a majority or all of the directors, there may be 
consequences beyond the resulting change in the board of directors. 
These may include triggering provisions in debt covenants and other 
material contracts and agreements. We also recognize that those who 
believe the use of universal proxies would increase the success of 
dissidents may contend that requiring universal proxies in all contests 
(including contests in which the election of a dissident's nominees 
would result in a change in a majority

[[Page 79134]]

of the directors) would likely increase the occurrence of these change-
in-control consequences. However, we believe these change-in-control 
implications and any associated risks are better addressed through 
disclosure in the proxy statement (as is currently the case) rather 
than through federal proxy rules applicable to the solicitation 
process.\100\
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    \99\ See IAC Recommendation; Rulemaking Petition.
    \100\ We are unaware of any empirical studies providing direct 
evidence that requiring universal proxy cards would increase the 
incidence of the change-in-control consequences discussed here.
---------------------------------------------------------------------------

    The mandatory universal proxy system, as proposed, would not apply 
to an election of directors involving only registrant and proxy access 
nominees. Where proxy access nominees are included on the registrant's 
proxy card and there is no competing slate of dissident nominees, 
shareholders will already have access to a proxy that reflects all of 
their voting options for the election of directors. Therefore, we are 
not proposing that the requirements of the proposed universal proxy 
system would apply to such nominating shareholders.\101\
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    \101\ We are, however, proposing to require that the form of 
universal proxy to be used by registrants and dissidents also 
include any proxy access nominees. See proposed Rule 14a-19(e); 
infra Section II.B.6.
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    We are proposing to apply the requirement to use a universal proxy 
only to solicitations that involve a contested election. In 
solicitations that do not involve a contested election, such as a 
``vote no'' campaign (i.e., where a soliciting person is only 
soliciting ``withhold'' or ``against'' votes with respect to one or 
more of the registrant's nominees) or where a shareholder is only 
soliciting proxies in support of a shareholder proposal, there are no 
alternative director nominees. Those solicitations would not raise the 
same concerns that mandatory universal proxy is intended to address 
because the registrant's proxy card already provides shareholders with 
the ability to select their choice of nominees from all director 
candidates. Where the solicitation does not involve a contested 
election, a proponent's form of proxy would be governed by Rule 14a-
4(b)(2), as it is today. We note, however, that Rule 14a-4(b)(2), in 
conjunction with the proposed change to the consent required of a bona 
fide nominee discussed above,\102\ would allow a proponent to include 
the names of some or all registrant nominees on the proponent's proxy 
card, which is not explicitly contemplated by the current proxy rules.
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    \102\ See proposed Rule 14a-4(d)(1)(i).
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    Similarly, the mandatory universal proxy system, as proposed, would 
not apply to a dissident's consent solicitation \103\ to remove 
existing registrant directors and replace them with dissident 
nominees.\104\ We do not believe that universal proxy is needed for 
consent solicitations because a registrant contesting such a 
solicitation typically does so by soliciting revocations of the 
consents and not by presenting a competing slate.\105\ These 
solicitations, although related to the election of directors, do not 
raise the same concerns that mandatory universal proxy is intended to 
address because shareholders would have access to a consent card that 
reflects all of their voting options for the removal and appointment of 
directors to fill the vacancies, if any, created by the removal of 
directors.
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    \103\ A consent solicitation involves the solicitation of 
written consents from shareholders to take action without a meeting.
    \104\ See proposed Rule 14a-19(g).
    \105\ We acknowledge that a registrant could solicit consents 
for a competing slate of nominees (e.g., the incumbent directors) 
when soliciting for revocations of consents in the event the 
dissident's removal proposal is successful. Based on the staff's 
observations, registrants rarely, if ever, do so.
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Request for Comment
    25. Should we require the use of universal proxies in all contested 
elections, as proposed? Should we instead limit the use of universal 
proxies to contested elections in which a dissident is soliciting 
proxies in support of a slate that, if elected, would constitute a 
minority of the board of directors? If so, why should we differentiate 
between such contests? Should we instead limit the use of universal 
proxies in a different way?
    26. As proposed, a universal proxy would be permitted, but not 
required, for other types of solicitations. Should we instead require 
the use of a universal proxy in solicitations that do not involve a 
contested election, such as a ``vote no'' campaign or where a 
shareholder is only soliciting proxies in support of a shareholder 
proposal? Why or why not?
    27. Should we expressly exclude consent solicitations from the 
application of Rule 14a-19, as proposed? Are there any reasons why a 
universal proxy requirement should apply to consent solicitations? If 
so, please describe.
c. Exempt Solicitations
    We are proposing that universal proxies be required only in non-
exempt solicitations. Current Rule 14a-2(b) provides that certain 
provisions of Regulation 14A, including Rules 14a-3, 14a-4, 14a-5 and 
14a-6,\106\ do not apply to the exempt solicitations described in Rule 
14a-2(b).\107\ Our proposed amendments would revise Rule 14a-2(b) to 
specify that the requirements of proposed Rule 14a-19 similarly do not 
apply to exempt solicitations under Rule 14a-2(b).
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    \106\ Rules 14a-3 through 14a-6 set forth the filing, delivery, 
information and presentation requirements for the proxy statement 
and form of proxy for solicitations subject to Regulation 14A. 17 
CFR 240.14a-3--14a-6.
    \107\ Rule 14a-2(b) exempts certain solicitations from most of 
the proxy rules other than the antifraud provisions. 17 CFR 240.14a-
2(b). For example, Rule 14a-2(b)(1) exempts solicitations by any 
person who does not directly or indirectly seek authority to act as 
proxy and does not furnish or request a form of revocation, 
abstention, consent or revocation. Rule 14a-2(b)(2) exempts 
solicitations, other than on behalf of the registrant, where the 
aggregate number of persons solicited is not more than ten. These 
solicitations are exempted from the proxy rules because ``the best 
protection for shareholders and the marketplace is to identify those 
classes of solicitations that warrant application of the proxy 
statement disclosure requirement, and to foster the free and 
unrestrained expression of views by all other parties.'' See Short 
Slate Rule Adopting Release, at 48280.
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    We propose that universal proxies be required only in contested 
elections where the dissident conducts a non-exempt solicitation that 
is subject to Rule 14a-12(c) \108\ through the use of a proxy statement 
and proxy card pursuant to Regulation 14A. Thus, the proposed 
amendments would not apply to solicitations in which a person does not 
seek authority to act as proxy and does not furnish or request a form 
of revocation, abstention, consent or revocation, which are exempt 
under Rule 14a-2(b)(1). Similarly, the proposed amendments would not 
apply to solicitations in which the person is not acting on behalf of 
the registrant and the aggregate number of persons solicited is not 
more than ten, which are exempt under Rule 14a-2(b)(2).
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    \108\ Rule 14a-12(c) applies to ``[s]olicitations by any person 
or group of persons for the purpose of opposing a solicitation 
subject to this regulation by any other person or group of persons 
with respect to the election or removal of directors at any annual 
or special meeting of security holders.''
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    We are not proposing to require universal proxies in exempt 
solicitations because we do not believe exempt solicitations are an 
appropriate context for the universal proxy process. In a non-exempt 
solicitation in connection with a contested election, the parties may 
expend considerable time and effort and incur significant costs. This 
includes filing a proxy statement with the Commission that contains all 
required information about the director nominees and obtaining consent 
of the nominees to be named in the proxy statement and to serve if 
elected. In contrast, soliciting persons

[[Page 79135]]

conducting exempt solicitations are not required to file their proxy 
materials with the Commission and may expend little time and effort and 
incur limited costs. Accordingly, if we were to mandate the use of 
universal proxies when a dissident is conducting an exempt 
solicitation, the dissident could potentially capitalize on the 
registrant's solicitation while expending very little time and effort 
and incurring no costs itself. Moreover, shareholders would not be 
assured of having the benefit of the robust disclosure required under 
Regulation 14A, including disclosure about the dissident's nominees, 
when casting their vote using a universal proxy.
Request for Comment
    28. Should we limit the requirement to use universal proxies to 
non-exempt solicitations, as proposed? Should we instead require that 
universal proxies also be used in some or all exempt solicitations? For 
example, should universal proxies be required in contested elections 
where a dissident is conducting an exempt solicitation under Rule 14a-
2(b)(2)? If so, should the proposed rules be applied differently in the 
context of an exempt solicitation, such as requiring the dissident to 
use a universal proxy in its exempt solicitation while giving the 
registrant the option to use a universal proxy in its non-exempt 
solicitation?
2. Dissident's Notice of Intent To Solicit Proxies in Support of 
Nominees Other Than the Registrant's Nominees
    We are proposing to require the dissident to provide notice to the 
registrant of its intent to solicit proxies in support of director 
nominees other than the registrant's nominees.\109\ We believe that 
establishing a notice requirement is necessary to provide a definitive 
date by which the parties in a contested election will know that use of 
universal proxies has been triggered. For that reason, we are proposing 
a new notice requirement that would apply to any dissident who intends 
to conduct a non-exempt solicitation and solicit proxies in support of 
director nominees other than the registrant's nominees using its own 
proxy card.
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    \109\ See proposed Rule 14a-19(a) and (b).
---------------------------------------------------------------------------

    Proposed Rule 14a-19 would require a dissident to provide the 
registrant with the names of the nominees for whom it intends to 
solicit proxies no later than 60 calendar days prior to the anniversary 
of the previous year's annual meeting date.\110\ If the registrant did 
not hold an annual meeting during the previous year, or if the date of 
the meeting has changed by more than 30 calendar days from the previous 
year, proposed Rule 14a-19 would require that the dissident provide 
notice by the later of 60 calendar days prior to the date of the annual 
meeting or the tenth calendar day following the day on which public 
announcement of the date of the annual meeting is first made by the 
registrant. Proposed Rule 14a-19 would also require a dissident to 
indicate its intent to comply with the minimum solicitation threshold 
in proposed Rule 14a-19 \111\ by including in this notice a statement 
that it intends to solicit the holders of shares representing at least 
a majority of the voting power of shares entitled to vote on the 
election of directors.\112\ This statement would also serve to 
distinguish the notice under Rule 14a-19 from advance notice provided 
pursuant to the registrant's governing documents and to put the 
registrant on notice that the dissident intends to comply with the 
requirements of Rule 14a-19. Proposed Rule 14a-19 would not require a 
dissident to provide this notice to the registrant if the information 
required in the notice has been provided in a preliminary or definitive 
proxy statement filed by the dissident by the deadline imposed by 
proposed Rule 14a-19. Proposed Rule 14a-19 also would not require a 
dissident to file the notice with the Commission.
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    \110\ The proposed rule also would require that a dissident 
promptly notify the registrant if any change occurs with respect to 
its intent to solicit proxies in support of its director nominees. 
See proposed Rule 14a-19(c).
    \111\ See infra Section II.B.4 for a discussion of the minimum 
solicitation requirement in proposed Rule 14a-19.
    \112\ We are also proposing to require similar disclosure in a 
dissident's proxy statement, which would be subject to the antifraud 
provisions in Rule 14a-9. See infra Section II.B.4.
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    We are proposing 60 calendar days prior to the anniversary of the 
previous year's annual meeting date as the notice deadline because we 
believe it provides a definitive date far enough in advance of the 
meeting to give the parties sufficient time after the notice is 
provided to prepare a proxy statement and form of proxy in accordance 
with the universal proxy requirements.\113\ In addition, we believe 60 
calendar days prior to the anniversary of the previous year's annual 
meeting date is not too far in advance of the meeting so as to impose a 
significant additional burden for most dissidents. Our proposed 
deadline for the notice is 30 calendar days later than the deadline 
found in most advance notice bylaws, which typically require notice to 
be delivered no earlier than 120 days and no later than 90 days prior 
to the first anniversary of the prior year's annual meeting.\114\ In 
fact, based on a review of the filings for the 72 contested elections 
initiated in 2014 and 2015, we estimate that dissidents provided some 
form of notice of their intent to nominate candidates for election to 
the board of directors 60 or more calendar days prior to the 
shareholder meeting date in 89 percent of the contests.\115\
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    \113\ For many registrants, the record date for determining 
shareholders entitled to notice of the meeting cannot be more than 
60 days before the date of such meeting. See, e.g., Del. Code Ann. 
tit. 8, Sec.  213. Thus, as a practical matter, registrants very 
rarely file their definitive proxy statement prior to such date.
    \114\ See Sullivan & Cromwell LLP, Proxy Access Bylaw 
Developments and Trends, at 4 (Aug. 18, 2015), available at https://www.sullcrom.com/siteFiles/Publications/SC_Publication_Proxy_Access_Bylaw_Developments_and_Trends.pdf (``S&C 
August Report''); Wachtell, Lipton, Rosen & Katz, Nominating and 
Corporate Governance Committee Guide, at 22 (2015), available at 
http://www.wlrk.com/files/2015/NominatingandCorporateGovernanceCommitteeGuide2015.pdf.
    \115\ The sample (``contested elections sample'') is based on 
staff analysis of EDGAR filings for election contests with 
preliminary proxy statements filed in calendar years 2014 and 2015 
other than election contests involving funds or BDCs. Staff has 
identified 72 proxy contests involving competing slates of director 
nominees during this time period. For calculations in relation to 
the meeting date, the data is based on 70 out of 72 identified proxy 
contests since the registrant did not hold an annual meeting for the 
election of directors in two cases. For purposes of determining the 
earliest date the dissident provided some form of notice of its 
intent to nominate candidates for election to the board, staff 
considered disclosure in the dissident's definitive additional 
soliciting materials filed under Rule 14a-12, disclosure in 
amendments to the dissident's Schedule 13D and disclosure in both 
the registrant's and dissident's proxy statements.
---------------------------------------------------------------------------

    A dissident's obligation to comply with the notice requirement 
under proposed Rule 14a-19 would be in addition to its obligation to 
comply with any applicable advance notice provision in the registrant's 
governing documents. In most cases, we do not anticipate that proposed 
Rule 14a-19 would impose a meaningful additional burden on a dissident 
since a dissident would generally have provided the names of its 
nominees by the proposed deadline to comply with a typical advance 
notice provision in a registrant's governing documents.\116\ While we 
acknowledge that proposed Rule 14a-19 would impose a notice requirement 
even in the case of registrants that do not have an advance notice 
provision in their governing documents, we believe the requirement is 
necessary so those

[[Page 79136]]

registrants receive notice of the names of a dissident's nominees in 
time to prepare a universal proxy card and file it with their 
preliminary proxy statement.
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    \116\ According to a law firm report, 95 percent of the S&P 500 
and 90 percent of the Russell 3000 had advance notice provisions at 
2014 year-end. See WilmerHale, 2015 M&A Report, at 5 (2015), 
available at https://www.wilmerhale.com/uploadedFiles/Shared_Content/Editorial/Publications/Documents/2015-WilmerHale-MA-Report.pdf (citing www.SharkRepellent.net).
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    In most instances,\117\ Rule 14a-19 would effectively preclude a 
dissident from launching an election contest less than 60 calendar days 
prior to the annual meeting even if the registrant's governing 
documents do not require advance notice by that date.\118\ We believe 
such late-breaking contests are infrequent \119\ and usually precluded 
by the prevalence of advance notice requirements in registrants' 
governing documents. Proposed Rule 14a-19 would not, however, preclude 
dissidents who are unable to meet the notice deadline from taking other 
actions to attempt to effectuate changes to the board, such as 
initiating a ``vote no'' campaign, conducting an exempt solicitation, 
or calling a special meeting (to the extent permitted under the 
registrant's bylaws) to remove existing directors and appoint their own 
nominees to fill the vacancies.
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    \117\ Proposed Rule 14a-19 would not operate to preclude a 
dissident from launching an election contest less than 60 calendar 
days prior to the annual meeting date if the registrant did not hold 
an annual meeting during the previous year and announced the date of 
the upcoming annual meeting fewer than 70 calendar days prior to the 
meeting date. In that instance, a dissident could launch an election 
contest at any time prior to the tenth calendar day following the 
registrant's public announcement of the meeting date (e.g., if the 
registrant announced the date of the upcoming annual meeting 65 
calendar days prior to the meeting date, the dissident could launch 
an election contest as late as the 55th calendar day prior to the 
meeting date). See proposed Rule 14a-19(b)(1).
    \118\ Proposed Rule 14a-19 would also effectively preclude a 
dissident from launching an election contest less than 60 calendar 
days prior to the annual meeting even if the registrant's board of 
directors has waived the advance notice deadline in the registrant's 
governing documents.
    \119\ Based on a review of the contested elections sample, see 
supra note 115, the staff found that dissidents provided notice of 
their intent to nominate director candidates fewer than 60 calendar 
days prior to the shareholder meeting date in 11 percent of the 
contests.
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    It is possible that a dissident will provide notice of the names of 
its nominees under proposed Rule 14a-19 and later change its nominees. 
It is also possible that a dissident will provide the notice required 
under proposed Rule 14a-19 but take no further steps in the 
solicitation of proxies in support of director nominees, or take some 
additional steps but later change or abandon its solicitation efforts. 
As proposed, Rule 14a-19 would require a dissident to promptly notify 
the registrant of any change to the dissident's intent to comply with 
the minimum solicitation threshold in proposed Rule 14a-19 or with 
respect to the names of the dissident's nominees.\120\ Because a 
registrant may have disseminated a universal proxy card before 
discovering that the dissident has abandoned its solicitation,\121\ we 
are proposing to require the registrant to include disclosure in its 
proxy statement advising shareholders how it intends to treat proxy 
authority granted in favor of a dissident's nominees in the event the 
dissident abandons its solicitation or fails to comply with proposed 
Rule 14a-19.\122\ In those instances, the registrant could elect to 
disseminate a new, non-universal proxy card including only the names of 
the registrant's nominees. If there is a change in the dissident's 
nominees after the registrant has disseminated a universal proxy card, 
the registrant could elect, but would not be required, to disseminate a 
new universal proxy card reflecting the change in dissident nominees.
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    \120\ See proposed Rule 14a-19(c).
    \121\ This could occur because a dissident is required to 
provide notice of its intent to solicit proxies to the registrant 60 
days prior to the anniversary date of the previous year's annual 
meeting. If a registrant disseminates its proxy statement during the 
period of time between receiving the dissident's Rule 14a-19 notice 
and the dissident filing a preliminary proxy statement, a registrant 
would be required to include the names of the dissident's nominees 
on a universal proxy card.
    \122\ See proposed Item 21(c) to Schedule 14A.
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Request for Comment
    29. Should we require a dissident to provide notice of its intent 
to solicit in advance of a shareholder meeting, as proposed? Would this 
requirement significantly hinder a dissident's ability to initiate a 
proxy contest? Why or why not? Does proposed Rule 14a-19 create 
logistical or timing issues not addressed in this release?
    30. What percentage of companies with Section 12 registered 
securities have an advance notice provision in their governing 
documents today? What percentage of those companies that have an 
advance notice provision have a deadline of, or a submission window 
that ends, 90 days, 60 days, or another specified number of days prior 
to the upcoming annual meeting date or the first anniversary of the 
prior year's annual meeting?
    31. Does the proposed requirement to identify a dissident's 
nominees 60 days in advance of a meeting sufficiently accommodate the 
interests of both dissidents and registrants? Should the notice be 
required more or fewer days in advance? Alternatively, would some other 
triggering event for filing the notice, such as within five days of the 
registrant filing its preliminary proxy statement, better provide 
appropriate notice? Would some other period of time be more 
appropriate?
    32. If a registrant did not hold an annual meeting during the 
previous year, or if the date of the meeting has changed by more than 
30 calendar days from the previous year, should we require a dissident 
to provide notice by the later of 60 calendar days prior to the date of 
the annual meeting or the tenth calendar day following the day on which 
public announcement of the date of such meeting is first made by the 
registrant, as proposed? Should we instead require registrants to file 
a Form 8-K within four business days of determining the anticipated 
meeting date to disclose the date by which a dissident must submit the 
required notice and require that such date be a reasonable time or a 
specified number of days before the registrant first files proxy 
materials with the Commission? Is there a more appropriate notice 
deadline we should use in situations in which a registrant did not hold 
an annual meeting during the previous year or the date of the meeting 
has changed by more than 30 calendar days from the previous year?
    33. The proposed notice requirement would effectively prevent a 
dissident from launching an election contest less than 60 days before a 
meeting. Would some shorter or longer period be preferable? Should the 
proposed rule include an exception mechanism similar to Rule 14a-6(a) 
to allow a dissident to provide the notice required by proposed Rule 
14a-19 after the 60 calendar day deadline in exceptional circumstances 
(e.g., where a court of competent jurisdiction enjoins the advance 
notice bylaws of the registrant)? Should we instead have the notice 
requirement be a condition of the use of universal proxies but also 
permit dissidents to launch a contest as they could today, without the 
ability to use universal proxy if they do not comply with the notice 
requirements? Why or why not?
    34. What information should be required in a dissident's notice? 
Should any other information besides the names of a dissident's 
nominees and a dissident's statement that it intends to solicit the 
holders of shares representing at least a majority of the voting power 
of shares entitled to vote on the election of directors be required? 
For example, should a dissident be required to include biographical or 
other information that is required of director nominees under 
Regulation 14A for its nominees in the notice?

[[Page 79137]]

    35. Should we require a dissident to file the notice with the 
Commission? Should we require a dissident to file the notice with each 
national securities exchange upon which any class of securities of the 
registrant is listed and registered? Why or why not?
3. Registrant's Notice of Its Nominees
    We are proposing to require the registrant to notify the dissident 
of the names of its nominees unless the names have already been 
provided in a preliminary or definitive proxy statement filed by the 
registrant.\123\ Proposed Rule 14a-19(d) would require a registrant to 
provide the dissident with the names of the nominees for whom the 
registrant intends to solicit proxies no later than 50 calendar days 
prior to the anniversary of the previous year's annual meeting date. If 
the registrant did not hold an annual meeting during the previous year, 
or if the date of the meeting has changed by more than 30 calendar days 
from the previous year, proposed Rule 14a-19(d) would require that the 
registrant provide notice no later than 50 calendar days prior to the 
date of the meeting. Proposed Rule 14a-19 would not require a 
registrant to file the notice with the Commission.
---------------------------------------------------------------------------

    \123\ See proposed Rule 14a-19(d).
---------------------------------------------------------------------------

    We believe it is appropriate to include notification deadlines in a 
mandatory universal proxy system to provide the parties with a 
definitive date by which they will have the names of all nominees to be 
included on the universal proxy card. Without the names of all 
nominees, the parties could not file their definitive proxy statements 
and universal proxy cards to begin soliciting shareholders. Absent such 
a requirement for registrants, dissidents could face an informational 
and timing disadvantage in the proposed universal proxy system. 
Registrants would know the names of dissident nominees no later than 60 
days prior to the meeting \124\ while dissidents would not necessarily 
know the names of the registrant nominees until the registrant files 
its preliminary proxy statement, which is only required to be filed at 
least 10 calendar days prior to the date the definitive proxy statement 
is first sent to shareholders and may be filed much closer to the 
meeting date.\125\ In that case, dissidents would have to wait to file 
their definitive proxy statement and proxy card until the registrant 
filed its preliminary proxy statement with the names of the registrant 
nominees.
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    \124\ Because the deadline under proposed Rule 14a-19(b)(1) is 
tied to the anniversary of the previous year's annual meeting date, 
60 calendar days prior to the meeting date approximates the latest 
date on which registrants would know the names of dissident 
nominees.
    \125\ See proposed Rule 14a-19(b)(1); 17 CFR 240.14a-6(a).
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    We believe a deadline that is 10 calendar days after the latest 
date the registrant would have received dissident's notice of nominees 
is appropriate because it provides a sufficient period of time for the 
registrant to consider the dissident's notice, finalize its nominees 
and respond with its own notice of nominees. Moreover, we believe the 
50 calendar day deadline is appropriate for providing dissidents with 
timely access to the names of registrant nominees for purposes of 
preparing a universal proxy card.
    We acknowledge that a dissident could not file its definitive proxy 
statement and universal proxy card until the registrant has provided 
notice of the names of its nominees or otherwise filed a preliminary or 
definitive proxy statement including such names. Given the filing 
practices of soliciting parties in contested elections today, we do not 
believe this will be a practical hardship for dissidents because 
dissidents almost always file their definitive proxy statement after 
the registrant has filed a preliminary proxy statement and usually 
after the registrant has filed a definitive proxy statement.\126\ If 
the names of the registrant's nominees are not known when a dissident 
plans to file its preliminary proxy statement, the dissident could file 
its preliminary proxy statement, as planned, and include blank spaces 
for the names of the registrant's nominees on its preliminary universal 
proxy card. The dissident could not file its definitive proxy statement 
until at least 10 calendar days elapsed after the preliminary proxy 
statement filing.\127\ If the names of the registrant's nominees were 
still not known at that time, the dissident would have to wait until 
the names of the registrant's nominees were known before finalizing and 
filing its definitive proxy statement and universal proxy card. Based 
on a review of recent contested elections and the staff's experience, 
dissidents rarely file their definitive proxy statement more than 50 
calendar days prior to the meeting date, which approximates the latest 
date on which registrants would be required to notify the dissident of 
the names of the registrant's nominees under the proposed rules.\128\ 
Thus, unless soliciting parties in contested elections alter their 
filing practices as a result of using the proposed universal proxy 
system, we would expect those circumstances to arise infrequently. We 
solicit comment on this point below.
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    \126\ Based on the staff's review of the contested elections 
sample, see supra note 115, we estimate that dissidents filed their 
definitive proxy statement before the registrant filed its 
definitive proxy statement in 11 percent of the contests. We also 
estimate that a dissident filed its definitive proxy statement 
before the registrant filed its preliminary proxy statement (or 
definitive proxy statement in the instances where the registrant did 
not file a preliminary proxy statement) in just one instance (or 1 
percent of the contests).
    \127\ See Rule 14a-6(a). In the staff's experience, a soliciting 
party will typically wait until it receives notice that the staff 
has no comments on the preliminary proxy statement before filing its 
definitive proxy statement.
    \128\ Because the deadline under proposed Rule 14a-19(d) is tied 
to the anniversary of the previous year's annual meeting date, 50 
calendar days prior to the meeting date approximates the latest date 
on which registrants would be required to notify the dissident of 
the names of the registrant's nominees. Based on a review of the 
contested elections sample, see supra note 115, we estimate that 
dissidents filed their definitive proxy statement more than 50 
calendar days prior to the shareholder meeting date in 7 percent of 
the contests.
---------------------------------------------------------------------------

    It is possible that a registrant could provide notice of the names 
of its nominees under proposed Rule 14a-19 and later change its 
nominees. As with the notice requirement for dissidents, proposed Rule 
14a-19(d) would require a registrant to promptly notify the dissident 
of any change with respect to the names of the registrant's nominees. 
If there is a change in the registrant's nominees after the dissident 
has disseminated a universal proxy card, the dissident could elect, but 
would not be required, to disseminate a new universal proxy card 
reflecting the change in registrant nominees.
Request for Comment
    36. Should we require a registrant to notify the dissident of the 
names of registrant nominees, as proposed? Would the proposed notice 
requirement for registrants affect the process by which a board of 
directors nominates candidates? If so, how? Is the proposed notice 
requirement for registrants inconsistent with any state or foreign law 
provision?
    37. Should any other information besides the names of the 
registrant's nominees be required?
    38. Is 50 calendar days prior to the anniversary of the previous 
year's annual meeting date an appropriate deadline for the notice of 
the registrant's director nominees? Should we require a longer or 
shorter period of time? Why or why not? Should the deadline for 
registrants be tied to the registrant's receipt of the dissident's 
notice? For example, should we instead adopt a deadline for registrants 
that is the later of 60 calendar days prior to the meeting or 10 
calendar days following

[[Page 79138]]

registrant's receipt of dissident's notice pursuant to proposed Rule 
14a-19? Why or why not?
    39. Would the proposed mandatory universal proxy system alter the 
filing practices of soliciting parties in contested elections? If so, 
how? Are there any changes that we should make to the proposed rules as 
a result?
    40. Should we require registrants to file the notice with the 
Commission? For example, should a registrant be required to file a Form 
8-K to disclose the names of its nominees when they are determined? 
Should we require registrants to file the notice with each national 
securities exchange upon which any class of securities of the 
registrant is listed and registered? Why or why not?
4. Minimum Solicitation Requirement for Dissidents
    Our current rules do not require a registrant or a dissident to 
solicit, or furnish a proxy statement to, a certain number or 
percentage of shareholders. Instead, our rules only require the parties 
to furnish a proxy statement to each person solicited.\129\ Proposed 
Rule 14a-19 would require dissidents in a contested election subject to 
Rule 14a-19 to solicit the holders of shares representing at least a 
majority of the voting power of shares entitled to vote on the election 
of directors.\130\ We estimate that in approximately 97 percent of 
recent proxy contests the dissident solicited a number of shareholders 
greater than would be required under the proposed minimum solicitation 
requirement.\131\
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    \129\ See 17 CFR 240.14a-3.
    \130\ We understand that proxy service providers can provide 
sufficient information for a dissident to determine how to meet the 
minimum threshold. The notion that a proponent's solicitation of a 
certain percentage of shareholders impacts the treatment of a 
proponent's proposal in the proxy voting process is not new. Rule 
14a-4(c)(1) addresses a registrant's ability to exercise 
discretionary voting authority after it has received notice of a 
non-Rule 14a-8 proposal within the timeframe established by Rule 
14a-4(c)(1). Rule 14a-4(c)(2) precludes a registrant from exercising 
discretionary authority on matters as to which it has received 
timely advance notice if the proponent provides the registrant, as 
part of that notice, with a statement that it intends to solicit the 
percentage of shareholder votes required to carry the proposal, 
followed with specified evidence that the stated percentage had 
actually been solicited.
    \131\ See infra Section IV.D.2.a.
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    Without a minimum solicitation requirement, mandatory universal 
proxy could enable dissidents to capitalize on the registrant's 
solicitation efforts and relieve dissidents of the time and expense 
necessary to solicit sufficient support for its nominees to win a seat 
on the board of directors. The minimum solicitation requirement would 
preclude a dissident from triggering mandatory universal proxy for both 
parties unless the dissident intends to conduct an independent 
solicitation by distributing its own proxy statement and form of proxy. 
We are mindful of concerns that have been raised about the possibility 
that universal proxies would allow dissidents to have their nominees 
included on registrants' proxy cards, which would likely be 
disseminated to all shareholders of the company, without expending any 
of their own resources to get the names of their nominees in front of 
all shareholders of the company. We believe that the proposed minimum 
solicitation requirement would help address these concerns. We also 
believe that the nature of contested elections today, particularly when 
share ownership is widely dispersed, is such that dissidents would 
still need to engage in meaningful solicitation efforts in order to 
actually win a seat on the board of directors.
    We determined to propose a minimum solicitation requirement for 
dissidents to ensure that the registrant is required to include 
dissident nominees on its proxy card only when the dissident engages in 
a meaningful, non-exempt solicitation. We believe the threshold we are 
proposing--a majority of the voting power entitled to vote on the 
election of directors--strikes an appropriate balance of providing the 
utility of the mandatory universal proxy system for shareholders while 
precluding dissidents from capitalizing on the inclusion of dissident 
nominees on the registrant's universal proxy card without undertaking 
meaningful solicitation efforts. We also believe the threshold we are 
proposing would be easily measurable regardless of the applicable 
voting standard.\132\
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    \132\ While a plurality voting standard would apply in almost 
all contested elections, we understand that for a small percentage 
of registrants, a majority voting standard would apply in contested 
elections.
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    Proposed Rule 14a-19 would also require a dissident to state in its 
proxy materials that it will solicit the holders of shares representing 
at least a majority of the voting power of shares entitled to vote on 
the election of directors.\133\ Like any other statement made in the 
dissident's proxy materials, this statement would be subject to Rule 
14a-9.
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    \133\ See proposed Rule 14a-19(a)(3).
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    A registrant is not required to solicit, or furnish a proxy 
statement to, a certain number or percentage of shareholders under our 
current rules. Consistent with our current rules, a registrant would be 
required only to furnish a proxy statement to each person solicited. 
Because Rule 14c-2 requires registrants to provide to all shareholders 
not solicited in connection with a shareholder meeting an information 
statement with the same information required in a proxy statement, 
registrants routinely satisfy their obligation under Rule 14c-2 by 
furnishing a proxy statement to all shareholders.\134\ For that reason, 
we are not proposing a minimum solicitation requirement for registrants 
in a contested election subject to proposed Rule 14a-19.
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    \134\ 17 CFR 240.14c-2. Other requirements may result in a 
registrant's decision to furnish a proxy statement to all 
shareholders, such as national securities exchange listing 
requirements and meeting notice requirements under state law.
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Request for Comment
    41. Should we require a dissident to solicit the holders of shares 
representing at least a majority of the voting power of shares entitled 
to vote on the election of directors, as proposed? Should we instead 
require a dissident to solicit the holders of shares representing at 
least a majority of the outstanding voting power? Why or why not? 
Should we instead require a dissident to solicit all shareholders? Why 
or why not? Should we consider alternative solicitation or other 
requirements for dissidents? If so, what other requirements should we 
consider? For example, should dissidents be required to make all proxy 
materials publicly accessible, free of charge, at an Internet Web site 
other than the Commission's EDGAR system?
    42. We are not proposing amendments that would require a registrant 
to solicit a certain number or percentage of shareholders when a 
solicitation in connection with a contested election is made in 
accordance with proposed Rule 14a-19 because we understand that 
currently registrants generally disseminate the proxy statement to all 
shareholders. Would mandatory universal proxy alter a registrant's 
practice of generally disseminating the proxy statement to all 
shareholders? Should we include a minimum solicitation requirement for 
registrants? If so, what should the solicitation requirement be for 
registrants?
    43. Should we include any additional requirements in the rules for 
dissidents concerning compliance with the minimum solicitation 
requirement? If so, what requirements should we include? For example, 
should we require a dissident to provide the registrant with a 
statement from the solicitor or other person with knowledge indicating 
that the dissident has taken the steps necessary to solicit

[[Page 79139]]

the holders of at least a majority of the voting power of shares 
entitled to vote on the election of directors? \135\ Why or why not?
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    \135\ See, e.g., 17 CFR 240.14a-4(c)(2)(iii) (providing for 
notification to the registrant that the proponent took the steps 
necessary to deliver proxy materials to a sufficient number of 
holders to carry the proposal.).
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    44. Would dissidents have access to sufficient information to 
determine how to meet the minimum solicitation threshold? Why or why 
not? Could proxy service providers provide sufficient information for 
dissidents to determine how to meet the minimum threshold? Why or why 
not?
    45. Under the proposed rules, a dissident could provide notice to 
the registrant pursuant to Rule 14a-19 intending to conduct a non-
exempt solicitation under Regulation 14A and later determine to instead 
proceed with an exempt solicitation in support of the nominee(s) named 
in the Rule 14a-19 notice. Should we consider preventing a dissident 
that has provided notice to a registrant pursuant to proposed Rule 14a-
19 from later relying on the exemption set forth in Rule 14a-2(b)(2) to 
solicit in support of the nominee(s) named in the Rule 14a-19 notice? 
Why or why not?
5. Dissemination of Proxy Materials
    Under current proxy rules, the soliciting parties in a contested 
election are required to provide information about their nominees in a 
proxy statement on Schedule 14A. For example, Item 7 of Schedule 14A 
requires detailed disclosure about director nominees, including their 
names, ages, business experience for the last five years, and 
involvement during the past 10 years in certain types of judicial and 
administrative proceedings.\136\ Rule 14a-5(c) permits one soliciting 
party to refer to information in the other party's proxy statement to 
satisfy its own disclosure obligations under Schedule 14A, including 
those set forth in Item 7. With universal proxies, shareholders would 
have the ability to vote for their preferred nominees among all of the 
director candidates in a contested election upon receiving one party's 
proxy materials. In these circumstances, we believe it is important 
that shareholders have the ability to access disclosure about all 
nominees for whom they are asked to make a voting decision at that 
time.
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    \136\ See 17 CFR 240.14a-101, Item 7.
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a. Dissident's Requirement To File Definitive Proxy Statement 25 
Calendar Days Prior to Meeting
    Proposed Rule 14a-19 would require a dissident in a contested 
election to file its definitive proxy statement with the Commission by 
the later of 25 calendar days prior to the meeting date or five 
calendar days after the registrant files its definitive proxy 
statement, regardless of the proxy delivery method. As proposed, the 
five calendar day deadline would be triggered if the registrant files 
its definitive proxy statement fewer than 30 calendar days prior to the 
meeting date, in which case the dissident would be required to file its 
definitive proxy statement no later than five calendar days after the 
registrant files its definitive proxy statement.
    Proposed Rule 14a-19(e) would require the registrant and the 
dissident to include all director nominees on their proxy cards.\137\ 
Because shareholders may not otherwise have access to information about 
the dissident's nominees when they receive a universal proxy card from 
the registrant, we believe requiring the dissident to file its 
definitive proxy statement by the later of 25 calendar days prior to 
the meeting or five calendar days after the registrant files its 
definitive proxy statement is appropriate to help ensure that 
shareholders who receive a universal proxy will have access to 
information about all nominees a sufficient amount of time prior to the 
meeting.\138\ We recognize, however, that some shareholders could 
receive the registrant's proxy statement and submit their votes on the 
registrant's universal proxy card before the dissident's proxy 
statement is available. We believe the 25 calendar day deadline would 
provide those shareholders with sufficient time to access the 
dissident's proxy statement, once available, and submit a later-dated 
proxy to change their votes if preferred.
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    \137\ See supra Section II.B.1.
    \138\ Since the dissident would only be required to solicit a 
majority of the voting power of shares entitled to vote on the 
election of directors, it is possible that some shareholders would 
not receive the dissident's proxy materials containing information 
about the dissident's nominees. However, as discussed in Section 
II.B.5.b infra, we are proposing to require that each party in a 
contested election include a statement in its proxy materials 
referring shareholders to the other party's proxy statement for 
information about the other party's nominees and explaining that 
shareholders can access the other party's proxy statement on the 
Commission's Web site. Because this required disclosure would be 
included in the registrant's proxy materials, which all shareholders 
would likely receive, the proposed rules would ensure that even 
those shareholders that do not receive the dissident's proxy 
materials would have access to information about the dissident's 
nominees.
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    We acknowledge that dissidents that elect full set delivery in a 
contested election are not currently subject to a filing deadline for 
their proxy statement, and thus the proposed requirement would impose a 
new filing deadline for all such dissidents.\139\ While we do not 
believe the proposed filing deadline would impose a significant 
additional burden for most dissidents, some dissidents may be required 
to prepare their proxy statements earlier than they would otherwise. 
Based on a review of the contested elections initiated in 2014 and 
2015, the staff found that dissidents filed their definitive proxy 
statement 25 or more calendar days prior to the shareholder meeting 
date in 75 percent of the contests.\140\
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    \139\ We understand from a proxy services provider that in the 
35 proxy contests from June 30, 2015 through April 15, 2016, 
dissidents sent full sets of proxy materials to each of the 
shareholders solicited. Dissidents that elect notice-only delivery 
are currently required to make their proxy statement available by 
the later of 40 calendar days prior to the meeting date or 10 
calendar days after the registrant files its definitive proxy 
statement. For such dissidents, the proposed filing deadline would 
provide five fewer days to furnish a proxy statement in cases in 
which the registrant files its definitive proxy statement within 
fewer than 30 calendar days of the meeting date, which we estimate 
occurred in 18 percent of recent contested elections. Based on the 
information provided by, and conversations with, a proxy services 
provider, we would not expect a dissident to elect notice-only 
delivery in a contested election.
    \140\ Based on staff analysis of the contested elections sample. 
See supra note 115. The data is based on 57 out of 72 identified 
proxy contests since the dissident did not file a definitive proxy 
statement in 15 cases.
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    We are not proposing to require registrants to file definitive 
proxy statements by a specified deadline, because unlike dissidents, 
registrants have an incentive to file the definitive proxy statement 
and proxy card \141\ well in advance of the meeting date to ensure 
there is sufficient time to obtain proxies from the requisite number of 
shares to achieve a quorum for the meeting. We also note that where the 
registrant nominees are incumbent directors, shareholders will have 
access to information about those nominees from prior Commission 
filings before the registrant files and disseminates its definitive 
proxy statement. In addition, we note that based on a review of the 72 
contested elections initiated in 2014 and 2015, the staff found that 
registrants filed their definitive proxy statement 25 or more calendar 
days prior to the

[[Page 79140]]

shareholder meeting date in over 95 percent of the contests.\142\
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    \141\ The definitive proxy statement, form of proxy and all 
other soliciting materials must be filed with the Commission no 
later than the date they are first sent or given to shareholders. 17 
CFR 240.14a-6(b).
    \142\ Based on staff analysis of the contested elections sample. 
See supra note 115.
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    We recognize that it is possible that a registrant would have 
prepared and disseminated its definitive proxy statement, including a 
universal proxy card, prior to the 25th calendar day before the meeting 
(i.e., the general deadline under proposed Rule 14a-19 for a dissident 
to file its definitive proxy statement with the Commission). If a 
registrant discovers after disseminating its definitive proxy statement 
with a universal proxy card that a dissident failed to file its 
definitive proxy statement 25 calendar days prior to the meeting (or 
five calendar days after the registrant files its definitive proxy 
statement),\143\ the registrant could elect to disseminate a new, non-
universal proxy card including only the names of the registrant's 
nominees. Where a dissident fails to comply with Rule 14a-19, the 
proposed rules would not permit the dissident to continue with its 
solicitation under Regulation 14A. Because a registrant may disseminate 
a universal proxy card before discovering that a dissident is not 
proceeding with its solicitation, we are proposing to require the 
registrant to include disclosure in its proxy statement advising 
shareholders how it intends to treat proxy authority granted in favor 
of a dissident's nominees in the event the dissident abandons its 
solicitation or fails to comply with Regulation 14A.\144\
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    \143\ A dissident could meet the deadline for director 
nominations under the company's governing documents and the deadline 
for providing notice to the registrant under proposed Rule 14a-19 
but fail to proceed with or later abandon its solicitation. This 
could happen for a number of reasons. For example, the dissident and 
the registrant may enter into a settlement agreement, the dissident 
may elect to discontinue its solicitation for another reason or the 
dissident may fail to comply with some aspect of proposed Rule 14a-
19.
    \144\ See proposed Item 21(c) to Schedule 14A.
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Request for Comment
    46. Should we require dissidents to file their definitive proxy 
statement by the later of the 25th calendar day before the meeting or 
five calendar days after the registrant files its definitive proxy 
statement where the registrant files its definitive proxy statement 
fewer than 30 calendar days prior to the meeting date, as proposed? Why 
or why not? Does the proposed deadline provide sufficient time before 
the meeting for shareholders who are not solicited by the dissident to 
access information about the dissident's nominees in the dissident's 
definitive proxy statement through the Commission's Web site?
    47. We are not proposing to require registrants to file definitive 
proxy statements by a specified deadline because we understand that, 
unlike dissidents, registrants have an incentive to file their 
definitive proxy statements well in advance of the meeting date to 
allow sufficient time to obtain proxies from the requisite number of 
shares to achieve a quorum for the meeting. Would mandatory universal 
proxy alter a registrant's practice regarding the timing of the filing 
of its definitive proxy statement? If so, how? Should we impose a 
definitive proxy statement filing deadline for registrants in contested 
elections? If so, what filing deadline would be appropriate for 
registrants?
b. Access to Information About All Nominees
    Under our current rules, a registrant's or dissident's proxy 
statement on Schedule 14A is generally not required to include 
information about the other party's nominees and may be disseminated 
before the other party disseminates its proxy statement. As a result, 
shareholders presented with a universal proxy card would be asked to 
vote for nominees without necessarily having access to disclosure about 
those nominees. Mindful of the potential lack of information upon which 
shareholders may make a voting decision in such circumstances, we have 
considered how and from whom shareholders should receive information 
about the other party's nominees when faced with a voting decision in a 
contested election subject to mandatory universal proxy.
    We believe that each party should provide the information required 
by Schedule 14A for its nominees in its proxy materials as is done 
today. We also believe that Rule 14a-5(c) should continue to operate to 
permit parties to refer to the other party's proxy statement to satisfy 
its disclosure obligations about the other party's nominees. We are 
proposing changes to the proxy rules to require dissidents in a 
contested election to file a definitive proxy statement by the later of 
25 calendar days prior to the meeting date or five calendar days after 
the registrant files its definitive proxy statement and to solicit at 
least a majority of the voting power of shares entitled to vote on the 
election of directors.\145\ Since the dissident would not be required 
to solicit all shareholders, it is possible that some shareholders 
would not receive the dissident's proxy materials containing 
information about the dissident's nominees. As a result, we are 
proposing a new Item 7(h) of Schedule 14A to require that each party in 
a contested election refer shareholders to the other party's proxy 
statement for information about the other party's nominees and explain 
that shareholders can access the other party's proxy statement for free 
on the Commission's Web site. Because this required disclosure would be 
included in the registrant's proxy materials, which all shareholders 
would likely receive, even those shareholders that do not receive the 
dissident's proxy materials would have access to information about the 
dissident's nominees. We are also proposing to revise Rule 14a-5(c) to 
permit the parties to refer to information that would be furnished in a 
filing of the other party to satisfy their disclosure obligations.\146\ 
Taken together, these proposed changes are intended to enable 
shareholders to access information with respect to all nominees when 
they receive a universal proxy card.
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    \145\ See supra Sections II.B.4 and II.B.5.a.
    \146\ Currently, Rule 14a-5(c) permits parties to refer to 
information that has already been furnished in a filing of another 
party. We recognize one concern with permitting a future filing to 
satisfy a disclosure obligation is that it is possible that the 
information to be provided in the future filing would never be made 
available to shareholders. However, the definitive proxy statement 
filing deadline for dissidents in proposed Rule 14a-19 and the 
practical considerations that incentivize registrants to file their 
definitive proxy statements well in advance of the meeting date 
should help ensure that appropriate information about both parties' 
nominees is available to shareholders in a timely manner.
---------------------------------------------------------------------------

    We are also proposing changes to the definition of ``participant'' 
in Instruction 3 to Items 4 and 5 of Schedule 14A. Currently, 
Instruction 3(a)(ii) to Items 4 and 5 of Schedule 14A provides that any 
director nominee ``for whose election as a director proxies are 
solicited'' is a ``participant'' for purposes of the disclosure 
requirements of Schedule 14A. Without a revision, the Instruction would 
require that the nominees on a universal proxy card be considered 
``participants'' in the opposing party's solicitation. As proposed, 
revised Instruction 3 would define ``participant'' separately for 
solicitations made by registrants and solicitations made by dissidents. 
As a result, even though all nominees would be included on the form of 
proxy, only the party's nominees would be considered ``participants'' 
in that party's solicitation.
    We are proposing this change because Item 5 of Schedule 14A 
requires specific disclosure about all ``participants'' in a contested 
election, including information about the existence of a criminal 
record, employment history, and securities holdings, information

[[Page 79141]]

which the opposing party in a proxy contest is unlikely to have. In 
addition, revising the definition of ``participant'' as proposed may 
help avoid the implication that nominees are responsible for 
information contained in the opposing party's proxy materials.
Request for Comment
    48. Should we adopt proposed Item 7(h) of Regulation 14A to require 
that each soliciting person in a contested election refer shareholders 
to the other party's proxy statement for information about the other 
party's nominees and explain that shareholders can access the other 
party's proxy statement for free on the Commission's Web site, as 
proposed? Is this statement sufficient to inform shareholders how to 
access information about the parties' nominees such that shareholders 
can make an informed voting decision when they have only received a 
proxy statement and universal proxy card from one party? Should we 
require any additional information, such as instructions as to how to 
access proxy statements on the Commission's Web site or a hyperlink to 
that Web site?
    49. Should we amend Rule 14a-5(c) to permit soliciting parties to 
refer to information that would be furnished in a filing of another 
soliciting party in order to satisfy their disclosure obligations, as 
proposed? Should we limit the ability to refer to a future filing of 
another soliciting person to solicitations in connection with contested 
elections?
    50. Should we amend Instruction 3 to define ``participant,'' as 
proposed? Are there additional categories of people that should be 
included in the definition of ``participant'' for registrants or 
dissidents? Would the amendment to Instruction 3, as proposed, make it 
sufficiently clear that nominees are not responsible for information 
contained in the opposing party's proxy materials? Are there other 
steps we should take to make this clear?
6. Form of the Universal Proxy
    We are proposing the use of separate universal proxy cards in which 
each party in a contested election distributes its own proxy card that 
includes the names of both parties' nominees and designates its own 
representatives as proxy holders to exercise the vote pursuant to the 
proxy.\147\ The use of separate proxy cards would not represent a 
change from how proxies are solicited in contested elections today. We 
are proposing to retain this aspect of the proxy rules and process 
because we believe parties prefer to design their own proxy cards 
(subject to the proposed presentation and formatting requirements in 
proposed Rule 14a-19) in a manner they deem appropriate. Additionally, 
separate proxy cards also give each party control over the 
dissemination of its proxy card and insight into the preliminary 
results of the solicitation before the meeting.\148\ Finally, 
permitting each party to control its own proxies avoids empowering only 
one party to exercise discretionary authority on those matters for 
which a choice is not specified and on any of the matters specified in 
Rule 14a-4(c).\149\ The proposed presentation and formatting 
requirements would require that universal proxy cards provide clear 
instructions to permit shareholders to effectively vote their shares 
for the director nominees they prefer through the proxy process and to 
help ensure that proxies are exercised in accordance with the choices 
specified by the shareholders on the proxy cards.
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    \147\ The Rulemaking Petition recommended that we preserve the 
current practice of each party circulating its own proxy card and 
proxy statement. See supra note 45.
    \148\ When each party disseminates its own proxy card, each 
party has insight into the preliminary results of the solicitation 
prior to the meeting, as each party is in possession of the proxies 
it has received from shareholders solicited.
    \149\ Discretionary voting authority may be conferred under Rule 
14a-4(c) for certain ministerial acts such as approving the minutes 
of a prior meeting, voting on certain shareholder proposals unknown 
to the registrant before circulation of the proxy statement, and 
voting on shareholder proposals properly omitted from the proxy 
statement.
---------------------------------------------------------------------------

    Rule 14a-4 governs the form of the proxy card and requires, among 
other things, that the proxy card:
     Indicate in bold-face type whether or not it is solicited 
on behalf of the registrant's board of directors or, if solicited on 
behalf of some other person, the identity of such person; \150\
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    \150\ See 17 CFR 240.14a-4(a)(1).
---------------------------------------------------------------------------

     provide a basis for shareholders to instruct separately 
\151\ and with specificity how the proxy holders must vote on the 
election of directors \152\ and on non-election proposals; \153\ and
---------------------------------------------------------------------------

    \151\ See 17 CFR 240.14a-4(a)(3).
    \152\ See 17 CFR 240.14a-4(b)(2)
    \153\ See 17 CFR 240.14a-4(b)(1).
---------------------------------------------------------------------------

     if providing for the election of directors, set forth the 
names of the nominees \154\ and permit shareholders to withhold voting 
authority from each nominee.\155\
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    \154\ See supra Section II.A and discussion of the bona fide 
nominee rule for an explanation as to why the named nominees rarely 
include the dissident nominees.
    \155\ See 17 CFR 240.14a-4(b)(2).

The proxy card may confer discretionary proxy voting authority on 
matters as to which the shareholder does not specify a choice provided 
that the card states in bold-face type how the proxy holder intends to 
vote the shares represented by the proxy in each such case.\156\ The 
proxy card may also confer discretionary proxy voting authority on 
matters not included on the registrant's proxy card.\157\
---------------------------------------------------------------------------

    \156\ See 17 CFR 240.14a-4(b)(1).
    \157\ See 17 CFR 240.14a-4(c).
---------------------------------------------------------------------------

    To help ensure that universal proxies clearly and fairly present 
information so that shareholders can effectively exercise their voting 
rights, proposed Rule 14a-19(e) would include the following 
presentation and formatting requirements for all universal proxy cards 
used in contested elections:
     The proxy card must clearly distinguish between registrant 
nominees, dissident nominees, and any proxy access nominees; \158\
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    \158\ See proposed Rule 14a-19(e)(3).
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     Within each group of nominees, the nominees must be listed 
in alphabetical order by last name on the proxy card; \159\
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    \159\ See proposed Rule 14a-19(e)(4). Although the order must be 
alphabetical by last name, the format need not be last name first.
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     The same font type, style and size must be used to present 
all nominees on the proxy card; \160\
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    \160\ See proposed Rule 14a-19(e)(5).
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     The proxy card must prominently disclose the maximum 
number of nominees for which authority to vote can be granted; \161\ 
and
---------------------------------------------------------------------------

    \161\ See proposed Rule 14a-19(e)(6).
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     The proxy card must prominently disclose the treatment and 
effect of a proxy executed in a manner that grants authority to vote 
for more nominees than the number of directors being elected, in a 
manner that grants authority to vote for fewer nominees than the number 
of directors being elected, or in a manner that does not grant 
authority to vote with respect to any nominees.\162\
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    \162\ See proposed Rule 14a-19(e)(7). The requirements we are 
proposing would not limit a party's ability to include its voting 
recommendation with respect to some or all of the nominees on the 
proxy card. Any such language would, however, be subject to Rule 
14a-9.

Where both parties have proposed a full slate of nominees and there are 
no proxy access nominees, we are also proposing that the proxy card may 
provide the ability to vote for all dissident nominees as a group and 
all registrant nominees as a group.\163\ Where proxy access nominees 
will be included on the proxy card or where a dissident or a registrant 
is proposing a partial slate, neither

[[Page 79142]]

proxy card would be permitted to provide the option to vote for any 
nominees as a group.\164\ When there are proxy access nominees included 
on the card, we believe it is not appropriate to provide the ability to 
vote for nominees as a group because it may make it easier to vote for 
all registrant nominees or for all dissident nominees than to vote for 
the proxy access nominee in addition to some registrant or some 
dissident nominees.\165\ When the dissident or the registrant is 
nominating anything less than a full slate of candidates, we also 
believe it is not appropriate to provide the ability to vote for 
nominees as a group because providing the ability to vote for a partial 
slate of nominees as a group could result in shareholders inadvertently 
voting for less than the number of seats up for election or in possible 
over voting. Finally, proposed Rule 14a-19 would require that universal 
proxy cards provide a means for shareholders to grant authority to vote 
``for'' the nominees set forth on the card.\166\
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    \163\ See proposed Rule 14a-19(f). We anticipate, and the 
proposed rules would not prohibit, that registrants and dissidents 
will continue the practice of distinguishing their respective proxy 
cards by distributing them with a distinctive color.
    \164\ See proposed Rule 14a-19(f).
    \165\ See also Facilitating Shareholder Director Nominations, 
Release No. 33-9046 (June 10, 2009)[74 FR 29024 (June 18, 2009)] at 
29049 (proposing the group voting provision in Rule 14a-4(b) and 
stating that providing shareholders with the option to vote for the 
registrant's nominees as a group where the registrant's proxy card 
includes shareholder nominees ``would not be appropriate . . . as 
grouping the company's nominees may make it easier to vote for all 
of the company's nominees than to vote for the shareholder nominees 
in addition to some of the company nominees.''); Facilitating 
Shareholder Director Nominations, Release No. 33-9136 (Aug. 25, 
2010) [75 FR 56668 (Sept. 16, 2010)] at 56724 (indicating that doing 
so ``would result in an advantage to the management nominees and 
would be inconsistent with an impartial approach'').
    \166\ See proposed Rule 14a-19(e)(2). Currently, Rule 14a-4(b) 
does not require that a soliciting person include a means to vote 
``for'' director nominees on the proxy card.
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    A proxy card must present the names so that shareholders are able 
to distinguish the registrant's and the dissident's nominees on the 
face of the proxy card. For example, a proxy card could list each 
party's nominees in a separate column. In that circumstance, a proxy 
access nominee also would have to be clearly distinguished, such as by 
listing in a separate column. Similarly, if multiple dissidents are 
soliciting proxies in support of separate slates of director nominees, 
each slate must be clearly distinguished, such as by having its own 
designated column. While we are proposing to require that the nominees 
are clearly distinguished, we are not proposing to direct where to 
place the groups of nominees on the card or to prohibit the parties 
from listing their group of nominees first.
    We considered providing more flexibility in the proposed rule about 
font type, style and size and the order in which nominees should be 
listed. However, we were concerned that without specific guidance, some 
presentations of nominees on a universal proxy card could be confusing 
or misleading. We also are sensitive to concerns that have been raised 
about the possibility that a universal proxy card would cause 
shareholders to be confused as to whether a particular nominee supports 
the opposing party.\167\ In order to address these concerns, we are 
proposing certain limitations on the presentation and format of the 
card and requiring that certain information be prominently disclosed.
---------------------------------------------------------------------------

    \167\ See Short Slate Rule Adopting Release, at 48288.
---------------------------------------------------------------------------

    We considered proposing that the registrant distribute a single 
universal proxy card that would include the names of the registrant's 
nominees and the dissident's nominees, as well as all other proposals 
to be considered at the meeting. However, a single universal proxy card 
would grant proxy authority solely to representatives designated by the 
registrant. While a single universal proxy card could result in a more 
streamlined and potentially less confusing process, a universal proxy 
card solely in the control of the registrant could potentially provide 
the registrant with an advantage over procedural issues surrounding the 
vote.\168\ Additionally, the distribution of a proxy statement by a 
dissident without an associated proxy card could place the dissident at 
a disadvantage.
---------------------------------------------------------------------------

    \168\ Rule 14a-4(e) provides that the proxy statement or form of 
proxy shall provide that the shares represented by the proxy will be 
voted in accordance with the specifications made by the person 
solicited. As a result of the grant of proxy authority, the 
registrant-designated proxy holders would be entitled to exercise 
any discretionary authority conferred with respect to matters for 
which a choice is not specified by the shareholders pursuant to Rule 
14a-4(b)(1) and with respect to the matters specified in Rule 14a-
4(c).
---------------------------------------------------------------------------

    Finally, we considered proposing that the registrant and dissident 
distribute an identical card, with the only difference being the 
persons given proxy authority on the card. An identical card providing 
proxy authority to different parties could be confusing to 
shareholders, who might think it did not matter which card was signed 
and returned. Additionally, the practical issue of having a dissident 
and a registrant agree on the presentation of nominees on a single card 
could make this alternative problematic. For example, the parties may 
disagree on whose nominees should be listed first. This disagreement 
could be addressed by simply requiring that all nominees be placed in 
alphabetical order, but that approach would make it more difficult for 
a shareholder who wished to vote for the entire slate of one party. 
Based on these considerations, we determined to propose the use of 
separate universal proxy cards subject to the additional proposed rules 
on the form of proxy discussed above.
Request for Comment
    51. We are proposing presentation and formatting requirements for 
all universal proxy cards used in contested elections, including 
requiring that the card clearly distinguish between registrant, 
dissident and proxy access nominees, that such nominees be listed 
alphabetically by last name, and that the same font type, style and 
size be used. Are these requirements for the proxy card appropriate or 
should we permit greater flexibility for parties to tailor the format 
of the card as they choose? Should we impose additional presentation 
and formatting requirements, such as requiring that nominees be grouped 
in columns to more clearly distinguish between groups of nominees? Is 
it sufficient to simply require that the proxy card clearly distinguish 
between nominees without specifying additional requirements? Should we 
permit, within the proposed categories of nominees, further sub-
categorization of nominees?
    52. Should we require that nominees be listed alphabetically by 
last name, as proposed? Why or why not? Should we instead permit or 
require nominees to be listed in a random order within the groups of 
nominees? Should we instead permit or require the parties to specify in 
their notice of nominees to the other party how they prefer their own 
nominees to be listed within their group of nominees?
    53. Should we require that the proxy card prominently disclose the 
maximum number of nominees that can be voted upon and the effect of 
over-voting or under-voting, as proposed? Is this disclosure sufficient 
for shareholders to understand the implications? How else can we 
address these issues, including mitigating any risk of over-voting with 
universal proxies?
    54. Should the universal proxy card provide the ability for a 
shareholder to vote for all of a soliciting person's nominees as a 
group only where both parties have proposed a full slate of nominees, 
as proposed? Should group voting be permitted where one party has 
proposed a partial slate? Should we additionally permit group voting 
where a shareholder director nominee is

[[Page 79143]]

included in the registrant's proxy material pursuant to proxy access 
provisions in the registrant's governing documents or applicable state 
or foreign law? Would group voting in such circumstances create an 
unfair advantage for the registrant or other party providing a full 
slate?
    55. Could the use of a universal proxy card lead to shareholder 
confusion? If so, do the proposed formatting requirements help to 
reduce any shareholder confusion? Are there other requirements the 
proxy rules should include or other steps we should take to help reduce 
such confusion?
    56. Are there any concerns with the ability of proxy service 
providers to effectively implement the choices made on universal 
proxies? Are there any concerns with the ability of proxy service 
providers to prepare and distribute universal proxy cards or the 
associated voting instruction forms? For example, would the proposed 
rules lengthen proxy cards in contested elections such that placing all 
nominees on one card would be impracticable? Are there ways that our 
proxy rules can address such concerns? For example, should the proxy 
rules require that director nominees be listed in columns on universal 
proxies?
    57. Should the proposed rules be more prescriptive? For example, 
should we require both parties' universal proxy cards to be mirror 
images of each other, except for the individuals to whom proxy 
authority is granted?
    58. Should we instead mandate the use of a single universal proxy 
card? If so, who should be responsible for compiling and disseminating 
the single proxy card?
    59. Under the current proxy rules, each party in a contested 
election determines whether and how to include the other party's non-
election proposal(s) on its proxy card and the proposed amendments 
would not change this practice. Should we make any changes in how 
matters other than the election of directors are presented on a 
universal proxy card? For example, should the revised rules address how 
shareholder proposals and other matters to be voted on at the meeting 
should be presented on a universal proxy card as well? If a universal 
proxy card is used for the election of directors, should the parties be 
permitted to exclude other proposals to be voted on at the meeting?
    60. Would it be helpful if we included a sample universal proxy 
card in the adopting release? Why or why not?
7. Timing of Universal Proxy Solicitation Process
    The timing of the process for soliciting universal proxies 
generally would operate as follows:

------------------------------------------------------------------------
                Due date                         Action required
------------------------------------------------------------------------
No later than 60 calendar days before    Dissident must provide notice
 the anniversary of the previous year's   to the registrant of its
 annual meeting date or, if the           intent to solicit the holders
 registrant did not hold an annual        of at least a majority of the
 meeting during the previous year, or     voting power of shares
 if the date of the meeting has changed   entitled to vote on the
 by more than 30 calendar days from the   election of directors in
 previous year, by the later of 60        support of director nominees
 calendar days prior to the date of the   other than the registrant's
 annual meeting or the tenth calendar     nominees and include the names
 day following the day on which public    of those nominees.
 announcement of the date of the annual
 meeting is first made by the
 registrant. [proposed Rule 14a-
 19(b)(1)].
No later than 50 calendar days before    Registrant must notify the
 the anniversary of the previous year's   dissident of the names of the
 annual meeting date or, if the           registrant's nominees.
 registrant did not hold an annual
 meeting during the previous year, or
 if the date of the meeting has changed
 by more than 30 calendar days from the
 previous year, no later than 50
 calendar days prior to the date of the
 annual meeting. [proposed Rule 14a-
 19(d)].
No later than 20 business days before    Registrant must conduct broker
 the record date for the meeting.         searches to determine the
 [current Rule 14a-13].                   number of copies of proxy
                                          materials necessary to supply
                                          such material to beneficial
                                          owners.
By the later of 25 calendar days before  Dissident must file its
 the meeting date or five calendar days   definitive proxy statement
 after the registrant files its           with the Commission.
 definitive proxy statement. [proposed
 Rule 14a-19(a)(2)].
------------------------------------------------------------------------

C. Additional Revisions

1. Director Election Voting Standards Disclosure and Voting Options
    We are proposing additional amendments to the form of proxy and 
disclosure requirements with respect to voting options and voting 
standards that would apply to all director elections.\169\ First, we 
are proposing to amend Rule 14a-4(b) to: (1) Mandate the inclusion of 
an ``against'' voting option in lieu of a ``withhold authority to 
vote'' option on the form of proxy for the election of directors where 
there is a legal effect to such a vote; and (2) provide shareholders 
that neither support nor oppose a director nominee an opportunity to 
``abstain'' (rather than ``withhold authority to vote'') in a director 
election governed by a majority voting standard.\170\ Second, we are 
proposing amendments to Item 21(b) of Schedule 14A to expressly require 
the disclosure of the effect of a ``withhold'' vote.
---------------------------------------------------------------------------

    \169\ The proposed amendments to the form of proxy and 
disclosure requirements with respect to voting options discussed in 
this section would apply to funds and BDCs.
    \170\ See proposed Rule 14a-4(b)(4).
---------------------------------------------------------------------------

    The voting standard for director elections is established under 
state law and a registrant's governing documents. Director nominees are 
generally elected under either a plurality voting standard or a 
majority voting standard. Under the plurality voting standard, the 
director nominee receiving the highest number of votes for a given seat 
is elected. As a result, a director nominee in an uncontested election 
only needs a single vote in favor of his or her election to be elected. 
In recent years, however, many public companies have moved toward two 
other voting standards in director elections--``plurality plus'' and 
majority voting.\171\ Under a ``plurality plus'' voting standard, an 
incumbent director agrees in advance to resign if he or she receives 
more votes withheld than votes in favor of his or her re-election. The 
remaining directors then determine, in

[[Page 79144]]

their discretion, whether to accept or reject an incumbent director's 
resignation. Under a majority voting standard, director nominees are 
elected only if, depending on the specific version of the standard used 
by the registrant, they receive affirmative votes from: (i) A majority 
of the votes cast; or (ii) a majority of shares present and entitled to 
vote.\172\
---------------------------------------------------------------------------

    \171\ See, e.g., Institutional Shareholder Services, Preliminary 
2015 U.S. Postseason Review, at 4 (July 30, 2015), available at 
http://www.issgovernance.com/file/publications/1_preliminary-2015-proxy-season-review-united-states.pdf (noting that only seven 
percent of S&P 500 firms had a majority voting standard in 2004, as 
compared to almost 90 percent of S&P 500 firms having a majority 
voting standard for uncontested director elections in 2015).
    \172\ Companies often couple the use of a majority voting 
standard with a director resignation policy to address the 
``holdover'' director rule found in state law. Under that rule, an 
incumbent director who does not receive the requisite votes may 
remain in office until the earlier of the successor's election or 
the incumbent director's resignation or removal. See e.g., Del. Code 
Ann. tit. 8, Sec.  141(b).
---------------------------------------------------------------------------

    While the federal proxy rules do not govern the voting standard 
used in director elections, they do set forth the requirements for the 
form of proxy used in the election and the disclosure of the voting 
procedures for the election. Notably, Rule 14a-4(b)(2) requires the 
form of proxy to provide a means to withhold authority to vote for each 
nominee. Accordingly, the voting options under a plurality voting 
standard are ``for'' and ``withhold,'' with no ``against'' voting 
option. If applicable state law gives legal effect to votes cast 
against a director nominee (i.e., under a majority voting standard), 
then the rule currently provides that the registrant should provide a 
means for shareholders to vote against a nominee ``in lieu of, or in 
addition to,'' providing a means to withhold authority to vote. Item 
21(b) of Schedule 14A currently calls for disclosure of the ``method'' 
by which votes will be counted, including ``the treatment and effect of 
abstentions and broker non-votes'' \173\ under applicable state law and 
the registrant's governing documents.\174\
---------------------------------------------------------------------------

    \173\ A ``broker non-vote'' occurs when a broker, bank, or 
another intermediary holding shares in ``street name'' for a client 
returns a proxy card, but provides no instructions as to how the 
shares should be voted on a particular matter due to the lack of 
voting instructions from the client and the inability to exercise 
discretionary voting authority on the matter.
    \174\ See 17 CFR 240.14a-101, Item 21(b).
---------------------------------------------------------------------------

    Recently, the Commission became aware of concerns that some company 
proxy statements had ambiguities and inaccuracies in their disclosures 
about voting standards in director elections.\175\ In light of these 
concerns, staff in the Division of Corporation Finance and the Division 
of Economic and Risk Analysis assessed the proxy statement voting 
standard disclosure provided by a broad set of companies. The staff 
found some ambiguities or inaccuracies, including:
---------------------------------------------------------------------------

    \175\ The Commission received two rulemaking petitions in which, 
among other things, the petitioners expressed concerns about the 
voting options in director elections and suggested that the 
Commission revise Rule 14a-4(b)(2) to reflect the growing use of 
majority voting standards in director elections. See Letter from 
United Brotherhood of Carpenters and Joiners of America (Mar. 10, 
2015), available at https://www.sec.gov/rules/petitions/2015/petn4-630-supp.pdf (``Carpenters letter''); Letter from the Council of 
Institutional Investors (June 12, 2015), available at https://www.sec.gov/rules/petitions/2015/petn4-686.pdf (``CII letter'').
---------------------------------------------------------------------------

     The failure to include an ``against'' option on the form 
of proxy when a majority voting standard is used;
     the mistaken use of the ``against'' option on a form of 
proxy when there was a plurality voting standard, where the only 
appropriate alternative for voting was ``withhold''; and
     incorrect statements that ``withhold'' votes are counted 
in determining election outcomes.
    In light of these observations, we are proposing to amend Rule 14a-
4(b) to mandate the inclusion of an ``against'' voting option on the 
form of proxy used in elections where such votes have a legal 
effect.\176\ Under the proposal, if state law gives legal effect to 
votes cast against a nominee (which is the case under a majority voting 
standard), the form of proxy must include the options to vote 
``against'' the nominee and to ``abstain'' from voting. As these voting 
options would be ``in lieu'' of a ``withhold'' voting option, the 
proposed amendment would eliminate the current ability to provide a 
``withhold'' voting option on the form of proxy when an ``against'' 
vote has legal effect. Further, we are proposing to amend Item 21(b) of 
Schedule 14A so that it expressly requires disclosure in the proxy 
statement about the treatment and effect of a ``withhold'' vote in a 
director election. We believe that these proposed changes, if adopted, 
would provide shareholders with a better understanding of the effect of 
their ``withhold'' votes on the outcome of the election. In addition, 
some have recommended that the Commission amend Rule 14a-4(b)(2) to 
eliminate the ``withhold'' option under a plurality voting standard and 
replace it with an ``abstain'' option so that shareholders are aware 
that such votes do not legally affect the outcome of the election.\177\ 
While we are not proposing such a change, we are soliciting comment on 
this recommendation.
---------------------------------------------------------------------------

    \176\ See proposed Rule 14a-4(b)(4).
    \177\ See Carpenters letter, supra note 175.
---------------------------------------------------------------------------

    Finally, we are proposing to delete the phrase ``the method by 
which votes will be counted'' from Item 21(b) of Schedule 14A. In light 
of the existing language contained in the Item, combined with the 
proposed amendment discussed above, we believe such phrase would be 
superfluous as the effect and treatment of all the possible voting 
options presented to shareholders for each matter would be disclosed in 
the proxy statement. However, we are soliciting comment as to whether 
such language is still needed for a specific purpose or scenario not 
covered by the proposed changes to Item 21(b).
Request for Comment
    61. We are proposing to amend Rule 14a-4(b) to require the form of 
proxy for a director election governed by a majority voting standard to 
include a means for shareholders to vote ``against'' each nominee and a 
means for shareholders to ``abstain'' from voting in lieu of providing 
a means to ``withhold authority to vote.'' Should we eliminate the 
``withhold'' voting option under a majority voting standard for 
director elections, as proposed? Should we eliminate the ``withhold'' 
voting option for contested elections subject to proposed Rule 14a-19 
(i.e., where universal proxies are required)? Why or why not? If we do 
not adopt a mandatory system for universal proxies, as proposed, should 
we prohibit the ``withhold'' voting option for contested elections? Why 
or why not?
    62. Some commenters have expressed concerns that shareholders may 
not understand that a ``withhold'' vote has no legal effect under a 
plurality voting standard. Should the Commission replace the 
``withhold'' voting option under a plurality voting standard with 
``abstain?'' Do parties view an ``abstention'' differently than a 
``withhold'' vote? Is there any relevant legal effect under state law 
of an abstention as compared to a vote withholding proxy authority when 
directors are elected by plurality vote? Would there be other 
consequences under state law or a registrant's governing documents if 
we were to implement such a change (e.g., would this change affect 
quorum requirements)?
    63. We are proposing to delete the phrase ``the method by which 
votes will be counted'' from Item 21 of Schedule 14A. Is the language 
needed for a specific purpose or scenario that is not covered by the 
proposed amendment to Item 21(b)? Is there any other reason to retain 
it?

D. Investment Companies

    Investment companies registered under Section 8 of the Investment 
Company Act of 1940 (``funds'') and business development companies 
(``BDCs'') \178\ are typically organized as

[[Page 79145]]

trusts, corporations or limited partnerships under state laws, and like 
operating companies, have boards of directors that are elected by 
shareholders.\179\ Although these entities are subject to the federal 
proxy rules,\180\ the amendments that we are proposing today relating 
to the use of a universal proxy would not apply to funds and BDCs. 
Rather, funds and BDCs would remain subject to the federal proxy rules 
currently in effect.\181\
---------------------------------------------------------------------------

    \178\ BDCs are a category of closed-end investment companies 
that are not registered under the Investment Company Act, but are 
subject to certain provisions of that Act. See Sections 2(a)(48) and 
54-65 of the Investment Company Act.
    \179\ In addition to state law provisions applicable to funds, 
BDCs and operating companies, the Investment Company Act provides a 
number of requirements with respect to the election, composition, 
and duties of a fund's and BDC's board of directors. For example, 
Section 16(a) provides that at least a majority of a fund's board 
must have been elected by shareholders at any given time and that 
existing directors may fill a vacancy without calling a 
shareholders' meeting, provided that immediately after the vacancy 
is filled at least two-thirds of the directors have been elected by 
shareholders. See also Sections 10(a) and 56(a) of the Investment 
Company Act (requiring at least 40 percent of a fund's (and a 
majority of a BDC's) board to not be ``interested persons'' as such 
term is defined in Section 2(a)(19) of the Investment Company Act).
    \180\ Funds are required to comply with the proxy rules under 
the Exchange Act when soliciting proxies, including proxies relating 
to the election of directors. See 17 CFR 270.20a-1 (requiring funds 
to comply with regulations adopted pursuant to Section 14(a) of the 
Exchange Act that would be applicable to a proxy solicitation if it 
were made in respect of a security registered pursuant to Section 12 
of the Exchange Act). See also Section 20(a) of the Investment 
Company Act. BDCs are subject to the federal proxy rules because 
such companies have a class of securities registered under Section 
12 of Exchange Act. See Section 14(a) of the Exchange Act and 
Section 54(a) of the Investment Company Act.
    \181\ For purposes of the rules that apply to funds and BDCs, 
the definition of a bona fide nominee and the short slate rule in 
current Rule 14a-4(d)(4) would be retained in proposed Rule 14a-
4(d)(1)(ii).
---------------------------------------------------------------------------

    Based upon information available to us, shareholders generally have 
not sought split-ticket voting in contested elections involving funds 
and BDCs.\182\ Most investment companies are structured as open-end 
management investment companies, or ``open-end funds,''\183\ and 
contested elections at open-end funds are rare.\184\ Open-end funds are 
generally not required to hold annual shareholder meetings pursuant to 
the state laws under which they are organized.\185\ Furthermore, there 
is no opportunity to potentially profit from a difference in the market 
price of open-end fund shares and net asset value (``NAV'') because 
open-end fund shares (other than those issued by exchange-traded funds) 
are not traded (i.e., there is no market price) and may be redeemed at 
NAV.\186\ Shares issued by exchange-traded funds organized as open-end 
funds generally trade at or near NAV due to the arbitrage activities of 
market participants.\187\
---------------------------------------------------------------------------

    \182\ We note that to date only operating company shareholders, 
and not fund or BDC shareholders, have called for the use of a 
universal proxy. See supra Section I.C. (describing recent feedback 
regarding the proxy voting process, particularly the Rulemaking 
Petition and Commission roundtable). As we discuss below in the 
Economic Analysis, staff is not aware of any director election 
contests involving open-end management investment companies since 
the year 2000. Of the 11 director election contests identified by 
staff that involved closed-end management investment companies and 
BDCs in calendar years 2014 and 2015, 10 involved dissidents who 
sought a majority of the board or ran a full slate of nominees, 
while the remaining contest was a short-slate contest. See infra 
Section IV, notes 366-367 and accompanying text.
    \183\ At the end of 2015, over 98 percent of investment company 
aggregate net assets were held by mutual funds and exchange-traded 
funds (``ETFs''), the two predominant forms of open-end funds. See 
Investment Company Institute, 2016 Investment Company Institute Fact 
Book, at 9, Fig. 1.1 (56th ed. 2016) (``2016 ICI Fact Book''), 
available at https://www.ici.org/pdf/2016_factbook.pdf. An open-end 
management investment company is an investment company, other than a 
unit investment trust or face-amount certificate company, that 
offers for sale or has outstanding any redeemable security of which 
it is the issuer. See Sections 4 and 5(a)(1) of the Investment 
Company Act.
    \184\ See supra note 182.
    \185\ The three most common forms of organization for investment 
companies are Delaware statutory trusts, Massachusetts business 
trusts, and Maryland corporations. See 2016 ICI Fact Book, at 246, 
Fig. A.1 (finding that 91 percent of mutual funds use one of these 
three forms of organization). The respective Delaware and Maryland 
state statutes, and Massachusetts common law relating to business 
trusts, do not require annual shareholder meetings. See, e.g., 
Delaware Statutory Trust Act, Del. Code Ann. title 12, Sec. Sec.  
3801-3826.
    \186\ See Section 2(a)(32) of the Investment Company Act 
(defining ``redeemable security'' as ``any security, other than 
short-term paper, under the terms of which the holder, upon its 
presentation to the issuer or to a person designated by the issuer, 
is entitled (whether absolutely or only out of surplus) to receive 
approximately his proportionate share of the issuer's current net 
assets, or the cash equivalent thereof'').
    \187\ These market participants include authorized participants, 
market makers and institutional investors.
---------------------------------------------------------------------------

    Registered closed-end management investment companies (``closed-end 
funds'') \188\ and BDCs, on the other hand, are typically required by 
the rules of the securities exchanges on which their shares are listed 
to hold annual shareholder meetings.\189\ Contested director elections 
are more common for exchange-listed closed-end funds and BDCs (compared 
to open-end funds) because their shares often trade at prices that are 
less than, or at a ``discount'' to, the fund or BDC's NAV per share, 
thereby providing an incentive for dissidents to pursue actions that 
reduce or eliminate this difference.\190\ Historically, dissidents in 
election contests for exchange-listed closed-end funds and BDCs 
generally have not sought split-ticket voting.\191\ Instead, they have 
sought to reduce or eliminate the discount to NAV either by gaining 
control of the board of directors or terminating the fund's advisory 
contract and subsequently replacing the fund's investment adviser.\192\
---------------------------------------------------------------------------

    \188\ A closed-end management investment company is a management 
company other than an open-end management company. See Sections 4 
and 5(a)(2) of the Investment Company Act.
    \189\ See, e.g., NYSE Listed Company Manual Sec.  302.00, 
available at http://nysemanual.nyse.com/LCM/Sections/.
    \190\ See Matthew E. Souther, The Effects of Takeover Defenses: 
Evidence from Closed-End Funds, J. of Fin. Econ., at 4 
(forthcoming), available at http://ssrn.com/abstract=2729874 
(discussing recent closed-end fund proxy contests); Michael Bradley 
et al., Activist Arbitrage: A Study of Open-Ending Attempts of 
Closed-End Funds, 95 J. Fin. Econ. 1, 2 (2010).
    \191\ See supra note 182.
    \192\ A dissident can profit from the discount if the fund or 
BDC is converted to an open-end format or liquidated, or if the fund 
or BDC purchases the dissident's shares at a price equal to or near 
NAV.
---------------------------------------------------------------------------

    The Investment Company Act supplements state law by providing 
specific rights to shareholders to approve certain fundamental features 
of the fund, which also could impact shareholders' current use of 
split-ticket voting and the potential impact of the proposed amendments 
if required for funds and BDCs. For example, the Investment Company Act 
requires that shareholders approve certain operational matters relating 
to funds and BDCs.\193\ Shareholders of funds and BDCs also must 
approve advisory contracts and material amendments to such 
contracts,\194\ and ratify or reject the

[[Page 79146]]

selection of the independent public accountant.\195\
---------------------------------------------------------------------------

    \193\ Fund shareholders are required to approve: (1) A change to 
the fund's sub-classification as an open-end or closed-end fund, or 
a change from a diversified company to a non-diversified company; 
(2) a change in policies contained in the registration statement 
related to borrowing money, issuing senior securities, underwriting 
securities issued by other persons, purchasing or selling real 
estate or commodities or making loans to other persons, except in 
accordance with the policy in its registration statement; (3) a 
deviation from a stated policy with respect to concentration of 
investments in an industry or industries, from any investment policy 
which is changeable only by shareholder vote, or from any stated 
fundamental policy pursuant to Section 8(b)(3) of the Investment 
Company Act; and (4) a change in the nature of the fund's business 
so as to cease to be an investment company. See Sections 8(b)(3) and 
13(a) of the Investment Company Act. BDC shareholders are required 
to approve a change in the nature of the BDC's business that would 
cause it to cease to be, or withdraw its election as, a BDC. See 
Section 58 of the Investment Company Act. In addition, a BDC may 
issue shares priced below NAV if such sale is approved by both 
holders of a majority of its voting securities and holders of a 
majority of its voting securities who are not affiliated persons of 
the BDC. See Section 63(2) of the Investment Company Act.
    \194\ See Sections 15(a) and 59 of the Investment Company Act. A 
shareholder may also bring an action against the fund's investment 
adviser for breach of fiduciary duty with respect to receipt of 
compensation for services or payments of a material nature paid by 
such company. See Section 36(b) of the Investment Company Act.
    \195\ See Sections 32(a)(2) and 59 of the Investment Company 
Act. But see Rule 32a-4 under the Investment Company Act (providing 
a conditional exemption from the requirement in Section 32(a)(2)).
---------------------------------------------------------------------------

    We also acknowledge that investment companies that are part of 
larger complexes generally have board governance structures that may be 
disrupted by split-ticket voting. Investment companies sharing the same 
investment adviser and other service providers are typically part of 
complexes that utilize either a ``unitary'' board structure where a 
single board oversees every fund in the complex, or ``cluster'' boards 
consisting of two or more separate boards that each oversee a different 
set of funds in the complex.\196\ This structure enables a set of 
directors to, for example, oversee common operational matters across 
multiple funds in the complex (e.g., hiring and retention of service 
providers, valuation of portfolio investments, and general 
compliance).\197\ To the extent that split-ticket voting results in a 
disruption to a complex's unitary or cluster board structure (i.e., a 
dissident nominee is elected to a particular board but would not also 
serve on other boards in the complex), the efficiencies of such board 
structure may be reduced.
---------------------------------------------------------------------------

    \196\ In a survey conducted by the ICI, as of 2014, 86 percent 
of fund complexes employed a unitary board structure and 14 percent 
of fund complexes employed a cluster board structure. See Investment 
Company Institute, Overview of Fund Governance Practices, 1994-2014, 
at 5 (2015), available at https://www.idc.org/pdf/pub_15_fund_governance.pdf. We are also aware that among fund 
complexes that use cluster boards there are different reasons for 
particular clusters of funds with their own set of directors. For 
example, in some cases, the cluster or grouping of funds may be the 
deliberate result of investment or distribution considerations. In 
others, the clusters may be the result of previous mergers of 
different fund complexes. Independent Directors Council Task Force 
Report, Director Oversight of Multiple Funds, at 2 (May 2005), 
available at https://www.idc.org/pdf/ppr_idc_multiple_funds.pdf.
    \197\ See, e.g., Independent Directors Council Task Force 
Report, Director Oversight of Multiple Funds, at 3-6 (May 2005), 
available at https://www.idc.org/pdf/ppr_idc_multiple_funds.pdf 
(stating that board oversight of multiple funds provides 
efficiencies relating to (1) issues faced by directors under the 
common regulatory structure that applies to all funds, (2) the 
complex's common personnel and service providers, (3) complex-wide 
oversight mechanisms applicable across the complex, and (4) enhanced 
board knowledge and expertise, along with increased authority and 
influence).
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    We recognize, however, that the boards of such entities, like the 
boards of operating companies, have significant responsibilities in 
protecting shareholder interests, such as the approval of advisory 
contracts and fees, and that shareholders have an interest in the 
governance of these entities. We also recognize that the considerations 
discussed above do not diminish the importance of the rights that are 
granted to fund and BDC shareholders under state law and the Investment 
Company Act, which generally distinguish them from operating 
companies.\198\ Nevertheless, we are not proposing to extend the 
universal proxy requirements to funds and BDCs at this time. We are, 
instead, requesting comment and data in this release to further inform 
us as we consider whether the use of universal proxies should be 
required in proxy contests for the election of directors at funds or 
BDCs in the future.
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    \198\ In addition to voting rights provided under state law, the 
Investment Company Act provides specific rights to shareholders to 
approve certain fundamental features of the fund or BDC. See, e.g., 
Sections 8(b)(3), 13(a), 58, and 63(2) (approval of certain 
operational matters); 15(a) and 59 (approval of advisory contracts 
and amendments thereto); and 32(a)(2) and 59 (ratification or 
rejection of the selection of the independent public accountant).
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Request for Comment
    64. To what extent do investment companies generally, and open-end 
funds, closed-end funds and BDCs in particular, experience contested 
elections under the current proxy rules? Please provide any data to the 
extent available. To what extent do shareholders of investment 
companies engage in split-ticket voting? To what extent is split-ticket 
voting by certain shareholders facilitated by proxy solicitors and 
parties to the contested election? Please provide any data to the 
extent available.
    65. We are not proposing to require investment companies to use 
universal proxies at this time. Should the use of universal proxies be 
mandatory as applied to investment companies generally, or should their 
use be mandatory only with respect to certain types of investment 
companies (e.g., only to open-end funds or only to closed-end funds or 
only BDCs)? Why or why not? Should any aspects of the proposed 
universal proxy system be modified to account for the unique 
characteristics of investment companies? If so, what modifications 
should be made? Would a universal proxy system affect funds and BDCs 
differently than operating companies? If so, how? How would a universal 
proxy system affect unitary or cluster boards?
    66. Alternatively, should the use of universal proxies be optional 
as applied to investment companies generally, or should their use be 
optional only with respect to certain types of investment companies 
(e.g., only to open-end funds or only to closed-end funds or only 
BDCs)? Why or why not? Instead, should a hybrid system be applied to 
investment companies generally, or only with respect to certain types 
of investment companies (e.g., only to open-end funds or only to 
closed-end funds or only to BDCs) where the use of universal proxies in 
contested elections is mandatory for one party but optional for 
another? Why or why not? We are interested in the views of both 
investment companies and shareholders as to how frequently they would 
choose to use a universal proxy under a mandatory, optional or hybrid 
approach and why.
    67. Would the frequency of contested elections increase or decrease 
for investment companies under a universal proxy system and why? Please 
provide any data to the extent available. Would the frequency of 
contested elections vary depending on whether an investment company is 
an open-end fund, closed-end fund, or BDC, and why? Would the frequency 
vary depending on whether the use of universal proxies is under a 
mandatory, optional, or hybrid approach? Why or why not?
    68. To what extent do investment companies generally, and open-end 
funds, closed-end funds and BDCs in particular, experience exempt 
solicitations under the current proxy rules? Please provide any data to 
the extent available. Should investment companies generally, and open-
end funds, closed-end funds and BDCs in particular, be required to use 
universal proxies in non-exempt solicitations only, or in some or all 
exempt solicitations? Why or why not?
    69. To what extent do investment companies generally, and open-end 
funds, closed-end funds and BDCs in particular, have bylaws that 
contain advance notice provisions? Please provide any data to the 
extent available. Should special rules regarding notice apply for 
investment companies that do not regularly hold annual meetings (i.e., 
open-end funds)? For example, should such investment companies be 
required to provide a specific date by which a dissident must provide 
the investment company with the names of the nominees for whom it 
intends to solicit proxies? If so, how should such date be provided to 
investors? For example, should an investment company be required to 
disclose the date via disclosure on its Web site or via a press 
release? Would that disclosure be sufficient, or should such date also 
be provided in a filing made with the Commission (e.g., in the 
investment company's annual or semi-annual report to shareholders, a 
report on Form N-CSR, etc.)? Although funds generally are

[[Page 79147]]

not required to file reports on Form 8-K, should they be required to 
file a report on Form 8-K providing the notice date? Should funds 
instead be permitted to provide this disclosure in a different manner? 
If so, what manner of disclosure would be appropriate?

III. General Request for Comment

    We request and encourage any interested person to submit comments 
regarding the proposed rule amendments, specific issues discussed in 
this release, and other matters that may have an effect on the proposed 
rules. We request comment from the point of view of registrants, 
shareholders and other market participants. We note that comments are 
of particular assistance to us if accompanied by supporting data and 
analysis of the issues addressed in those comments, particularly 
quantitative information as to the costs and benefits. If alternatives 
to the proposals are suggested, supporting data and analysis and 
quantitative information as to the costs and benefits of those 
alternatives are of particular assistance. Commenters are urged to be 
as specific as possible.
Request for Comment
    70. We preliminarily believe that universal proxy cards are not 
needed for special meetings of shareholders because historically 
shareholders have not been presented with an opportunity to vote on 
competing slates of nominees at special meetings. Therefore, we are not 
proposing to require universal proxy cards at a special meeting of 
shareholders. Should they be required at a special meeting? Why or why 
not?
    71. We are proposing to mandate the use of universal proxy cards to 
allow shareholders to vote by proxy in a manner that more closely 
resembles how they can vote in person at a shareholders' meeting based 
on our belief that replicating the vote that could be achieved at the 
meeting facilitates the ``fair corporate suffrage'' that Congress 
intended our proxy rules to effectuate. Are there reasons our rules 
should not seek to replicate the vote that could be achieved at a 
shareholder meeting in this manner? Would replicating the vote that 
could be achieved at a shareholder meeting appropriately ensure that 
shareholders using the proxy process are able to fully and consistently 
exercise their state law voting rights? Are there other means to 
achieve this objective?
    72. If a dissident provides a notice of intent to solicit proxies 
in support of nominees other than the registrant's nominees but fails 
to fulfill other requirements, such as filing a definitive proxy 
statement or the minimum solicitation requirement, should there be 
consequences for the dissident? If so, what should those consequences 
be and in what circumstances should they apply? Should the dissident be 
deemed ineligible to use universal proxy for a period of time in the 
future?
    73. Would our proposed rules affect retail investors differently 
than institutional investors? \199\ If so, how?
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    \199\ See infra notes 289-290.
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    74. Does mandating a universal proxy card give rise to any 
conflicts or other concerns under state law? Would those concerns exist 
if we were instead to permit but not mandate a universal proxy card? 
For example, many state laws permit cumulative voting for directors. 
Are there any concerns relating to cumulative voting under the proposed 
universal proxy system?
    75. Does the proposed universal proxy system give rise to any 
conflicts or other concerns under existing stock exchange rules?

IV. Economic Analysis

A. Background

    As discussed above, we are proposing amendments to our proxy rules 
to address concerns over the inability of shareholders using the proxy 
system to vote for the combination of candidates of their choice in a 
contested election. The amendments would apply to contested elections 
at registrants that are subject to our proxy rules other than funds and 
BDCs. To allow for the inclusion of all candidates on a proxy card, we 
are proposing to amend Rule 14a-4(d)(4) such that each party to a 
contest need not seek consent from the nominees of the other party to 
include them on its card. The proposed amendments would also require 
the use of a universal proxy in all contested elections with competing 
slates of director nominees. Under these amendments, each party in such 
a contest would continue to use its own proxy card to solicit \200\ 
votes for its director candidates. However, in contrast to current 
requirements, each proxy card would be required to include all 
candidates nominated by the registrant, by a dissident in the proxy 
contest, or by another party under a provision of state or foreign law 
or a company's governing documents.
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    \200\ See 17 CFR 240.14a-1(l) for definitions of the terms 
``solicit'' and ``solicitation.'' Parties to a contested election 
may use a variety of approaches to request that a shareholder 
authorize them to cast the shareholder's votes at the shareholder 
meeting.
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    We are proposing these amendments to allow shareholders voting by 
proxy to choose among director nominees in an election contest in a 
manner that more closely reflects the choice that could be made by 
voting in person at a shareholder meeting. Shareholders voting in 
person in a contested election with competing slates of nominees are 
able to choose among all of the duly nominated candidates. In contrast, 
because of the bona fide nominee rule and state law provisions 
regarding the submission of multiple proxies,\201\ currently 
shareholders voting by proxy are typically limited to voting only for 
registrant nominees or voting only for the dissident's nominees (or, in 
the case of certain short slate elections, for the dissident's nominees 
and certain registrant nominees chosen by the dissident).\202\ If 
shareholders wish to vote for a combination of nominees across the two 
slates, they generally must do so in person by attending or sending a 
representative to the shareholder meeting and incurring the costs of 
doing so. In some cases, parties such as proxy solicitors may make 
arrangements for one or more individuals to attend a meeting on behalf 
of certain shareholders in order to facilitate split-ticket voting. 
However, many shareholders, particularly retail shareholders or those 
who do not hold a large stake in the registrant, might not be willing 
or able to bear the costs of voting in person and may not have access 
to other arrangements. These shareholders may, therefore, not be able 
to vote for their preferred selection of candidates.
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    \201\ As discussed above, the bona fide nominee rule currently 
only allows a party to include a nominee of its opponent on its own 
proxy card if that nominee has consented to being named on that 
party's proxy card, which, in practice, generally prevents either 
party from including nominees of its opponent on its proxy card. 
Also, under state law, a later-dated proxy card generally 
invalidates any earlier-dated proxy card, effectively limiting a 
shareholder to voting on a single proxy card.
    \202\ Though our economic analysis focuses on contests between a 
registrant and a single dissident for ease of exposition, we believe 
that the economic effects discussed below would also apply to 
contests involving more than one dissident. Election contests with 
more than one soliciting dissident are uncommon. For example, the 
staff has identified only one initiated proxy contest in 2015 that 
involved more than one dissident with separate slates of nominees.
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    Universal proxies would allow shareholders to vote for any 
combination of nominees when voting their shares by proxy in advance of 
the meeting, which we understand is generally the way in which the vast 
majority of shares are voted.\203\ For shareholders who would otherwise 
incur incremental costs to vote for a

[[Page 79148]]

combination of candidates that could not be voted for by proxy, such as 
by attending the meeting in person, universal proxies would result in 
direct cost savings. Universal proxies would also enable shareholders 
who want to split their vote but would not choose to incur additional 
costs to be able to vote for their preferred combination of nominees to 
do so without incurring additional costs.
---------------------------------------------------------------------------

    \203\ We do not have data that would allow us to quantify the 
proportion of votes submitted by proxy relative to the proportion 
submitted in person at a shareholder meeting. We request such data 
below.
---------------------------------------------------------------------------

    The proposed amendments would require each party soliciting for a 
competing slate in an election of directors to provide shareholders 
with a universal proxy card that includes the names of all duly-
nominated candidates. Though the parties would be required to include 
the names of all parties' nominees on their proxy cards, they would not 
be required to provide background information about their opponents' 
nominees in their proxy statements.\204\ Under the proposal, 
registrants and dissidents would be required to use universal proxies 
in all contested elections with competing slates of nominees.\205\ 
Universal proxies would not be required in the case of exempt 
solicitations \206\ or in cases in which shareholders would not have 
the ability to affirmatively vote for both dissident and registrant 
nominees at the meeting.\207\ In the case of solicitations that do not 
present competing director nominees, such as those that involve the 
solicitation of votes against certain nominees or for proposals that do 
not relate to director nominees, the proposed amendments would provide 
proponents with the flexibility to include the names of some or all of 
the registrant nominees on their proxy cards and solicit votes for (or 
against) those individuals but would not require them to do so.
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    \204\ The proposed mandatory universal proxy system differs in 
this and other respects from proxy access. See supra Section 
II.B.1.a.
    \205\ See supra note 20.
    \206\ Exempt solicitations, such as solicitations in which the 
person is not acting on behalf of the registrant and the aggregate 
number of persons solicited is not more than ten, are discussed in 
Section IV.B.3 infra.
    \207\ For example, the proposed amendments would not require 
universal proxies in cases where shareholders are presented with 
proposals to remove incumbent directors and replace them with 
dissident nominees (rather than the ability to affirmatively vote 
for dissident or registrant nominees), as is generally the case when 
a dissident uses a special meeting to try to obtain board seats for 
its candidates. The proposed amendments would also not require 
universal proxies in the case of ``vote no'' campaigns (the 
solicitation of votes against certain registrant nominees) or for 
proposals that do not relate to director nominees. Special meeting 
contests and ``vote no'' campaigns are discussed further in Section 
IV.B.3. infra.
---------------------------------------------------------------------------

    The nomination and election of directors by shareholders represents 
a fundamental governance mechanism that can mitigate conflicts of 
interest between shareholders and management. While the most direct 
effect of the proposed amendments would be to permit shareholders 
greater choice when voting by proxy in contested director elections, 
the proposed amendments may also have broader impacts on corporate 
governance and the relationship between shareholders and management. 
For reasons discussed below,\208\ it is difficult to predict the likely 
extent or direction of these broader potential effects, but we cannot 
rule out the possibility that they could be significant.\209\ For 
example, enabling split-ticket voting could lead to a greater number of 
boards that are composed of a mix of registrant-nominated \210\ and 
dissident-nominated directors, which may affect the effectiveness of 
boards, either positively or negatively. Additionally, mandating the 
use of universal proxies by registrants as well as dissidents--which, 
in practice, would likely result in the names of dissident nominees 
being disseminated via registrant proxy cards to all shareholders--may 
provide potential dissidents with a new means of generating publicity 
for alternative nominees or for the broader concerns behind a contest 
at a relatively low cost, which could change the nature of interactions 
between potential dissidents and management. These and other potential 
effects, as well as possible mitigating factors, are discussed in 
detail below.
---------------------------------------------------------------------------

    \208\ See Section IV.D.
    \209\ We are unaware of any empirical studies that find that 
universal proxies would have significant effects on corporate 
governance and the relationship between shareholders and management. 
One study finds that a universal proxy is unlikely to lead to more 
proxy contests or to greater success by special interest groups. See 
Scott Hirst, Universal Proxies, working paper (Aug. 24, 2016), 
available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2805136 (``Hirst study''). However, we note 
that this study relies on several critical assumptions that might 
not be reliable. See infra note 317.
    \210\ For ease of exposition, we refer throughout this economic 
analysis to the nominees of the board or its nominating committee as 
the nominees of the registrant and, in total, as the registrant 
slate. See supra note 28.
---------------------------------------------------------------------------

    The proposed amendments would impose certain other related 
requirements in the case of contested elections with competing slates 
of nominees. In order to provide advance notice of the requirement to 
use a universal proxy, the proposed amendments would require that 
dissidents in all such contested elections provide the names of the 
nominees for whom they intend to solicit proxies to registrants no 
later than 60 days before the anniversary of the previous year's annual 
meeting date, and that registrants provide notice of their nominees to 
dissidents no later than 50 days before that anniversary date. To 
provide shareholders timely access to information about all nominees, a 
dissident would also be required to file its definitive proxy statement 
by the later of 25 days prior to the meeting or five days after the 
registrant files its definitive proxy statement. Additionally, under 
the proposed approach, dissidents in all contested elections with 
competing slates of nominees would be required to solicit the holders 
of shares representing at least a majority of the voting power of 
shares entitled to vote on the election of directors.\211\
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    \211\ Because a soliciting party is required to disseminate a 
definitive proxy statement to the shareholders being solicited 
(except in the case of an exempt solicitation), the proposed minimum 
solicitation requirement may affect the costs of engaging in 
contests for dissidents that would not otherwise have solicited the 
holders of shares representing a majority of the voting power in the 
election, as discussed in Section IV.D.2 infra. Proxy statement 
dissemination methods are discussed in Section IV.B.2. infra.
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    Finally, the proposed amendments would impose certain presentation 
and formatting requirements for universal proxy cards to help ensure 
that the names of all parties' nominees and the total number of 
nominees for whom a shareholder can vote are clearly and fairly 
presented on the universal proxy card. Further, to address concerns 
about inaccuracies and ambiguous language in proxy statements and on 
proxy cards with respect to director elections in general, specifically 
with regard to how certain kinds of votes will be counted and the 
standards by which outcomes will be determined, we are proposing 
amendments that would specify how such information must be presented in 
proxy statements and on proxy cards.\212\
---------------------------------------------------------------------------

    \212\ Two rulemaking petitions received by the Commission raised 
concerns about the quality of voting standard disclosure. See CII 
letter and Carpenters letter, supra note175.
---------------------------------------------------------------------------

    Exchange Act Section 3(f) requires us, when engaging in rulemaking 
that requires us to consider or determine whether an action is 
necessary or appropriate in the public interest, to consider, in 
addition to the protection of shareholders, whether the action will 
promote efficiency, competition and capital formation. Exchange Act 
Section 23(a)(2) requires us, when adopting rules under the Exchange 
Act, to consider the impact that any new rule would have on 
competition, and prohibits any rule that would impose a burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Exchange Act.

[[Page 79149]]

    The discussion below addresses the economic effects of the proposed 
amendments, including their anticipated costs and benefits, as well as 
the likely effects of the proposed amendments on efficiency, 
competition, and capital formation. We also analyze the potential costs 
and benefits of the principal alternatives to what is proposed. We 
request comment on all aspects of the costs and benefits of the 
proposed approach and of possible alternatives. We also request comment 
on any effects the proposed amendments or possible alternatives may 
have on efficiency, competition and capital formation.
B. Baseline
    To assess the economic impact of the proposed amendments, we are 
using as our baseline the current state of the proxy process. Our 
baseline includes existing Commission rules, state laws, and corporate 
governing documents that jointly govern the ability to solicit proxies 
in support of director nominees other than the registrant nominees and 
the manner in which contested elections are conducted. This section 
discusses the parties involved in director election contests under the 
current legal framework, current proxy voting practices, and the means 
available to shareholders to influence the composition of boards of 
directors.
1. Affected Parties
    We consider the impact of the proposed amendments on shareholders, 
registrants, dissidents in contested elections (who are typically also 
shareholders), and directors.
a. Shareholders
    Different types of shareholders exhibit different degrees of 
involvement in the proxy process. In particular, there are, on average, 
large differences in involvement by institutional investors compared to 
retail investors.\213\ Institutional and retail investors also face 
different levels of difficulty and resource constraints to vote for 
their preferred choices of nominees in contested director elections 
under current rules.\214\ As a result, the proposed amendments are 
likely to have a differential impact with respect to the costs of 
voting and feasible voting choices for these two types of shareholders.
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    \213\ See Broadridge et al., Proxy Pulse 2015 Proxy Season Wrap-
up (3d ed. 2015) (``Broadridge Proxy Pulse''), available at http://media.broadridge.com/documents/ProxyPulse-Third-Edition-2015.pdf.
    \214\ See infra Section IV.B.2.d for a discussion on different 
shareholders' current ability to arrange split-ticket voting.
---------------------------------------------------------------------------

    We estimate that the average (median) number of beneficial 
shareholder accounts for U.S. public companies is 30,011 (4,404).\215\ 
The number of accounts varies significantly by company market 
capitalization: The average (median) number of beneficial shareholder 
accounts is 3,208 (1,369) for companies with less than $300 million in 
market capitalization, 9,764 (5,678) for companies with between $300 
million and $2 billion in market capitalization, 28,206 (15,530) for 
companies with between $2 billion and $10 billion in market 
capitalization, and 188,176 (63,607) for companies with market 
capitalization above $10 billion.\216\ Among all companies, we estimate 
that 91 percent of account holders are retail investors.\217\ For U.S. 
public companies that held their annual meetings in the main 2015 proxy 
season (i.e., between January 2015 and June 2015), a study by a proxy 
services provider found that retail investors held approximately 32 
percent of shares held in brokerage accounts and institutional 
investors held 68 percent.\218\ The study also finds that the 
percentage of ownership by retail investors varies significantly with 
company size, and was estimated to be 72 percent in companies with less 
than $300 million in market capitalization, 35 percent in companies 
with between $300 million and $2 billion in market capitalization, 24 
percent in companies with between $2 billion and $10 billion in market 
capitalization, and 28 percent in companies with market capitalization 
above $10 billion.
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    \215\ Based on industry data provided by a proxy services 
provider. Note that an individual shareholder may have more than one 
account, so the number of beneficial shareholders likely is lower 
than the number of beneficial shareholder accounts. For the purpose 
of estimating costs related to distribution of proxy materials, the 
number of accounts is the more relevant number because dissemination 
costs such as intermediary and processing fees apply on a per 
account basis per NYSE Rule 451. The data is based on domestic 
companies that held shareholder meetings between July 1, 2014 and 
June 30, 2015, excluding meetings that involved proxy contests.
    \216\ Id.
    \217\ Id.
    \218\ See Broadridge Proxy Pulse, at 2.
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    Retail and institutional shareholders exhibit very different voting 
behavior. In the main 2015 proxy season, while institutional investors 
voted 91 percent of their shares, retail investors only voted 28 
percent of their shares.\219\ The voting propensity of retail investors 
does not vary significantly by the size of the registrant.\220\ In 
contrast, institutional investors vote a significantly smaller portion 
of their shares in registrants with less than $300 million in market 
capitalization (72 percent) than in larger registrants (91 to 93 
percent),\221\ which may be a function of the types of institutions 
that invest in companies of different sizes.
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    \219\ Id at 4. We acknowledge that the voting participation of 
retail shareholders in particular could increase in the case of a 
contested election, because of greater media coverage and expanded 
outreach efforts, but we do not currently have data that would allow 
us to separately estimate the degree of retail participation in 
contested elections.
    \220\ Id.
    \221\ Id.
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    Retail and institutional investors may also have differential 
access to resources that can be expended in order to cast a vote, and 
may have different levels of incentive to expend such resources. In 
general, we expect retail investors to face greater resource 
constraints than institutional investors. Differences across 
shareholders in the ability to take advantage of different approaches 
to voting and in the resources expended on voting are discussed in more 
detail in Sections IV.B.2.d and IV.D.1 below.
b. Registrants
    The proposed amendments would apply to all registrants that have a 
class of equity securities registered under Section 12 of the Exchange 
Act and are thereby subject to the federal proxy rules, but would not 
apply to funds and BDCs. The proposed amendments would not apply to 
foreign private issuers or companies with reporting obligations only 
under Section 15(d) of the Exchange Act, which are not subject to the 
federal proxy rules. We estimate that approximately 6,265 registrants 
would be subject to the proposed amendments (including approximately 
4,198 Section 12(b) registrants and 2,067 Section 12(g) 
registrants).\222\
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    \222\ These estimates are based on staff review of EDGAR filings 
in calendar year 2015.
---------------------------------------------------------------------------

    There is substantial variation across registrants in 
characteristics such as director ownership, bylaws pertaining to 
director elections, and use of a dual-class share structure, that may 
affect the degree to which different registrants are affected by the 
proposed amendments.
Incumbent Management Ownership
    We would expect that incumbent managers (senior executives and 
directors) would support the slate of directors nominated by the 
registrant rather than a slate nominated by outside dissidents, and 
vote accordingly either at the annual meeting or by proxy using

[[Page 79150]]

the registrant's card.\223\ The proposed amendments to the proxy rules 
are unlikely to change incumbent managers voting behavior in this 
regard. We therefore think the percentage of total voting power held by 
a registrant's incumbent management is likely to have an important 
effect on the potential impact of these amendments.
---------------------------------------------------------------------------

    \223\ Note that in the case of a dissident who is also an 
insider (such as an incumbent director), this may not be the case.
---------------------------------------------------------------------------

    Table 1 below reports estimates of the average combined vote 
ownership by incumbent managers for a broad sample of 3,911 potentially 
affected registrants, as well as for several size-related sub-samples 
of registrants: Those included in the S&P 500 index (``large-cap 
stocks''), in the S&P 400 index (``mid-cap stocks''), in the S&P 600 
index (``small-cap stocks''), and outside the S&P 1500 index that is 
composed of these three indices (and which tend to be smaller than 
those registrants in the S&P 1500). The average (median) percentage is 
15.1 percent (6.9 percent) for all registrants, and this percentage is 
greatest for registrants outside the S&P 1500 index. We also estimate 
the percentage of registrants for which incumbent managers hold a 
majority of the voting power. Overall, incumbent managers hold a 
majority of votes in 7.7 percent of registrants. This percentage ranges 
from 1.4 percent for S&P 500 registrants to 10.9 percent for non-S&P 
1500 registrants.
    The data in Table 1 indicates that to the extent incumbent managers 
tend to vote for the registrant's slate of director nominees in 
contested elections, the impact of such votes is likely to be 
significant especially in the non-S&P 1500 category of smaller 
registrants.

            Table 1--Incumbent Management Vote Ownership of Registrants Subject to Proxy Rules \224\
----------------------------------------------------------------------------------------------------------------
                                           Incumbent management vote ownership (% of total voting power)
                                 -------------------------------------------------------------------------------
                                                                                                    Percentage
                                       Mean            25th           Median           75th        with majority
                                                    percentile                      percentile       ownership
----------------------------------------------------------------------------------------------------------------
All registrants.................            15.1             2.4             6.9            20.3             7.7
S&P 500 registrants.............             4.4             0.5             1.1             2.9             1.4
S&P 400 registrants.............             6.9             1.4             2.5             5.4             3.2
S&P 600 registrants.............             9.7             2.6             4.9            10.4             2.7
Non-S&P 1500 registrants........            19.7             4.5            11.6            27.9            10.9
----------------------------------------------------------------------------------------------------------------

Governance Structure
    Registrants' governance characteristics may affect the incidence 
and outcomes of proxy contests currently as well as the effects, if 
any, of potential changes in the proxy rules on the incidence and 
outcomes of proxy contests. For example, some registrants have adopted 
a staggered board structure, in which only some directors are up for 
re-election in any given year. Because in the typical staggered board 
each director is only up for election once every three years, a 
staggered board prevents a majority of directors from being replaced 
via a shareholder vote in a single year. In addition, a staggered board 
makes it harder to replace a particular director in the years he or she 
is not up for election. Therefore, the presence of a staggered board 
would mitigate the impact on board composition of any proposed 
amendments to the proxy rules by prolonging the time over which any 
changes in board composition would occur. We estimate that 
approximately 43 percent of registrants have a staggered board.\225\ 
Similar to incumbent management ownership, this percentage varies 
substantially across market capitalization categories: Approximately 18 
percent for S&P 500 registrants, 44 percent for S&P 400 registrants, 48 
percent for S&P 600 registrants, and 47 percent for non-S&P 1500 
registrants.\226\
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    \224\ Estimates based on staff analysis of director and senior 
executive vote ownership data from Institutional Shareholder 
Services Inc. (``ISS'') as of calendar year 2014. This data is 
available for 3,911 of the potentially affected registrants and may 
include ownership through options exercisable within 60 days. The 
sample represents approximately two-thirds of potentially affected 
registrants. It is our understanding that the registrants for which 
data is missing in the ISS database tend to be the smallest 
registrants in terms of market capitalization, and therefore the 
data presented may not be representative for these registrants. In 
particular, we believe it is likely that incumbent management 
ownership for this group of registrants is on average even greater 
than for the non-S&P 1500 registrants listed in Table 1.
    \225\ Estimates based on staff analysis of board characteristics 
data from ISS as of calendar year 2014. This data is available for 
3,918 of the potentially affected registrants.
    \226\ Id.
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    Cumulative voting may increase the ability of minority shareholders 
to elect a director and may therefore also be important to consider 
when evaluating the potential effects of the proposed amendments on 
proxy contests. Shareholders with cumulative voting rights are 
permitted to cast all of their votes for a single nominee for the board 
of directors when the company has multiple openings on its board.\227\ 
For this reason, in a contested election, cumulative voting would 
generally make it easier for at least one of the dissident's nominees 
to gather enough votes to be elected.\228\ We estimate that 4.9 percent 
of registrants have cumulative voting. This percentage also varies 
across market capitalization categories: Approximately 2.9 percent for 
S&P 500 registrants, 7.1 percent for S&P 400 registrants, 5.8 percent 
for S&P 600 registrants, and 4.7 percent for non-S&P 1500 
registrants.\229\
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    \227\ For example, if the election is for four directors and a 
shareholder holds 500 shares (with one vote per share), under the 
straight voting method she could vote a maximum of 500 shares for 
each candidate. With cumulative voting, she could choose to allocate 
all 2,000 votes for one candidate, 1,000 each to two candidates, or 
otherwise divide the votes however she desired.
    \228\ See, e.g., David Ikenberry & Josef Lakonishok, Corporate 
Governance through the Proxy Contest: Evidence and Implications, 66 
J. Bus. 405, 413 (1993), (finding that dissidents are successful in 
obtaining at least one seat in 41.3 percent of contests held under 
straight voting and that this increases to 71.9 percent in contests 
using cumulative voting).
    \229\ Estimates based on staff analysis of board characteristics 
data from ISS as of calendar year 2014. This data is available for 
3,965 of the potentially affected registrants. We do not have ready 
access to this data for other registrants.
---------------------------------------------------------------------------

    Registrants' governing documents generally provide that one of two 
main standards be applied to the election of directors: Either a 
majority voting standard or a plurality voting standard. Under a 
majority voting standard, directors are elected only if they receive 
affirmative votes from a majority of the shares voting or present at 
the meeting, and shareholders can vote ``for'' each nominee, 
``against'' each nominee, or ``abstain'' from voting their shares. In 
contrast, under a plurality voting standard, the nominees receiving the

[[Page 79151]]

greatest number of ``for'' votes are elected, and shareholders can 
withhold votes from specific nominees but cannot vote ``against'' any 
of them. We understand that even in those cases in which a majority 
standard is in place in director elections, registrants tend to have a 
carve-out in the bylaws (or charter) that applies a plurality standard 
in contested director elections. In the case of a majority voting 
standard in a contested election, there is a risk that some or all of 
the nominees receiving the highest relative shareholder support may 
still not win a majority of votes cast. This risk is especially high 
when nominees only appear on either the registrant's or the dissident's 
card, which is generally the case under the current proxy rules. Based 
on data that we have available for potentially affected S&P 1500 
registrants, we estimate that approximately 55 percent have a majority 
standard in director elections, but also that in approximately 87 
percent of cases in which a majority voting standard is in place, a 
plurality standard applies in the case of a contested election.\230\
---------------------------------------------------------------------------

    \230\ Estimates based on staff analysis of governance data for 
S&P 1500 companies from ISS as of calendar year 2014.
---------------------------------------------------------------------------

    Another governance characteristic that can affect the impact of 
changes to the proxy system is the presence of multiple share classes. 
Some registrants have adopted a dual-class share structure, where one 
class of shares has greater voting rights than the other. In these 
regimes, insiders tend to hold shares with greater voting rights, 
effectively entrenching the control of the company in the hands of 
these insiders and reducing other shareholders' influence in matters 
formally put to a vote, including director elections.\231\ Thus, the 
proposed amendments to the proxy rules would be less likely to have an 
effect on voting outcomes in registrants with a dual-class share 
structure. We have access to data on the use of a dual-class structure 
for potentially affected S&P 1500 registrants and estimate that 
approximately 6 percent of these registrants have a dual-class share 
structure.\232\
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    \231\ See, e.g., Paul A. Gompers, Joy L. Ishii & Andrew Metrick, 
Extreme Governance: An Analysis of Dual-Class Firms in the United 
States, 23 Rev. Fin. Stud. 1051, 1056 (2009) (finding that for a 
sample of public U.S. dual-class companies between 1995-2002, 85 
percent tend to have at least one untraded class of common stock, 
and that insiders on average own approximately 60 percent of the 
voting rights in dual-class companies, primarily through ownership 
of the class with superior voting rights).
    \232\ Estimates based on staff analysis of governance data for 
S&P 1500 companies from ISS as of calendar year 2014. We do not have 
ready access to this data for other registrants.
---------------------------------------------------------------------------

c. Dissidents in Contested Elections
    The dissidents in contested elections are typically shareholders of 
the registrant, but may fit into one of several categories. A common 
category of dissidents is activist hedge funds that take a proactive 
approach to the companies in their investment portfolios by trying to 
influence the management and decision-making through various means, 
such as proxy contests. Dissidents may also be former insiders or 
employees of the registrant. A corporation may also contest the 
election of directors at a registrant when, for example, it is seeking 
to acquire the registrant but the registrant's current board does not 
approve of the transaction. In some cases, a group of dissatisfied 
shareholders other than activist hedge funds jointly contests an 
election. Section IV.B.2.a below provides further information about the 
relative frequency of different types of dissidents.
d. Directors
    We note that reputational concerns may be an important 
consideration for directors and potential directors.\233\ Research has 
found that proxy contests may affect the reputation of incumbent 
directors, in that such contests appear to have a significant adverse 
effect on the number of other directorships they hold.\234\ Therefore, 
any changes to the proxy rules that would increase the likelihood of 
proxy contests at any given registrant could reduce the willingness of 
current and potential directors to be nominated to serve on the board 
in the future.
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    \233\ See, e.g., Ronald Masulis & Shawn Mobbs, Independent 
Director Incentives: Where Do Talented Directors Spend Their Limited 
Time and Energy?, 111 J. Fin. Econ 406, 426 (Feb. 2014) (concluding 
that director reputation is a powerful incentive for independent 
directors).
    \234\ See Vyacheslav Fos & Margarita Tsoutsoura, Shareholder 
Democracy in Play: Career Consequences of Proxy Contests, 114 J. 
Fin. Econ. 316, 326 (2014) (finding that, following a proxy contest, 
all directors in the targeted company experience on average a 
significant decline in the number of their directorships, not only 
in the targeted company, but also in other, non-targeted companies).
---------------------------------------------------------------------------

2. Contested Director Elections
    A shareholder voting by proxy is generally limited to voting for 
either the registrant slate or the dissident slate (and, when used to 
round out a slate, certain registrant nominees chosen by the 
dissident).\235\ In contrast, a shareholder that attends an annual 
meeting may vote for any combination of registrant and dissident 
nominees.
---------------------------------------------------------------------------

    \235\ While it may be possible for a registrant to require a 
dissident's nominees to consent to be named on the registrant's card 
pursuant to the director questionnaires required under a 
registrant's advance notice bylaw provisions, the staff has seen 
this tactic used only in two contests in recent years, one of which 
did not ultimately proceed to a vote. This option is not available 
to the dissident. In addition, we are not aware of any recent cases 
where one party's nominees were included on the opposing party's 
proxy card based on their voluntary consent.
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a. Data Regarding Proxy Contests
    We identify 102 proxy contests \236\ that were initiated through 
the filing of preliminary proxy statements by dissidents in calendar 
years 2014 and 2015 (51 in 2014 and 51 in 2015) across all registrants 
subject to the proxy rules other than funds and BDCs.\237\ On a yearly 
basis, this number of contests is similar to the average yearly number 
of proxy contests since the middle of the 1990s that has been reported 
in past studies.\238\ Of the proxy contests identified in 2014 and 
2015, we estimate that 72 (37 in 2014 and 35 in 2015) involved an 
election contest with competing slates of director nominees at an 
annual meeting of shareholders.\239\ In one case, there were two 
dissidents with separate slates of nominees. Approximately 26 percent 
(19 cases out of 72) of the contests with competing slates were 
contests for majority control of the board. This percentage is somewhat 
larger than the percentage documented by a study of contested

[[Page 79152]]

elections from 1994 to 2012, which found that approximately 22 percent 
of contested elections were for majority control.\240\ Most of the 
contests with competing slates were in smaller to midsize companies: 
Only four were S&P 500 companies and 46 were outside the S&P 1500.
---------------------------------------------------------------------------

    \236\ This total number of proxy contests includes all cases in 
which a proponent or dissident initiated a ``solicitation in 
opposition'' to the registrant, whether in relation to an election 
of directors or with respect to another issue. A solicitation in 
opposition includes (i) any solicitation opposing a proposal 
supported by the registrant; and (ii) any solicitation supporting a 
proposal that the registrant does not expressly support, other than 
a shareholder proposal included in the registrant's proxy material 
pursuant to Rule 14a-8. See 17 CFR 240.14a-6(a), Note 3. This total 
number of proxy contests does not include exempt solicitations which 
are discussed in Section IV.B.3. infra.
    \237\ Based on staff review of EDGAR filings in calendar years 
2014 and 2015.
    \238\ See, e.g., Vyacheslav Fos, The Disciplinary Effects of 
Proxy Contests, Manag. Sci., at 1 (July 2015), (forthcoming), 
available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1705707 (``Fos Study'') (estimating that the 
average number of proxy contests was 56 per year from 1994 through 
2012). This rate of proxy contests is higher than in earlier years. 
See, e.g., Harold Mulherin & Annette Poulsen, Proxy Contests and 
Corporate Change: Implications for Shareholder Wealth, 47 J. Fin. 
Econ. 279, 287 (1998) (``Mulherin & Poulsen Study'') (estimating an 
average of 17 proxy contests per year from 1979 through 1994).
    \239\ The 30 proxy contests identified in 2014 and 2015 that did 
not represent election contests with competing slates of candidates 
at an annual meeting of shareholders include consent solicitations 
for the removal and election of directors at a special meeting, 
contests involving ``vote no'' campaigns, and proposals on issues 
other than director nominees. Special meeting elections and ``vote 
no'' campaigns are discussed in Section IV.B.3 infra.
    \240\ See Fos Study, at 11.
---------------------------------------------------------------------------

    A study of U.S. proxy contests from 1994-2012 found that targets of 
proxy contests have smaller market capitalization relative to other 
publicly traded companies, have lower ratios of market value to book 
value, and have had poor stock performance. Importantly for 
understanding the implications of the proposed amendments, companies 
subject to proxy contests were also found to have higher percentages of 
institutional and activist hedge fund ownership in comparison to non-
targets.\241\ The same study also found that dissidents in proxy 
contests are most often activist hedge funds, followed by groups of 
shareholders, other corporations, and former insiders or 
employees.\242\ In particular, the study notes that the proportion of 
contests sponsored by activist hedge funds has increased from 38 
percent in the 1994-2002 period to 70 percent in the 2003-2012 
period.\243\ Our staff's review of the filings for the 72 proxy 
contests involving elections initiated in 2014 and 2015 found that 
activist investors (mainly hedge funds) were dissidents in more than 86 
percent of the contests, whereas former or current insiders and 
employees or groups of shareholders made up the remainder of the 
dissidents.
---------------------------------------------------------------------------

    \241\ Id. at 19. We note that the sample in this study includes 
proxy contests concerning all issues and not just those involving 
contested director elections. However, director election contests 
constitute 88 percent of the sample. Id. at 37.
    \242\ Id. at 38 (finding that, for proxy contests including 
contested elections as well as a much smaller number of issue 
contests from 1994 to 2012, 57 percent of dissidents were activist 
hedge funds, 20 percent were groups of shareholders, 11 percent were 
corporations, and 11 percent were prior insiders and employees).
    \243\ Id. at 13. The study also notes that all the other 
categories of sponsors declined over the same time. In particular, 
corporations sponsored 20 percent of contests in the 1994-2002 
period but only 5 percent in the 2003-2012 period.
---------------------------------------------------------------------------

b. Notice, Solicitation, and Costs of Proxy Contests
    The Commission's proxy rules do not currently require dissidents to 
provide notice to registrants of their intention to solicit votes for 
their nominees. However, many registrants have advance notice bylaws 
that apply in proxy contests.\244\ For example, one common form of 
advance notice bylaw provision requires dissidents to provide notice of 
their intent to nominate candidates during the 30-day period ending no 
later than 90 days before the anniversary of the previous year's 
meeting date.\245\ Further, we understand that the latest date on which 
notice may be provided under advance notice bylaws generally ranges 
from 60 to 120 days before the anniversary of the meeting date.\246\
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    \244\ An advance notice bylaw can generally be waived by a 
registrant's board of directors at their discretion, though we do 
not have data that would allow us to determine the frequency with 
which such bylaws are waived. If not waived, such bylaws may also be 
challenged in court (such as in the case of ``inequitable 
circumstances''). See, e.g., AB Value Partners, L.P. v. Kreisler 
Mfg. Corp., No 10434-VCP, 2014 WL 7150465 (Del Ch. Dec. 16, 2015).
    \245\ See supra note 114.
    \246\ See, e.g., Kevin Douglas, Stephen Hinton & Eric Knox, 
Advance Notice Bylaws: The Current State of Second Generation 
Provisions, Deal Lawyers (July-Aug. 2011), at 15, 19 (finding that, 
in a review of 100 Delaware corporations that had amended their 
advance notice bylaws since 2008, including large-cap, mid-cap and 
small-cap companies, 80 percent of the surveyed bylaws had a window 
period of 30 days and, among those that had a window period of 30 
days tied to the date of the previous year's meeting, 84 percent of 
those provide for a notice period of 90-120 days prior to the 
meeting, 9 percent provide for a notice period 60-90 days prior to 
the meeting and 7 percent provide for a notice period of 120-150 
days prior to the meeting).
---------------------------------------------------------------------------

    Advance notice bylaws are common among registrants. For example, at 
the end of 2014, 95 percent of S&P 500 registrants had advance notice 
provisions, and 90 percent of the Russell 3000 had such 
provisions.\247\ Our staff's review of filings related to director 
election contests initiated in 2014 and 2015 found that approximately 
88 percent of dissidents either announced or preliminarily communicated 
their intent to nominate directors at least 60 days before the annual 
meeting date. Further statistics on the distribution of the timing for 
initial announcements and filing of preliminary proxy statements are 
shown in Table 2 below.
---------------------------------------------------------------------------

    \247\ See supra note 116.
    \248\ Based on staff analysis of the contested elections sample. 
See supra note 115.

       Table 2--Timing of Initiation of Election Contests and Filing of Preliminary Proxy Statements Relative to Meeting Dates, in 2014-2015 \248\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                            Percentage
                                         ------------------------------------------------
                                            At least 45     At least 60     At least 90        Mean           Median            Min             Max
                                               days            days            days
--------------------------------------------------------------------------------------------------------------------------------------------------------
Days between first announcement or                  94.3            88.6            62.9             107              93              29             213
 communication of election contest
 intent and annual meeting date.........
Days between dissident filing                       71.4            44.3            10.0              60              56              23             203
 preliminary proxy statement and annual
 meeting date...........................
--------------------------------------------------------------------------------------------------------------------------------------------------------

    While dissidents in proxy contests are required to make their proxy 
statements publicly available via the EDGAR system, they are not 
currently subject to any requirements as to how many shareholders they 
must solicit. When dissidents actively solicit shareholders they have 
the choice of sending shareholders a full package of proxy materials 
(``full set'') or sending only a one-page notice informing them of the 
online availability of proxy materials (``notice and access'' or 
``notice-only''). We estimate that approximately 60 percent of 
dissidents solicited all shareholders in a sample of recent proxy 
contests.\249\ Among those recent contests in which dissidents did not 
solicit all shareholders, the median percentage of shares held by 
solicited shareholders was approximately 95

[[Page 79153]]

percent of the outstanding voting shares of the registrant.\250\ We 
estimate that in approximately 97 percent of these proxy contests the 
dissident solicited shareholders representing more than 50 percent of 
the outstanding voting shares.\251\ Furthermore, dissidents in the 
contests discussed above sent full sets of proxy materials to each of 
the shareholders solicited.\252\ The use of the full set delivery 
method may be driven by findings that such solicitations are associated 
with a higher rate of voting than notice-only access 
solicitations.\253\
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    \249\ Based on industry data provided by a proxy services 
provider for a sample of 35 proxy contests from June 30, 2015, 
through April 15, 2016.
    \250\ Id.
    \251\ Id.
    \252\ Id.
    \253\ See, e.g., Broadridge, Analysis of Traditional and Notice 
& Access Issuers: Issuer Adoption, Distribution and Voting for 
Fiscal Year Ending June 30, 2013 (Oct. 2013), available at http://media.broadridge.com/documents/Broadridge-6-Yr-NA-Stats-Report-2013.pdf.
---------------------------------------------------------------------------

    In proxy contests, both registrants and dissidents incur costs of 
solicitation.\254\ These costs may include, for example, fees paid to 
proxy solicitors, expenditures for attorneys and public relations 
advisors, and printing and mailing costs. We understand that for 
registrants the costs of solicitation generally exceed the costs 
associated with a shareholder meeting in the absence of a contested 
election. Both dissidents and registrants are required to provide 
estimates of the costs of solicitation in their proxy statements. As 
shown in Table 3 below, based on a review of proxy contests initiated 
in 2014 and 2015, the median reported estimated total costs were 
approximately $800,000 for registrants and approximately $250,000 for 
dissidents.
---------------------------------------------------------------------------

    \254\ In some cases, dissidents may seek reimbursement of their 
expenses from registrants. Such potential reimbursement is governed 
by state law and is more likely in the case of a successful proxy 
contest. The proxy rules require dissidents to disclose whether 
reimbursement will be sought from the registrant, and, if so, 
whether the question of such reimbursement will be submitted to a 
vote of shareholders. See 17 CFR 240.14a-101, Item 4(b)(5).
    \255\ Based on staff analysis of EDGAR filings in calendar years 
2014 and 2015.

        Table 3--Reported Estimates of Solicitation Expenses in Election Contests in 2014 and 2015 \255\
----------------------------------------------------------------------------------------------------------------
                                                       Mean           Median          Minimum         Maximum
----------------------------------------------------------------------------------------------------------------
Estimated Total Costs:
    Registrant (beyond usual costs).............      $2,092,096        $800,000         $25,000     $15,400,000
    Dissident...................................         741,733         250,000          25,000       8,000,000
Estimated Fees Paid to Proxy Solicitor:
    Registrant (beyond usual costs).............         296,016         100,000           6,500       2,000,000
    Dissident...................................         188,687         100,000          10,000       1,485,895
----------------------------------------------------------------------------------------------------------------

    A study of the solicitation costs in proxy contests from 2006 to 
2012 found that the total estimated solicitation costs reported by 
registrants ranged from approximately $20,000 to approximately $20 
million, and that the estimated costs reported by registrants tended to 
increase with their market capitalization. In contests where costs were 
disclosed by both parties, the study found that the median estimates of 
total solicitation costs was $477,500 for registrants and $275,000 for 
dissidents.\256\ The largest recorded estimate of total solicitation 
costs for a dissident in this period was approximately $9 million.\257\
---------------------------------------------------------------------------

    \256\ See Adam Kommel, Proxy Fight Fees and Costs Now Collected 
by SharkRepellent: MacKenzie Partners and Carl Icahn Involved in 
Largest Fights, SharkRepellent.net (Feb. 20, 2013), available at 
https://www.sharkrepellent.net/request?an=dt.getPage&st=undefined&pg=/pub/rs_20130220.html.
    \257\ Id.
---------------------------------------------------------------------------

    Beyond these estimated solicitation expenses, proxy contests may be 
associated with other indirect costs, such as the cost of management or 
dissident time spent in the process of conducting the contest and 
expenses associated with any discussions held between management and 
the dissident(s). We do not have data on these indirect costs. One 
study that considers the cost of earlier as well as later stages of 
engagement between management and activist hedge fund dissidents, which 
eventually culminate in a proxy contest, estimates that a campaign 
ending in a proxy contest has a total (direct and indirect) average 
cost to the dissident of approximately $10 million over the full period 
of engagement.\258\
---------------------------------------------------------------------------

    \258\ See Nickolay Gantchev, The Costs of Shareholder Activism: 
Evidence from a Sequential Decision Model, 107 J. Fin. Econ. 610, 
624 (2013).
---------------------------------------------------------------------------

    In addition to the typical proxy contests \259\ discussed above, on 
rare occasions, there have also been nominal contests, in which the 
dissidents incur little more than the basic required costs to pursue a 
contest. In particular, a dissident engaging in a nominal proxy contest 
would have to bear the cost of drafting proxy statements and undergoing 
the staff review and comment process for that filing. However, a 
dissident in a nominal contest would not be likely to expend resources 
on substantial solicitation, such as to disseminate its proxy materials 
through full set delivery to a substantial percentage of shareholders 
versus only to select shareholders, to hire the services of a proxy 
solicitor, or to engage in other broad outreach efforts, as would be 
the case in a typical proxy contest. Based on staff experience in 
administering the proxy rules, nominal contests are very rare, and the 
staff is unaware of any nominal contest that has resulted in the 
dissident gaining seats for its nominees. We do not have data that is 
well-suited for empirically identifying nominal contests, in part 
because dissidents do not always report estimates of their solicitation 
expenses in their proxy materials.
---------------------------------------------------------------------------

    \259\ For ease of reference, we use ``typical proxy contests'' 
to refer to contested elections of directors other than the nominal 
contests described below.
---------------------------------------------------------------------------

c. Results of Proxy Contests
    A proxy contest may result in several possible outcomes. Our 
staff's review of 72 proxy contests initiated in 2014 and 2015 found 
that approximately 33 percent (24 contests) did not make it to a vote. 
In these cases, registrants may have settled by agreeing to nominate or 
appoint some number of the dissident's candidates to the board of 
directors or by making other concessions, the dissident may have chosen 
to withdraw in the absence of any concessions, or other events may have 
precluded a vote.\260\ Among the 48 proxy contests initiated in 2014 
and 2015 that proceeded to a vote, dissidents were at least partially 
successful (i.e., achieved some board representation) in about 52

[[Page 79154]]

percent (25) of these contests.\261\ In 21 of these contests, the end 
results was a ``mixed-board'' with directors elected from both slates. 
In four contests, the dissident's nominees were elected to fill all 
positions of the board. Between settlements and voted contests, 
dissidents achieved at least some board representation in half of the 
director election contests (36 out of 72).
---------------------------------------------------------------------------

    \260\ The percentage of director election contests initiated in 
2014 and 2015 not proceeding to a vote is lower than what has been 
reported in previous research for earlier years. See, e.g., Fos 
Study, at 39 (finding that, for proxy contests including contested 
elections as well as a much smaller number of issue contests from 
1994 to 2012, about 53 percent did not make it to a vote, where 25 
percent were settled, 15 percent were withdrawn, 6 percent ended 
with a delisting or a takeover, and 7 percent did not make it to a 
vote for other reasons).
    \261\ The estimated percentage of voted director election proxy 
contests that lead to dissident board representation is consistent 
with previous research. See, e.g., Fos Study, at 13 (finding that 
for voted proxy contests including contested elections as well as a 
much smaller number of issue contests from 1994 to 2012, dissidents 
achieved at least one of their formal goals (i.e., obtaining board 
seats or passing proposals) in about half of the cases).
---------------------------------------------------------------------------

    Contests differ in the closeness of voting outcomes. Staff has 
analyzed the difference in votes between the elected director with the 
lowest number of votes and the nominee who came closest to being 
elected. Out of the 48 contests initiated in 2014 and 2015 that 
proceeded to a vote, registrants disclosed full voting results in Form 
8-K filings in 38 contests. In these contests, the median director 
elected with the fewest votes received 57 percent more votes compared 
to the nominee with the next highest number of votes. The median 
difference in votes received between the director elected with the 
fewest votes and the nominee with the next highest number of votes as a 
percentage of total outstanding voting shares was approximately 16 
percent, and more than 26 percent of the contests (10 out of 38) had a 
difference in votes received as a percentage of outstanding shares of 
five percent or less. In these same contests, the elected director who 
received the fewest votes received no more than 11.5 percent more votes 
than the non-elected nominee who received the greatest votes. We 
consider these to be close contests, in which a relatively small number 
of shareholders could have been determinative of the outcome.
    We are unaware of any nominal contest that has resulted in the 
dissident gaining seats for their nominees. Dissidents may nevertheless 
choose to initiate nominal contests to pursue goals other than changes 
in board composition, such as to publicize a particular issue or to 
encourage management to engage with the dissident. However, we do not 
have data that would allow us to measure success along those other 
dimensions.
d. Split-Ticket Voting
    Shareholders have the option of voting a split ticket but can only 
do so by attending the shareholder meeting in person and voting their 
shares at that meeting. In practice, however, in-person meeting 
attendance may be limited due to cost and other logistical constraints, 
which is especially likely to be the case for small shareholders and 
retail investors.\262\ We understand that in certain elections, the 
parties to the contest and their agents (e.g., proxy solicitors) will 
help some shareholders ``split their ticket'' by arranging for an in-
person representative to vote these shareholders' shares at the meeting 
on the ballots used for in-person voting. We do not have data on the 
number or characteristics of shareholders that are arranging to vote a 
split ticket through current practices, but our understanding is that 
these practices are more available to large shareholders than small 
ones. We solicit comment on the prevalence, availability, costs and 
benefits of these practices below.
---------------------------------------------------------------------------

    \262\ See, e.g., Rulemaking Petition (describing in-person 
attendance as ``generally an expensive and impractical 
proposition''). The burden of attending a meeting for the purpose of 
voting a split ticket may be significantly lower in the case of a 
virtual shareholder meeting but such online meetings are still 
relatively rare. Moreover, we are unaware of any proxy contest that 
has culminated in a virtual shareholder meeting. See, e.g., Jena 
McGregor, More Companies are Going Virtual for Their Annual 
Shareholder Meetings, Wash. Post (Mar. 17, 2015), available at 
https://www.washingtonpost.com/news/on-leadership/wp/2015/03/17/more-companies-are-going-virtual-for-their-annual-shareholder-meetings/ (finding that in 2011, 21 companies held virtual-only 
meetings using the primary provider of online shareholder meeting 
technology, and that this number grew to 53 in 2014.)
---------------------------------------------------------------------------

    For shareholders that do not have ready access to other 
arrangements, the decision of whether or not to attend a meeting or 
seek other arrangements for splitting their ticket is likely to depend 
on having the ability and resources to do so as well as having the 
incentive to incur the associated costs. To the extent an individual 
investor believes vote splitting is beneficial, the larger its 
ownership stake is, the greater the financial incentives to incur the 
current costs of arranging a split-ticket vote. However, beyond the 
direct financial incentives from a larger ownership stake, a large 
investor also has a voting impact commensurate with that stake, which 
increases the likelihood that its votes are determinative. This in 
turn, increases the large investor's incentives to arrange for vote 
splitting when deemed beneficial. We believe institutions are more 
likely than retail shareholders to have both the resources and the 
incentives to currently vote a split ticket (if they have the 
preference to do so).
    Because the incentive to arrange a split-ticket vote when such a 
vote is preferred is dependent on having both a sizable financial 
stake, in dollar terms, as well as significant voting influence, in 
percentage terms, we consider the distribution of both of these factors 
for institutional shareholders. We use data from Form 13F filings to 
estimate these distributions, which limits us to considering 
institutions required to report their holdings on Form 13F.\263\ 
Moreover, we only consider shares over which these institutions have 
voting authority in contested director elections. We do not have 
comparable data for other institutional shareholders or for retail 
shareholders.
---------------------------------------------------------------------------

    \263\ Non-exempt institutional investment managers that exercise 
investment discretion over $100 million or more in Section 13(f) 
securities are required to report their holdings on Form 13F with 
the Commission.
---------------------------------------------------------------------------

    Figure 1 shows the average percentage, across registrants, of the 
total outstanding shares held by institutions that each meet a given 
threshold of minimum voting power. The average percentage of the total 
outstanding shares is calculated across all registrants within 
different size categories. As in previous analyses, registrant size is 
approximated by reference to the S&P index. The data suggest that there 
is currently a substantial portion of outstanding shares for which the 
institutional holders may have enough voting power to give them the 
incentive to arrange split-ticket voting if preferred. For example, the 
average percentage of the total outstanding shares held by institutions 
that each have 0.5 percent or more of the total votes is around 27 
percent for non-S&P 1500 registrants, 42 percent for S&P 600 
registrants, 39 percent for S&P 400 registrants, and 33 percent for S&P 
500 registrants. The large difference in ownership between S&P 600 and 
non-S&P 1500 registrants despite both groups being relatively small 
registrants is due to a smaller number of institutions holding stock 
(of any amount) in the non-S&P 1500 registrants. If we consider average 
total ownership by institutions that are larger block holders 
(individually owning 5 percent or more of shares) and therefore are 
more likely to be pivotal voters, the average percentage of the total 
outstanding shares held by these institutions is approximately 11 
percent for both non-S&P 1500 and S&P 600 registrants, 7 percent for 
S&P 400 registrants, and 6 percent for S&P 500 registrants. Because we 
are only able to consider ownership by institutions required to report 
their holdings on Form 13F and that have voting authority over these 
holdings, these statistics represent an estimate of the lower

[[Page 79155]]

bound of the percentage of outstanding shares held by owners with 
possible incentives to currently arrange split-ticket voting.
[GRAPHIC] [TIFF OMITTED] TP10NO16.000

    Even a large voting stake in a company may not currently be enough 
to incent a shareholder to incur the costs of attending the annual 
meeting to vote a split ticket if the investment is low in dollar 
terms. Therefore we also consider the combined voting power by 
institutions that individually have a substantial dollar investment in 
a registrant. In particular, Figure 2 shows the average percentage, 
across registrants, of the total outstanding shares held by 
institutions that each meet a given threshold of minimum dollar stake 
in the registrant. For example, for institutional owners that hold 
stock worth $1 million or more in a given registrant, the average 
percentage of the total outstanding shares held by these institutions 
is around 50 percent for all registrants belonging to one of the S&P 
1500 component indexes. By contrast, the corresponding average 
percentage of outstanding shares among non-S&P 1500 registrants is 
approximately 28 percent. If we instead consider only institutional 
owners that each hold stock worth $10 million or more, the average 
percentage of outstanding shares held by these institutions is 48 
percent for S&P 500 registrants, 43 percent for S&P 400 registrants, 35 
percent for S&P 600 registrants, and 18 percent for non-S&P 1500 
registrants. Overall, the estimates in Figure 2 suggest that a 
substantial portion of shares in registrants are held by institutions 
that have a significant financial interest. This is particularly so for 
relatively larger registrants.
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    \264\ The estimates in the figure are based on staff analysis of 
Form 13F filings related to potentially affected registrants 
(excluding registered investment companies) from the last available 
quarter of 2015 in the Thomson Reuters Form 13F database. The 
analysis reflects only holdings for which institutions have voting 
authority in contested director elections.

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[[Page 79156]]

[GRAPHIC] [TIFF OMITTED] TP10NO16.001

3. Other Methods To Seek Change in Board Representation
    Beyond typical proxy contests culminating at annual meetings, we 
note that under the baseline there are a number of other methods 
shareholders currently can use to potentially affect changes to the 
composition of a board of directors. We broadly refer to these methods 
throughout this economic analysis as shareholder interventions.
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    \265\ Id. Financial interest is estimated as the market value of 
all shares held by the individual institution in a specific 
registrant. For the average percentage of outstanding shares, we 
only considered holdings for which institutions had voting authority 
in contested director elections.
---------------------------------------------------------------------------

    First, a shareholder could make recommendations for director 
candidates directly to the nominating committee of the board. It is 
then generally left to the board's discretion whether or not such 
candidates are accepted for nomination. While we do not have direct 
evidence about the extent to which this approach is used or is 
effective, a board may be relatively more likely to nominate candidates 
recommended by a shareholder with a large stake in the registrant than 
candidates recommended by smaller shareholders because a large 
shareholder would have a greater interest in the oversight and 
strategic direction of the registrant and because a large shareholder 
might be perceived to be more likely to run a proxy contest absent 
registrant cooperation.
    Second, a dissident could call for a special meeting to try to 
replace all or some of a registrant's directors with the dissident's 
own candidates, to the extent permitted under the registrant's bylaws. 
Such an intervention would typically require a two-step process. 
Initially, the dissident would generally need to obtain the consent of 
shareholders representing a certain threshold of shares outstanding to 
call the meeting.\266\ Next, the dissident would put to a vote, either 
by proxy or in person at the special meeting, a proposal to remove 
certain directors and elect certain other nominees. Attempting to 
change the board in this manner at a special meeting is different from 
a contested election at an annual meeting because the issue put to a 
shareholder vote is the removal of specific incumbent directors and 
their replacement by specific dissident director candidates. This means 
that regardless of whether a shareholder votes by proxy or in person, 
there is no possibility for a shareholder to vote ``for'' a combination 
of dissident and registrant nominees because only the dissident 
proposes nominees (to fill the vacancies that would result from the 
removal of certain incumbent directors if the dissident's removal 
proposal is successful). In addition, because attempting to replace 
directors through a special meeting is subject to registrant bylaws 
and, if such bylaws are available, requires the dissident to first 
gather enough shareholder support to call the meeting, this alternative 
may be either unavailable or more burdensome for the dissident compared 
to initiating a proxy contest at an annual meeting.
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    \266\ The criteria for how and when a special meeting can be 
called vary both by state law and corporate bylaws.
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    Third, if the shareholder base of a registrant is significantly 
concentrated, a dissident may be able to pursue the election of 
alternative director nominees at the annual meeting through an exempt 
solicitation. Rule 14a-2(b)(2) provides that the rules generally 
applicable to dissident proxy solicitations do not apply where the 
total number of persons solicited is not more than ten. Thus, 
dissidents using this approach would be able to obtain proxies from up 
to 10 persons in support of their candidates, and may receive 
additional support for their candidates from shareholders attending

[[Page 79157]]

the meeting in person. Based on staff experience, we understand that 
this approach is used only infrequently.
    Fourth, some registrants have recently adopted proxy access bylaws 
that would allow certain qualifying shareholders to nominate a limited 
number of director candidates for inclusion in the registrant's proxy 
statement.\267\ We are unaware of any cases to date in which a proxy 
access bylaw has been used to nominate a candidate for the board. Using 
a proxy access bylaw differs from engaging in a proxy contest in 
several ways. In particular, while proponents of proxy access nominees 
could engage in some forms of shareholder outreach efforts, current 
proxy access bylaws typically restrict the proponents from soliciting 
votes on a separate proxy card.\268\ Proxy access candidates would be 
included on the registrant's proxy card, and information about those 
candidates would be included in the registrant's proxy statement. In 
contrast, dissidents engaged in proxy contests produce their own proxy 
materials and bear the cost of any solicitation in support of their 
nominees. Additionally, current bylaws generally limit the number of 
proxy access candidates to 20 or 25 percent of the board.\269\ Also, a 
proxy access bylaw generally only provides access to the proxy for 
shareholders meeting certain criteria.\270\ Thus, while relying on the 
provisions of a proxy access bylaw to nominate candidates is likely to 
involve lower solicitation costs than proxy contests (because, for 
example, the proxy access shareholder proponent does not produce or 
disseminate its own separate proxy statement), it also is more limited 
in its potential to change the composition of the board. We expect 
similar distinctions to apply in the case of state or foreign law 
provisions that provide shareholders a form of proxy access.
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    \267\ See, e.g., S&C April Report, supra note 91 (stating that 
200 public companies had adopted some form of proxy access since the 
2015 proxy season, compared to 15 companies prior to 2015).
    \268\ See, e.g., Sidley Austin LLP, Proxy Access Momentum in 
2016, at 19 (June 27, 2016), available at http://www.sidley.com/~/
media/update-pdfs/2016/06/final-proxy-access-client-update-june-
2016.pdf.
    \269\ See, e.g., S&C April Report, supra note 91.
    \270\ Under most current proxy access bylaws, the shareholder 
generally has to meet a passive holder requirement as well as 
specific share ownership thresholds and holding period requirements 
in order to qualify to use proxy access, with most bylaws requiring 
the shareholder using proxy access to have held either a three 
percent or five percent ownership stake for a three-year holding 
period. See, e.g., S&C April Report, supra note 91; S&C August 
Report, supra note 114.
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    Other shareholder actions targeted at changes in board composition 
include withholding votes from (or voting against) directors in 
uncontested elections as well as waging formal ``vote no'' campaigns to 
encourage other shareholders to do so. Such campaigns are relatively 
low in cost but may have a more limited direct effect on boards than 
proxy contests or the use of proxy access bylaws because, while they 
can express shareholder dissatisfaction, such campaigns do not directly 
put forth alternative candidates for election. Nonetheless, such 
campaigns may have an effect on some registrants. One study of 112 
formal ``vote no'' campaigns found that about 20 percent of ``vote no'' 
campaigns have achieved substantial voting support and ``vote no'' 
campaigns are associated with a CEO turnover rate of about 25 percent 
in the year after the campaign, or over three times the turnover rate 
for a sample of comparable registrants.\271\
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    \271\ See Diane Del Guercio, Laura Seery & Tracie Woidtke, Do 
Boards Pay Attention When Institutional Investor Activists ``Just 
Vote No''?, 90 J. Fin. Econ. 84, 85 (2008).
---------------------------------------------------------------------------

    Finally, shareholders may also seek a change in board composition 
by making nominations from the floor of a meeting, without soliciting 
proxies. However, we understand that such nominations are rare,\272\ 
and generally unlikely to succeed, given the applicability of advance 
notice bylaws and our understanding that most shareholders vote in 
advance of meetings via the proxy process.
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    \272\ Based on the staff's discussions with independent 
inspectors of elections.
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C. Broad Economic Considerations

    The proposed amendments would change the proxy solicitation and 
voting process at registrants other than funds and BDCs to allow all 
shareholders of the company to use the proxy system to vote for their 
preferred combination of director candidates in a contested election. 
These changes are likely to improve the efficiency of the voting 
process in certain contested elections. It is possible that the 
proposed amendments could also affect the cost to registrants and 
dissidents of contested elections, and the outcomes and incidence of 
these elections. To the extent that such effects, if any, change the 
degree to which the risk of attracting a future proxy contest provides 
either discipline or a distraction to boards, the proposed amendments 
may affect managerial decision-making and the relationship between 
shareholders and management. Although the likelihood as well as the 
direction and extent of these effects is difficult to predict for 
reasons discussed below, we cannot rule out the possibility that any 
such effects could be significant.
    Our economic analysis of the proposed amendments reflects our 
consideration of a number of broad issues related to corporate 
governance and the proxy system. First, the design of the voting 
process, as a primary mechanism through which shareholders provide 
input into the composition of boards, can affect the amount of 
influence that shareholders exercise over the firms they own. Second, 
it is difficult to predict how the various parties involved in 
contested elections are likely to respond to any changes to the proxy 
process, complicating the evaluation of whether such changes would 
enhance or detract from board effectiveness and registrants' efficiency 
and competitiveness. Third, corporate governance involves a number of 
closely interrelated mechanisms, so any effects of contested elections 
may be either mitigated or magnified by changes in the use or 
effectiveness of other mechanisms. This section describes these issues 
in more detail and provides context for the discussion of potential 
economic effects that follows.
    The proposed amendments involve a fundamental aspect of corporate 
governance: The process by which directors for the boards of 
registrants are elected. Appropriate mechanisms to allow shareholder 
input into the nomination and election of directors can be important to 
maintaining the accountability of directors to shareholders.\273\ In 
turn, the accountability of directors to shareholders can play an 
important role in addressing the agency problems that arise from the 
separation of registrant ownership and control, especially when share 
ownership is widely dispersed. In particular, boards of directors can 
monitor, discipline and replace the officers of registrants, who have 
control over registrants' operations, on behalf of dispersed 
shareholders. Boards of directors can thereby play a key role in 
managing potential conflicts that may result from divergent interests 
between these officers and shareholders.\274\ The effectiveness of a 
board can be judged by its ability to adequately perform this 
monitoring role, and also by its performance across other dimensions,

[[Page 79158]]

such as its ability to provide valuable advice to the officers of the 
registrant.\275\
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    \273\ The nature of the mechanisms by which shareholders vote is 
affected by a number of different sources, including state law and a 
registrant's governing documents as well as Commission rules 
regarding the proxy process.
    \274\ See, e.g., Adolf Berle & Gardiner Means, The Modern 
Corporation and Private Property (1932).
    \275\ See, e.g., Renee Adams & Daniel Ferreira, A Theory of 
Friendly Boards, 62 J. Fin. 217 (2007) (theoretically exploring the 
interaction between the monitoring and the advisory role of boards, 
and how effectiveness in monitoring may or may not be related to 
effectiveness in advising).
---------------------------------------------------------------------------

    The selection of board members generally involves input from 
existing board members and from shareholders. Under most circumstances, 
the incumbent board nominates a slate of candidates to fill upcoming 
vacancies and shareholders vote on each of these candidates. The 
board's choice of nominees may reflect a number of factors, including 
board member preferences, information board members have learned about 
the registrant, board members' past experience, and recommendations 
from shareholders. In the case of a contested election, dissidents may 
nominate directors for shareholder consideration in addition to those 
nominated by the board. Shareholders then vote to determine which 
nominees are elected.
    The proxy system is the principal means by which shareholders in 
public companies exercise their voting rights. It is therefore 
important that this system functions efficiently and in a manner that 
adequately protects the interests of shareholders and does not impede 
them from exercising their rights under state law. Researchers have 
noted that details of the proxy process may affect the amount of 
influence that shareholders can exercise over the firms they own.\276\ 
Under current rules, and as discussed in Section IV.A above, 
shareholders who vote by proxy in a contested election often have a 
more constrained set of voting choices than shareholders who vote in 
person at the meeting. Alleviating these constraints could enhance the 
influence of shareholders on board composition by allowing all 
shareholders to cast votes in contested director elections that best 
reflect their preferences, thus facilitating the exercise of the rights 
that state law provides to shareholders. Furthermore, any changes in 
shareholder voting behavior, or other changes in the nature of the 
proxy process, could also have indirect effects on the nature of the 
relationship among shareholders, directors, and managers.
---------------------------------------------------------------------------

    \276\ See, e.g., Stuart L. Gillan & Jennifer E. Bethel, The 
Impact of the Institutional and Regulatory Environment on 
Shareholder Voting, 31 Fin. Manage. 29 (2002); Lucian A. Bebchuk, 
The Myth of the Shareholder Franchise, 93 Va. L. Rev. 675 (2007).
---------------------------------------------------------------------------

    It is difficult to predict whether any such changes would enhance 
or detract from board effectiveness and registrants' efficiency and 
competitiveness. Strong shareholder rights have been associated with 
higher firm valuations and better-developed equity markets.\277\ 
However, there are trade-offs between the degree of shareholder 
oversight and the level of director autonomy in managing the affairs of 
a registrant. For example, sufficient autonomy of the board and 
management may be important for fostering an environment focused on 
initiative, innovation and the registrant's long-term interests.\278\ 
Increasing the influence of shareholders may also empower specific 
groups of shareholders, who may use their increased influence to 
advance their own interests at the expense of other shareholders or who 
may advocate for changes for the benefit of all shareholders.\279\ It 
is therefore unclear what level of shareholder influence would maximize 
the efficiency and competiveness of registrants, and this optimal level 
of shareholder influence is likely to vary across registrants. 
Similarly, research is inconclusive as to what board structure and what 
combination of director types would maximize the effectiveness of a 
board, and the ideal board and governance structure likely varies 
across registrants.\280\
---------------------------------------------------------------------------

    \277\ See, e.g., Paul A. Gompers, Joy L. Ishii & Andrew Metrick, 
Corporate Governance and Equity Prices, 118 Q. J. Econ. 107, 128 
(2003); Rafael La Porta, Florencio Lopez-de-Silanes, Andrei Shleifer 
& Robert Vishny, Investor Protection and Corporate Governance, 58 J. 
Fin. Econ. 3, 15 (2000).
    \278\ See, e.g., Jonathan Karpoff & Edward Rice, Organizational 
Form, Share Transferability, and Firm Performance, 24 J. Fin. Econ. 
69 (1989); Philippe Aghion & Jean Tirole, Formal and Real Authority 
in Organizations, 105 J. Polit. Econ. 1 (1997).
    \279\ See, e.g., Jonathan B. Cohn, Stuart L. Gillan & Jay C. 
Hartzell, On Enhancing Shareholder Control: A (Dodd-) Frank 
Assessment of Proxy Access, 71 J. Fin. 1623, 1624 (2016), available 
at http://onlinelibrary.wiley.com/doi/10.1111/jofi.12402/full 
(providing evidence that proxy access, which the authors use as a 
measure of increased shareholder control, may be relatively more 
valuable at companies with activist shareholders but relatively less 
valuable at companies with greater ownership by labor-friendly 
shareholders).
    \280\ For a discussion of the inconclusiveness of existing 
research on what constitutes an optimal board structure, as well as 
how the observed variation in the structure and function of boards 
may be an appropriate response to the specific governance and 
operational issues faced by different companies, see, e.g., 
Ren[eacute]e B. Adams, Benjamin E. Hermalin & Michael S. Weisbach, 
The Role of Boards of Directors in Corporate Governance: a 
Conceptual Framework and Survey, 48 J. Econ. Lit. 58 (2010).
---------------------------------------------------------------------------

    It is also difficult to predict how the various participants 
involved in director elections may alter their behavior in reaction to 
any changes in the process by which directors are selected. 
Shareholders could change their voting behavior along many dimensions--
for example, they could become more or less likely to support 
registrant candidates, more or less likely to support dissident 
candidates, or more or less likely to support a combination of 
registrant and dissident candidates without consistently favoring 
either type of candidate. Director candidates may react by becoming 
more or less willing to be nominated based on reputational concerns. If 
the nature of elections were expected to change, registrants and 
dissidents may change the amount of resources they invest in elections 
or change their approach to negotiations. Because of the range of 
actions that any of the involved parties could choose, and the fact 
that other parties could change their own behavior in reaction to any 
such actions, the outcome of any changes to the election process is 
difficult to predict, although we have attempted to assess them to the 
extent possible in the discussion below.
    Finally, it is important to note that proxy contests represent one 
particular corporate governance mechanism that may substitute for or 
complement other governance mechanisms. In the case of substitute 
mechanisms, increasing the usefulness of one mechanism is likely to 
reduce the use of its substitute. For example, increasing the frequency 
of buses may reduce the likelihood that commuters drive. In the case of 
complementary mechanisms, increasing the usefulness of one mechanism is 
likely to increase the use of complementary mechanisms. For example, 
improving the quality of roads may increase the likelihood that 
commuters drive. Similarly, researchers have found that some governance 
mechanisms are substitutes for or complements to each other.\281\ As a 
result, changes affecting proxy contests may affect the efficacy and 
use of governance mechanisms that can substitute for or complement such 
contests. Adjustments in the degree to which different governance 
mechanisms are used are likely to reflect a new equilibrium in the 
relationship between shareholders and management.\282\ Such changes may 
either magnify or mitigate

[[Page 79159]]

any potential effects of changes in the nature of proxy contests.
---------------------------------------------------------------------------

    \281\ See, e.g., Stuart Gillan, Jay Hartzell & Laura Starks, 
Tradeoffs in Corporate Governance: Evidence from Board Structures 
and Charter Provisions, 1 Q. J. Fin. 667 (``Gillan, Hartzell & 
Starks Study'') (finding that certain governance mechanisms are 
substitutes); Martijn Cremers & Vinay Nair, Governance Mechanisms 
and Equity Prices, 60 J. Fin. 2859, 2862 (2005) (finding that 
certain governance mechanisms are complements).
    \282\ See, e.g., Gillan, Hartzell & Starks Study (discussing 
substitute and complementary governance mechanisms and how 
equilibrium governance choices may be determined given the 
interrelation among mechanisms).
---------------------------------------------------------------------------

D. Discussion of Economic Effects

    The economic benefits and costs of the proposed amendments, 
including impacts on efficiency, competition and capital formation, are 
discussed below. For purpose of this economic analysis, we first 
address the effects of the proposed changes to the proxy process 
together as a package, including both benefits and costs. In 
particular, we discuss the anticipated effects of the proposed 
amendments on shareholder voting and then consider anticipated effects 
with respect to the costs, outcomes, incidence, and perceived threat of 
contested elections at registrants other than funds and BDCs. We then 
discuss the economic effects that can be attributed to specific 
implementation choices in the proposed amendments, to the extent 
possible, and the relative benefits and costs of the principal 
reasonable alternatives to these implementation choices.
1. Effects on Shareholder Voting
    By mandating the use of a universal proxy in contested elections, 
the proposed amendments would allow all shareholders to vote through 
the proxy system for the combination of director nominees of their 
choice. This change is expected to increase the efficiency with which 
shareholders vote in contested elections. In particular, universal 
proxies would result in benefits in the form of cost savings for 
shareholders who would otherwise expend time and resources to attend a 
shareholder meeting or otherwise arrange to vote for a combination of 
candidates that could not be voted for by proxy. Other shareholders may 
be newly able to vote for their most preferred candidates. That is, 
there may be shareholders who would vote for a combination of 
management and dissident candidates if a universal proxy were available 
but who do not currently do so because it is not feasible (and in 
particular cost-effective) to undertake such a vote. Also, with a 
universal proxy, some shareholders would be able to vote for dissident 
nominees despite not being solicited by the dissident or receiving the 
dissident's proxy card because they would be able to vote for those 
nominees using the registrant's proxy card.
    Shareholders voting by proxy are typically restricted to voting 
only for nominees chosen by one or the other of the parties to the 
contest. At least some investors have expressed dissatisfaction with 
these constraints on their ability to vote by proxy.\283\ We also note 
that proxy advisory services have often recommended voting for 
candidates that have appeared on different proxy cards in contested 
elections, leading to additional concern among shareholders as to how 
to cast such votes.\284\ Finally, we are aware that registrants and 
dissidents have creatively (but imperfectly) sought to facilitate vote-
splitting in recent years, further demonstrating demand for a 
generally-applicable solution that would permit split-ticket voting by 
proxy.\285\
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    \283\ See, e.g., Rulemaking Petition; Roundtable Transcript, 
comments of Anne Simpson, Senior Portfolio Manager and Director of 
Global Governance, CalPERS, at 35-36.
    \284\ See, e.g., John Wilcox, Shareholder Nominations of 
Corporate Directors: Unintended Consequences and the Case for Reform 
of the U.S. Proxy System, Shareholder Access to the Corporate Ballot 
(Lucian Bebchuk ed. 2005).
    \285\ See, e.g., Richard J. Grossman & J. Russel Denton, Never 
Mind Equal Access: Just Let Shareholders ``Split Their Ticket'', The 
M&A Lawyer (Jan. 2009) (discussing a contest in which shareholders 
interested in splitting their votes were instructed to vote on both 
proxy cards, dating them with the same date, and adding a special 
notation that neither card was intended to invalidate the other, and 
noting a concern that such split votes could be challenged in 
court); Liz Hoffman, Tessera Proxy's Write-In Option Draws SEC's 
Eye, Law360 (May 20, 2013), available at http://www.law360.com/articles/442878/tessera-proxy-s-write-in-option-draws-sec-s-eye 
(discussing a contest in which the registrant included a write-in 
slot on its proxy card and instructed shareholders interested in 
splitting their votes to vote on its card and write in the names of 
dissident nominees, and noting that Commission staff objected to 
this approach on the basis that it would violate the bona fide 
nominee rule).
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    Under the proposed amendments, shareholders who want to vote by 
proxy for a full complement of directors would no longer be limited to 
voting only for nominees chosen by the registrant or only for nominees 
chosen by the dissident.\286\ Also, the ability to vote for dissident 
nominees by proxy would no longer be limited to shareholders solicited 
by the dissident.\287\ Instead, all shareholders could use a universal 
proxy to vote for the combination of directors of their choice, as they 
are able to do in person at a shareholder meeting.
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    \286\ Nominees ``chosen'' by the dissident may include certain 
registrant nominees. The short slate rule permits a dissident in 
certain circumstances to solicit votes for some of the registrant's 
nominees through the use of its proxy card where the dissident is 
not nominating enough director candidates to gain majority control 
of the board in the contest, thereby allowing shareholders using the 
dissident's proxy card to split their vote. However, shareholders 
voting on the dissident's proxy card would still be limited to 
voting for those registrant nominees selected by the dissident, 
rather than any registrant nominee of their choice.
    \287\ For shareholders not solicited by the dissident, while the 
registrant's universal proxy card would allow them to support 
dissident nominees, they would still need to seek out the 
dissident's proxy statement in the EDGAR system (as directed by the 
registrant's proxy statement) to obtain information about the 
dissident nominees.
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    Although some shareholders are able to use existing approaches to 
implement split-ticket votes, such as by attending a shareholder 
meeting in person, these existing approaches are generally associated 
with costs beyond the usual costs of voting by proxy. These costs may 
include the time and expense required to obtain a legal proxy from 
one's broker (if required) and travel to and attend (or send a 
representative to attend) a meeting.\288\ Even when alternatives 
besides in-person voting are made available to some shareholders, 
taking advantage of such accommodations may entail costs. For example, 
in the case in which a proxy solicitor acting on behalf of a party to 
the contest arranges for an in-person representative for a large 
shareholder, this shareholder is likely to spend some incremental time 
contacting and coordinating with the proxy solicitor. While these costs 
may be minimal in some cases, any of the incremental time and resources 
currently expended to implement split-ticket votes would no longer be 
required in the case of universal proxies, resulting in greater 
efficiency in vote submission. We do not currently have data regarding 
how many shareholders implement split-ticket voting, to what extent the 
different approaches are used, and the degree of incremental costs 
borne to implement such votes, in order to estimate the potential cost 
savings. We request comment below on current voting practices, 
including data about costs to implement split-ticket voting.
---------------------------------------------------------------------------

    \288\ Shareholders with many different holdings may also face 
logistical constraints, in that annual meetings for different 
companies often overlap and it may therefore not be feasible to 
attend all such meetings in person. These logistical constraints can 
potentially be overcome at a cost. In particular, while proxy 
contests are relatively infrequent, to the extent that two 
registrants subject to proxy contests have meetings on the same 
date, or a shareholder has other reasons to prefer attending a 
conflicting meeting in person, shareholders may be able to arrange 
for a representative to attend one of these meetings on their 
behalf.
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    We expect that institutional shareholders and large shareholders 
are relatively more likely than other shareholders to be able to 
implement a split-ticket vote using one of the existing approaches and 
would thus be more likely to experience cost savings under the proposed 
amendments. As discussed above, institutional shareholders hold a 
majority of the shares in U.S. public companies and are much more 
likely to vote than retail shareholders.\289\ We expect that 
shareholders with large stakes in the

[[Page 79160]]

registrant \290\ would also generally be more likely to vote than 
smaller shareholders because of the greater influence they may have on 
the outcome of the election and their greater economic interest in this 
outcome. For these same reasons, we expect that large shareholders that 
prefer to vote a split-ticket would have a particularly strong 
incentive to find a way to implement such a vote. Institutional and 
large shareholders may also be more likely to have access to the 
existing approaches for split-ticket voting. That is, they are more 
likely than other shareholders to have the resources required to vote 
in person, and may also be more likely to have access to any 
accommodations made to facilitate split-ticket voting, as when a party 
to the contest arranges for an in-person representative to attend a 
meeting on behalf of a shareholder.
---------------------------------------------------------------------------

    \289\ See infra Section IV.B.1.
    \290\ See Figure 1 and Figure 2 in Section IV.B.2 for the 
distribution of institutional holders by the size of their stakes in 
potentially affected registrants for which this data is available.
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    The availability of universal proxies would also expand the voting 
alternatives of shareholders for whom it would not otherwise be 
practical or feasible to vote for their preferred combination of 
candidates. The existing approaches to implementing a split-ticket vote 
discussed above are likely to be cost prohibitive or unavailable to 
many shareholders, particularly retail shareholders and small 
shareholders. That is, shareholders that have a limited economic 
interest and voting power in the registrant may not have a sufficiently 
high financial incentive to bear the costs required to attend or send a 
representative to a meeting. Retail and small shareholders may be 
unable or unwilling to bear these costs, and may be unlikely to be 
proactively offered alternative accommodations (such as an in-person 
representative being arranged by a proxy solicitor). To the extent that 
such shareholders are interested in splitting their ticket, the 
availability of universal proxies would enable them to vote for the 
combination of directors of their choice and thus may result in a 
greater number of split-ticket votes than under the current system.
    In addition, because dissidents are not required to solicit all 
shareholders, many shareholders might not receive the dissident's proxy 
card and thus be able to vote for dissident candidates in a substantial 
fraction of proxy contests.\291\ In particular, smaller shareholders, 
such as those holding fewer than 1,000 shares in the registrant, are 
less likely to be solicited by dissidents.\292\ The proposed 
requirement that registrants, as well as dissidents, use universal 
proxies would allow shareholders who are not solicited by dissidents to 
nonetheless vote for some or all of the dissident nominees through the 
proxy process, by using the registrant's universal proxy card.
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    \291\ Based on industry data provided by a proxy services 
provider for a sample of proxy contests from June 30, 2015 through 
April 15, 2016, we estimate that there are some shareholders that 
dissidents do not solicit in approximately 40 percent of contested 
elections, while all shareholders are solicited by dissidents in the 
remainder of contested elections. In contests in which fewer than 
all shareholders were solicited, only those accounts holding a 
number of shares of the registrant that exceeded a minimum threshold 
of shares were subject to solicitation by the dissident.
    \292\ Based on industry data provided by a proxy services 
provider for a sample of proxy contests from June 30, 2015 through 
April 15, 2016, in contests in which fewer than all shareholders 
were solicited, the shareholders to be solicited were chosen based 
on the size of their shareholdings. Specifically, only those 
accounts holding a number of shares of the registrant equal to or 
exceeding a minimum threshold were subject to solicitation by the 
dissident. The minimum threshold in these cases ranged from 100 to 1 
million shares, but was most often between 500 and 1,000 shares.
---------------------------------------------------------------------------

    Thus, the proposed amendments would allow shareholders who would 
not currently find it practical or feasible to vote for their preferred 
candidates, by using a universal proxy, to split their ticket or 
support the dissident slate. We expect that retail and small 
shareholders are more likely than other shareholders to change the 
votes they would submit upon the availability of universal proxies 
because they currently have limited access to other means of voting a 
split-ticket and a lower likelihood of being solicited by dissidents. 
However, we also note that such shareholders may be less likely to vote 
in general.\293\ For these shareholders, the proposed amendments are 
not likely to result in direct cost savings, but would allow them to 
submit votes that better reflect their preferences. The indirect 
benefits or costs of their expanded voting options depend on whether 
such changes in voting behavior are widespread enough to change actual 
or expected election outcomes, and the nature of these changes in 
outcomes, as discussed below.\294\
---------------------------------------------------------------------------

    \293\ Retail shareholders vote 28 percent of their shares on 
average, though their participation rate could be higher in the case 
of a contested election, because of factors such as increased media 
coverage, expanded outreach efforts, and greater shareholder 
interest in the contest. See supra Section IV.B.1.
    \294\ See infra Sections IV.D.3 and IV.D.4.
---------------------------------------------------------------------------

    There is also a possibility that universal proxies could lead some 
shareholders to be confused about their voting options and how to 
properly mark the proxy cards to accurately reflect their choices. This 
may give rise to minor costs to some shareholders in contested 
elections, particularly less sophisticated shareholders, if it 
increases the time required by these shareholders to mark and submit a 
proxy card. It may also increase the risk that some shareholders submit 
proxy cards that do not accurately reflect their intentions or that 
could be invalidated because they are improperly marked. However, we 
believe that the risk of any such confusion would be mitigated by the 
presentation and formatting requirements of the proposed amendments, as 
discussed in Section IV.D.5 below.
2. Potential Effects on Costs of Contested Elections
    The proposed amendments may directly impose minor costs on 
registrants and dissidents that engage in proxy contests, relative to 
the current costs that these parties bear in proxy contests.\295\ The 
proposed amendments may also have effects on the expected outcomes of 
contested elections that could result in either a net increase or net 
decrease in the total costs that either registrants or dissidents incur 
in contested elections, primarily because of strategic changes in 
discretionary solicitation expenditures. The extent and direction of 
such indirect changes in costs incurred are difficult to predict. We 
also consider the proposal's cost implications in the context of 
nominal contests, in which the dissidents incur little more than the 
basic required costs to pursue a contest, which are currently rare but 
could become more or less frequent under the proposed amendments.
---------------------------------------------------------------------------

    \295\ The potential direct cost savings resulting from the 
proposed amendments for certain shareholders are discussed in 
Section IV.D.1 supra.
---------------------------------------------------------------------------

a. Typical Proxy Contests
    The total cost borne by a registrant or dissident in a typical 
proxy contest would generally include solicitation costs, such as basic 
proxy distribution and postage costs, expenditures on proxy solicitors, 
attorneys and public relations advisors, and any time spent by the 
parties or their staff on outreach efforts. The total cost to 
registrants would also reflect items such as any additional time spent 
by staff on determining and implementing a strategy in response to the 
contest and any costs of revising their proxy materials given the proxy 
contest. The total cost to dissidents would also reflect time spent by 
the dissident to pursue a contest, the cost to seek nominees and gain 
their consent to be nominated, and the cost of drafting a preliminary 
and definitive proxy

[[Page 79161]]

statement and undergoing the staff's review and comment process for 
those filings. These total costs are difficult to estimate because the 
components of these costs (other than estimated solicitation 
expenditures) are not specifically required to be disclosed and may 
vary significantly across contests. However, we note that many of the 
components of these costs are not likely to be affected by the proposed 
amendments. In much of the discussion that follows, we focus primarily 
on solicitation costs because we believe that these costs are most 
likely to be affected by the proposed amendments.
    We first consider the direct cost implications of the proposed 
amendments. For dissidents that would have engaged in typical proxy 
contests even in the absence of the proposed amendments, the proposed 
requirement to solicit shareholders representing at least a majority of 
the voting power entitled to vote on the election of directors may 
impose a small incremental cost in some infrequent cases. In most 
cases, however, we expect that this requirement should not result in a 
change in costs to dissidents or require any further action on their 
part. In particular, as noted in Section IV.B.2. above, we estimate 
that in approximately 97 percent of recent proxy contests the dissident 
solicited a number of shareholders that exceeded the threshold that 
would be required under the proposed solicitation requirement.\296\ For 
this reason, we believe that any dissidents who would not otherwise 
have initiated a contest but may decide to engage in a typical proxy 
contest as a result of the proposed amendments would also generally not 
bear any incremental costs as a direct result of the proposed 
solicitation requirement, though they likely would bear total 
solicitation costs comparable to those borne in other typical proxy 
contests (for which the median total solicitation cost was, as 
discussed above, $250,000 for dissidents initiating contests in 
2015).\297\ Below, we separately discuss the potential cost 
implications for nominal proxy contests, which are different from 
typical proxy contests in that the dissidents incur little more than 
the minimum required cost to contest an election.
---------------------------------------------------------------------------

    \296\ See supra note 251 and accompanying text.
    \297\ See supra Section IV.B.2.
---------------------------------------------------------------------------

    Even in the infrequent cases in which dissidents in a typical proxy 
contest may currently not solicit shareholders holding a majority of 
the shares eligible to vote in the registrant, dissidents are likely to 
solicit shareholders holding a significant fraction of these shares in 
order to have a chance of winning any board seats.\298\ Within a sample 
of recent proxy contests, we estimate the number of accounts that one 
would have to solicit in order to meet the proposed solicitation 
requirement ranges from about 0.1 percent to 10 percent of the 
outstanding shareholder accounts, with the median number of accounts 
required equaling about one percent of the total shareholder 
accounts.\299\ Given that even those dissidents that would not 
currently meet the proposed solicitation requirement have still 
solicited shareholders representing a large fraction (though less than 
50 percent) of the shares eligible to vote, as well as our 
understanding that the number of accounts required to reach a majority 
of the shares eligible to vote is generally expected to be a small 
fraction of the total accounts outstanding, we expect that the 
incremental cost of the solicitation requirement to a dissident, if 
any, should be minor relative to the total costs incurred by dissidents 
in proxy contests.
---------------------------------------------------------------------------

    \298\ Based on industry data provided by a proxy services 
provider for a sample of proxy contests from June 30, 2015 through 
April 15, 2016, the sole dissident in the sample of 35 contests that 
solicited less than a majority of the shareholders solicited 
accounts representing 31.5 percent of the outstanding shares.
    \299\ Based on industry data provided by a proxy services 
provider for a sample of proxy contests from June 30, 2015 through 
April 15, 2016.
---------------------------------------------------------------------------

    Specifically, in the infrequent case in which a dissident would 
otherwise have solicited shareholders representing a substantial 
fraction, but not a majority, of the shares eligible to vote, we 
preliminarily estimate that such a dissident would bear an incremental 
cost of approximately $1,000 if using the least expensive approach 
\300\ to expand solicitation to meet the proposed minimum solicitation 
requirement.\301\ The level of any such incremental cost would be 
driven by any shortfall in the number of shareholders that would 
otherwise be solicited compared to the number that would be required to 
be solicited to meet the proposed majority voting threshold. Factors 
that may affect this shortfall include the size of the dissident's own 
voting stake in the registrant and the demographics of the shareholder 
base, such as whether share ownership is widely dispersed or more 
concentrated in a given registrant.
---------------------------------------------------------------------------

    \300\ Staff assumed that the dissident would use the least 
expensive approach (i.e., notice and access delivery) to solicit 
additional accounts given that the dissident would not have chosen 
to solicit these accounts but for the proposed minimum solicitation 
requirement. To the extent that dissidents were to use an approach 
other than the least expensive approach to solicit additional 
shareholders to meet this requirement, their incremental costs would 
likely be higher than estimated here. Such approaches may include 
using full set rather than notice and access delivery, soliciting 
more than the minimum required number of shareholders, or incurring 
additional solicitation expenditures on phone calls or other forms 
of outreach. It is difficult to estimate how much more these 
approaches would cost than the least expensive approach because of 
the variety of approaches that could be used and because of the 
degree of variation in expenses such as postage and printing costs 
depending on the total size of the dissident's proxy materials.
    \301\ This estimate was derived by staff based on the NYSE Rule 
451 fee schedule and industry data provided by a proxy services 
provider. In particular, staff based this estimate on the single 
case out of the 35 contests from June 30, 2015 through April 15, 
2016 for which information was provided in which less than a 
majority of shareholders was solicited by the dissident. The 
required increase in expenses to solicit a majority of shareholders 
was estimated based on the number of additional accounts that would 
have to be solicited and the applicable fees under NYSE Rule 451 and 
postage costs for notice and access delivery. For the purpose of the 
nominee coordination fee, staff used information from other proxy 
contests for which information was provided (specifically focusing 
on those in which less than all shareholders were solicited) to 
interpolate the increase in the number of banks or brokers 
considered ``nominees'' under NYSE Rule 451 that might be involved 
at the higher solicitation level. The estimated incremental 
solicitation cost of approximately $1,000 includes nominee 
coordination fees of $22 for each of the additional nominees 
expected to be involved, plus basic processing fees, notice and 
access and preference management fees and postage totaling $1.57 
(for suppressed accounts, such as those that have affirmatively 
consented to electronic delivery) to $1.70 (for other accounts) per 
additional account to be solicited. Staff assumed that half of the 
additional accounts to be solicited are suppressed and that none of 
these accounts requested full set delivery by prior consent or upon 
receipt of the notice (because such delivery requirements may apply 
to only a small fraction of accounts and is not expected to 
significantly affect the overall estimate of costs). Additional 
notice and access fees of $0.25 per account were assumed to be 
required for each account that was solicited prior to increasing the 
level of solicitation because of the use of notice and access 
delivery for some accounts. Given the number of accounts involved, 
no additional intermediary unit fees were expected to apply. This 
estimate does not include printing costs for the notice, for which 
we do not have relevant data to estimate these costs. We request 
comment on this estimate and data that could allow staff to obtain a 
more precise estimate below.
---------------------------------------------------------------------------

    In sum, we do not expect the proposed solicitation requirement to 
impose a large incremental cost burden on dissidents in typical proxy 
contests in which the dissident engages in substantial solicitation 
efforts. In the vast majority of cases, we expect dissidents that would 
have engaged in proxy contests even in the absence of the proposed 
amendments not to bear any incremental direct costs due to the 
solicitation requirement. Similarly, for dissidents that newly decide 
to engage in a typical proxy contest (as opposed to a nominal contest, 
discussed below) as a result of the proposed amendments, we do not 
expect the solicitation requirement to change the costs that

[[Page 79162]]

they would expect to bear relative to the costs of any other typical 
proxy contest. In the infrequent cases in which dissidents may be 
required to expand their solicitation in order to meet the proposed 
requirement, our estimate of an incremental cost of approximately 
$1,000 represents less than one percent of the median total 
solicitation cost reported in proxy statements by dissidents (which may 
include expenditures for proxy solicitors, attorneys and public 
relations advisors as well as the more basic proxy distribution fees 
and postage costs).\302\
---------------------------------------------------------------------------

    \302\ The median total solicitation cost reported in proxy 
statements by dissidents in proxy contests in 2014 and 2015 is 
approximately $250,000, in line with the estimates in a study of 
such costs over a longer horizon. See supra Section IV.B.2.
---------------------------------------------------------------------------

    Registrants may also incur minor incremental costs in typical proxy 
contests as a direct result of the proposed amendments in order to 
implement the required changes to their proxy cards. For example, under 
the proposed amendments registrants must list dissident nominees on 
their proxy cards and provide disclosure about the consequences of 
voting for a greater or lesser number of nominees than available 
director positions. In addition, both registrants and dissidents may 
incur costs to make additional changes to their proxy statements in 
reaction to the proposed amendments, such as additional disclosures 
urging shareholders not to support their opponent's candidates using 
their card and expressing their views as to the importance of a 
unified, rather than a mixed, board. These costs are expected to be 
minimal in comparison to the total costs that registrants and 
dissidents bear in a typical proxy contest.\303\
---------------------------------------------------------------------------

    \303\ See infra Section V for estimates for purposes of the 
Paperwork Reduction Act (``PRA'') of the incremental burden that may 
be required to prepare proxy materials under the proposed 
amendments.
---------------------------------------------------------------------------

    We next consider indirect effects of the proposed amendments on the 
costs of proxy contests. For both registrants and dissidents in typical 
proxy contests, other effects of the proposed amendments have the 
potential to result in more significant changes in costs than the 
effects related to revising proxy materials or the proposed 
solicitation requirement. This is because the greatest potential impact 
on the cost of proxy contests is likely related to strategic increases 
or decreases in discretionary solicitation efforts in response to any 
changes that the proposed amendments may bring about in the likelihood 
of the different potential outcomes of the contest. Changes in 
discretionary solicitation efforts may include increases or decreases 
in expenditures on proxy solicitors or the degree of outreach through 
phone calls or mailings to convince shareholders to vote for a party's 
candidates. In particular, while we estimate that the median total 
solicitation cost for dissidents in 2015 was approximately $250,000, we 
estimate that the median basic cost of soliciting shareholders, namely 
the proxy distribution fees and postage costs for the first mailing, 
was approximately $11,000.\304\ The large expenditures on solicitation 
beyond the basic costs of soliciting shareholders (a median incremental 
expenditure of over $239,000), demonstrate the potential for 
substantial increases or decreases in costs if a party were to change 
their approach to discretionary solicitation activities. However, it is 
difficult to predict the extent or direction of this potential effect 
because any changes in discretionary solicitation expenditures are 
highly dependent on the particular situation and the parties' own views 
as to how the proposed amendments would affect their likelihood of 
gaining or retaining seats and the potential impact of solicitation 
efforts.\305\
---------------------------------------------------------------------------

    \304\ Our estimate of total solicitation costs is based on costs 
reported in proxy statements in 2014 and 2015. See supra Section 
IV.B.2. Our estimate of proxy distribution fees and postage costs is 
based on industry data provided by a proxy services provider for a 
sample of 35 proxy contests from June 30, 2015 through April 15, 
2016, and excludes dissident printing costs (for which we do not 
have relevant data to estimate these costs).
    \305\ Effects on strategic discretionary expenditures, whether 
increases or decreases, are more likely in the case of what would 
otherwise be close contests. We estimate that approximately 26 
percent of proxy contests in 2014 and 2015 were close. See supra 
Section IV.B.2.
---------------------------------------------------------------------------

    For example, registrants that expect that a universal proxy may 
otherwise result in more dissident nominees being elected may incur 
additional costs to increase outreach to shareholders in an effort to 
limit support for dissident nominees. Similarly, dissidents may 
increase solicitation expenditures in cases where they expect the use 
of universal proxies and any corresponding increase in split-ticket 
voting to result in more registrant nominees retaining seats than 
otherwise expected. At the same time, registrants or dissidents may 
reduce solicitation expenditures in cases in which they believe that 
any increased split-ticket voting related to universal proxies would 
result on average in more support for their own nominees, given that 
they may therefore be able to achieve the same expected outcome at a 
lower cost than in the absence of universal proxies. That said, such 
registrants or dissidents could alternatively decide to increase 
solicitation expenditures relative to what they would otherwise have 
spent if they think that they may actually be able to gain or retain 
more seats than would otherwise have been feasible. We solicit comment 
below from registrants and dissidents as to whether they anticipate 
that their solicitation costs would likely increase or decrease under 
the proposed amendments and why, including specific cost estimates.
b. Nominal Proxy Contests
    The proposed amendments may also have implications for nominal 
contests, in which the dissidents incur little more than the basic 
required costs to pursue a contest. Despite the fact that there may be 
a low chance of succeeding in obtaining a board seat if a dissident 
does not undertake substantial solicitation efforts, such as through 
full set delivery, use of a proxy solicitor, and other outreach, as 
they would in a typical proxy contest, dissidents may nevertheless 
choose to initiate nominal contests to pursue goals other than changes 
in board composition. Such contests are currently rare \306\ but could 
become more or less attractive as a result of the proposed amendments, 
as discussed in Section IV.D.4.b. below.
---------------------------------------------------------------------------

    \306\ Based on staff experience. See supra Section IV.B.2.b.
---------------------------------------------------------------------------

    A dissident engaging in a nominal proxy contest currently must bear 
the cost of drafting a preliminary proxy statement and undergoing the 
staff's review and comment process for that filing. Under the proposed 
amendments, such a dissident would also be required to bear the cost of 
meeting the solicitation requirements of the proposed amendments. We 
preliminarily estimate that it may cost approximately $6,000 at a 
median-sized (based on the number of accounts in which its shares are 
held) registrant using the least expensive approach \307\ to meet the 
proposed minimum solicitation requirements through an 
intermediary,\308\ which is significantly

[[Page 79163]]

less than the total solicitation expenses incurred by a dissident in a 
typical proxy contest. As noted above in Section IV.B.2, reported proxy 
solicitation expenses for dissidents in recent contests range from 
$25,000 to $8 million, with a median of $250,000. These expenses 
substantially exceed the estimated cost of a nominal contest in part 
because a dissident in a typical proxy contest would generally incur 
higher proxy dissemination costs because of the use of full set 
delivery and the solicitation of a larger fraction of the shareholders 
entitled to vote, but also because of substantial additional 
expenditures on solicitation beyond the cost of proxy dissemination, 
such as the expense to hire a proxy solicitor to perform additional 
outreach.
---------------------------------------------------------------------------

    \307\ See supra note 300.
    \308\ The median-sized registrant was determined based on the 
number of beneficial accounts in which shares in the registrant are 
held. The cost estimate was derived by staff based on the NYSE Rule 
451 fee schedule and industry data provided by a proxy services 
provider. The required cost to meet the proposed solicitation 
requirement was estimated based on the number of accounts that would 
have to be solicited and the applicable fees under NYSE Rule 451 and 
postage costs for notice and access delivery. Specifically, industry 
data provided by a proxy services provider indicates that there are 
approximately 4,500 total accounts at the median registrant. Since 
the shareholder base is likely composed of some large shareholders 
and many more small shareholders, staff assumed that two percent of 
these accounts, or a total of 90 accounts, would have to be 
solicited to reach a majority of the voting power. This assumption 
is consistent with the average shareholder concentration at the 
seven registrants with a total number of accounts between 3,000 and 
5,000 that are included in the sample of contests for which we were 
provided industry data by a proxy services provider. Staff also 
assumed that the number of brokers and banks involved for the 
purpose of determination of the nominee coordination fee is equal to 
45. The estimated solicitation cost of approximately $6,000 includes 
intermediary unit fees, which apply with a minimum of $5,000, plus 
nominee coordination fees of $22 per bank or broker considered a 
``nominee'' under NYSE Rule 451, plus basic processing fees, notice 
and access and preference management fees and postage totaling $1.57 
(for suppressed accounts, such as those that have affirmatively 
consented to electronic delivery) to $1.70 (for other accounts) per 
account. Staff assumed that half of the accounts in question are 
suppressed and that none of these accounts requested full set 
delivery by prior consent or upon receipt of the notice (because 
such delivery requirements may apply to only a small fraction of 
accounts and is not expected to significantly affect the overall 
estimate of costs). This estimate does not include printing costs 
for the notice, for which we do not have relevant data to estimate 
these costs. We request comment on this estimate and data that could 
allow staff to obtain a more precise estimate below.
---------------------------------------------------------------------------

    The basic required cost to contest an election at a given 
registrant may also be affected by the dissident's own voting stake in 
the registrant and the characteristics of the shareholder base, such as 
whether share ownership is widely dispersed or more concentrated in a 
given registrant. In particular, these costs may be substantially lower 
in cases where a dissident can meet the proposed solicitation 
requirement by disseminating materials on its own, without hiring a 
proxy services provider or similar intermediary, as in the case of a 
registrant with a very concentrated shareholder base and majority 
owners that are known and easily contacted. These costs would be 
substantially higher at registrants at which the total number of 
shareholder accounts that would be required to reach a majority of the 
shares entitled to vote is very high, as at registrants with highly 
dispersed ownership.
    To the extent that the proposed amendments may result in an 
increased incidence of nominal contests, we expect that registrants 
that are the subject of such additional contests would bear incremental 
costs. We expect these costs to be higher than in the case of current 
nominal contests, for which we believe that the costs borne by 
registrants are minimal, but significantly lower than in the case of a 
typical proxy contest. In particular, registrants may revise their 
proxy materials and increase their solicitation expenditures to explain 
the appearance of the names of dissident nominees on their proxy cards 
and urge shareholders not to support the dissident's nominees. However, 
we do not expect solicitation expenditures to rise as much as they 
would in the average typical proxy contest because the registrant, in 
its solicitation efforts, would not be competing with a dissident that 
is spending significant resources on solicitation. For these reasons, 
we estimate that the cost borne by a registrant facing a nominal proxy 
contest may be approximately $25,000, based on the lowest incremental 
solicitation cost reported by registrants in recent proxy 
contests.\309\
---------------------------------------------------------------------------

    \309\ See supra Section IV.B.2. We request comment on this 
estimate below.
---------------------------------------------------------------------------

3. Potential Effects on Outcomes of Contested Elections
    By mandating the use of a universal proxy in contested elections, 
the proposed amendments would allow every shareholder to vote by proxy 
for the combination of directors of their choice. In addition to 
reducing costs for certain shareholders who would submit split ticket 
votes even in the absence of universal proxies, universal proxies may 
result in additional shareholders submitting split-ticket votes or, for 
those not solicited by dissidents, supporting the dissident slate or 
some dissident nominees. Such changes in voting behavior could be 
significant enough to affect election outcomes in the contests that 
would have occurred even in the absence of the proposed amendments, as 
well as to change the incentive to initiate contests.\310\ In 
particular, either more registrant nominees or more dissident nominees 
might be elected than under the baseline, where vote splitting is 
harder to achieve and some shareholders do not receive a proxy card 
that includes the dissident slate. Any resulting changes in board 
composition or changes in control of the board may impose costs and 
yield benefits for shareholders, registrants, and dissidents. However, 
these effects are uncertain because it is difficult to predict the 
extent or direction of any changes in voting behavior as a result of 
the proposed amendments and to evaluate whether any resulting changes 
in the members of the board will lead to more or less effective board 
oversight.
---------------------------------------------------------------------------

    \310\ The potential incidence of additional contests that would 
not have occurred in the absence of the proposed amendments is 
discussed in Section IV.D.4 infra.
---------------------------------------------------------------------------

    There may be elections in which universal proxies would result in 
changes to the percentage of the vote obtained by each director 
candidate, but in which the changes in vote totals would not be 
sufficient to change the ultimate election results. We preliminarily 
believe that this would be the likely outcome for the majority of 
contested elections that would have taken place in the absence of the 
proposed amendments. We estimate that approximately three-quarters of 
recent contests were not very close and would require shareholders 
holding significant voting power (greater than five percent) to change 
their voting behavior in order to lead to a different election 
result.\311\ We also note that the voting power represented by 
shareholders that may potentially change their voting behavior is 
limited due to the fact that some shareholders, particularly large 
shareholders, are currently able to send representatives to shareholder 
meetings or use other mechanisms to implement split-ticket votes when 
desired. We do not expect the votes submitted by these shareholders to 
change as a result of the proposed amendments. The extent to which 
other shareholders are interested in splitting their tickets or, for 
those not solicited by dissidents, in voting for the dissident slate, 
is unclear, particularly as the option has not generally been available 
to them (without additional cost) under the current rules.\312\ We 
solicit comment on this point below.
---------------------------------------------------------------------------

    \311\ Based on staff review of contested elections initiated in 
2014 and 2015, votes representing greater than 5 percent of the 
total outstanding voting power would have to change in order to 
change the result in about 74 percent of the elections. Within that 
74 percent, almost two-thirds of the elections would have required a 
change in votes representing greater than 20 percent of the 
outstanding voting power to result in a change in the election 
outcome.
    \312\ For example, it has been asserted that retail 
shareholders, when they vote, tend to support management. See, e.g., 
Neil Stewart, Retail Shareholders: Looking out for the Little Guy, 
IR Magazine (May 15, 2012), available at http://www.irmagazine.com/articles/shareholder-targeting-id/18761/retail-shareholders-looking-out-little-guy/ (stating that ``as a rule, retail investors tend to 
support management''); Mary Ann Cloyd, How Well Do You Know Your 
Shareholders?, Harvard Law School Forum on Corporate Governance and 
Financial Regulation Blog, June 18, 2013, available at https://corpgov.law.harvard.edu/2013/06/18/how-well-do-you-know-your-shareholders/ (stating that ``retail shareholders support 
management's voting recommendations at high rates''). In contrast, a 
recent survey of 801 retail investors found that the majority of 
these retail investors believe activists add long-term value, and 
may thus be more likely to support activists than generally thought. 
See Brunswick Group, A look at Retail Investors' Views of 
Shareholder Activism and Why it Matters (July 2015), available at 
https://www.brunswickgroup.com/media/597919/Brunswick-Group-Retail-Investors-Views-of-Shareholder-Activism-Summary-of-Results.pdf.

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[[Page 79164]]

    However, there may be contests in which universal proxies, by 
allowing additional shareholders to vote split tickets or vote the 
dissident slate, affect which director nominees are elected. In 
general, any changes in voting behavior due to universal proxies are 
most likely to affect election outcomes in those contests that would 
otherwise have been very close. In close contests, changes in even a 
small number of votes may affect which director nominees are elected. 
We estimate that in about one-fourth of recent election contests, the 
director elected with the fewest votes received no more than 11.5 
percent more votes than the non-elected nominee with the most votes, 
and that the vote differential in these cases represented no more than 
five percent of the total outstanding voting power.\313\ In such cases, 
universal proxies may be more likely to affect the election outcome. We 
note that close contests may be more likely to occur at registrants 
with cumulative voting.\314\
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    \313\ See supra Section IV.B.2.c.
    \314\ Under cumulative voting, each shareholder is generally 
allowed to cast as many votes as there are nominees and may allocate 
more than one vote to certain nominees, which may lead to a more 
concentrated distribution of votes. In contrast, close contests may 
be relatively less likely at registrants with majority voting 
standards that do not revert to a plurality standard in the case of 
a contested election, or with high levels of incumbent board 
ownership. We estimate that approximately 5 percent of registrants 
have cumulative voting, approximately 7 percent of registrants have 
majority voting standards that do not revert to a plurality standard 
in a proxy contest, and approximately 8 percent of registrants have 
incumbent directors who together own a majority of the outstanding 
shares. See supra Section IV.B.1.
---------------------------------------------------------------------------

    A recent study uses an alternative approach to estimate the 
percentage of contests in which universal proxies may be more likely to 
affect the election outcome.\315\ This study estimates that it is 
possible that universal proxies would have led to different election 
outcomes in up to 22 percent of cases in a sample of proxy contests 
from 2008 through 2015.\316\ This statistic is comparable to our 
estimate that close contests may represent approximately one-fourth of 
recent contests. However, we note that the study makes several 
assumptions in arriving at this statistic, and it is unclear whether 
these assumptions can be relied upon.\317\
---------------------------------------------------------------------------

    \315\ See Hirst study.
    \316\ See Hirst study, at 48 (finding that 17 out of 77 proxy 
contests examined may have had outcomes that were distorted as a 
result of barriers to split-ticket voting).
    \317\ For example, the estimates in this study are based on an 
assumption that facilitating split-ticket voting through the 
availability of universal proxies could only result in changes in 
votes that were otherwise marked as ``withheld'' from a candidate, 
while votes ``for'' any candidate would be assumed not to change. 
Also, the study assumes that the degree of increase in ``for'' votes 
for any given candidate upon facilitating split-ticket voting would 
be limited to the number of votes withheld from a single opposing 
candidate, while votes withheld from a different opposing candidate 
would be assumed not to switch to be in favor of this candidate. See 
Hirst study, at 35 n.96, 39 n. 105. We are unable to test the 
reliability of these assumptions because we do not have data that 
would allow us to predict how voting behavior might change with the 
availability of a universal proxy.
---------------------------------------------------------------------------

    To the extent that changes in voting behavior lead to different 
election outcomes, it is not clear how this would affect the 
composition of directors elected to the board. There may be either more 
registrant nominees or more dissident nominees elected to boards, or 
there may be no change, on average, in the types of nominees 
elected.\318\ Also, there may be either fewer changes in control or 
more changes in control, or there may be the same frequency of changes 
in control as under the baseline. The impact of forcing shareholders to 
choose between one proxy card or the other in an election contest 
depends on the dynamics of the particular contest. On the one hand, 
where dissatisfaction with current management is greater, shareholders 
who would otherwise prefer to split their vote may be more likely under 
the current proxy system to utilize the dissident's card and forego the 
opportunity to vote for some registrant nominees, to send the message 
that board change is needed. This choice will no longer be necessary 
under the proposed amendments, which may lead to a greater likelihood 
that one or more registrant nominees retain their seats. On the other 
hand, there also may be cases in which the registrant nominees would, 
in the absence of the proposed amendments, have retained all of their 
seats. Currently, we observe that registrant nominees retain all of the 
seats up for election in half of the contests that proceed to a 
vote.\319\ In such cases, an increase in split-ticket voting, as well 
as any incremental votes for the full dissident slate by shareholders 
not solicited by the dissident, may increase the likelihood of 
dissident nominees gaining one or more of those seats.
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    \318\ One study finds that universal proxies are unlikely to 
overwhelmingly favor one side over the other, in that they may 
result in dissident nominees being elected in place of management 
nominees and management nominees being elected in place of dissident 
nominees at similar rates. See Hirst study. However, this conclusion 
is based on several critical assumptions about how shareholder 
behavior may change upon the availability of universal proxy, and we 
are unable to test the reliability of these assumptions. See supra 
note 317.
    \319\ See supra Section IV.B.2.c.
---------------------------------------------------------------------------

    Given some of these possible dynamics, we preliminarily believe 
that the election of mixed boards, or boards including registrant as 
well as dissident nominees, would be somewhat more likely under the 
proposed amendments than under the current proxy system. We estimate 
that approximately 40 percent of recent contests that proceeded to a 
vote resulted in a mixed board being elected.\320\ However, we cannot 
predict whether any increase in mixed boards would be the result of one 
or more registrant nominees retaining seats when a board composed of 
only dissident nominees would otherwise have been elected or one or 
more dissident nominees gaining seats when all registrant nominees 
would have retained their seats, nor can we predict how frequently such 
a mixed board would occur compared with under the current system.\321\ 
Also, we note that it is not necessarily the case that any such changes 
in outcomes would more accurately reflect shareholder preferences, even 
though these outcomes may be the product of removing constraints on the 
combination of nominees that shareholders can vote for, because of 
limitations in the way that voting rules can communicate 
preferences.\322\
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    \320\ Id.
    \321\ One study questions whether universal proxies would result 
in a substantial increase in mixed board outcomes, based on an 
analysis indicating that mixed board outcomes could increase by no 
more than approximately three percent of the contests studied. See 
Hirst study. However, this analysis and conclusion is based on 
several critical assumptions about how shareholder behavior may 
change upon the availability of universal proxies, and we are unable 
to test the reliability of these assumptions. See supra note 317.
    \322\ For example, consider a registrant with 100 voting 
shareholders, three director seats up for election, and a dissident 
with two nominees. Assume that 54 of the shareholders prefer to 
elect the dissident nominees but are indifferent about which 
registrant nominee retains the third seat. On a universal proxy, 
each of these shareholders therefore votes for one registrant 
nominee, with equal probability across the three registrant 
nominees. The remaining 46 prefer the full registrant slate. In this 
case, with a universal proxy, 54 votes would be earned by each of 
the dissident nominees, but 64 votes (46 plus one-third of 54 votes) 
would be earned by each of the registrant nominees, leading to the 
registrant slate winning the election even though a majority of 
shareholders prefer that the dissidents gain two seats. For further 
discussion of the limitations of voting rules, see, e.g., Kenneth 
Arrow, Social Choice and Individual Values (1st ed. 1951).

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[[Page 79165]]

    Universal proxies may therefore result in either an increase or 
decrease in changes in control of a board, and in either dissidents or 
management winning more seats on the board, or a change in voting 
percentages without a change in the board composition. We expect that 
dissidents and registrants would take these potential impacts into 
consideration in their approach to potential proxy contests. For 
example, as discussed in more detail in the following section, if the 
parties to a contest anticipate that changes in voting behavior 
associated with universal proxies may change the number of seats that 
they expect to win, these expectations may affect the likelihood that 
they enter into a settlement agreement that results in changes to the 
board or other concessions. Such changes to board composition and 
concessions may either enhance or reduce, or have no significant effect 
on, the efficiency and the competitiveness of registrants.
    It is also possible that parties would take measures to reduce the 
likelihood of changes in election outcomes. For example, proxy 
statements and other related communications could include additional 
disclosures intended to deter shareholders from voting split-tickets, 
such as emphasizing the importance of a unified board and clarifying 
whether some or all of one party's nominees might not agree to serve if 
their party does not hold a majority of board seats. Such disclosures 
might reduce the likelihood of split-ticket voting and limit any 
potential increase in mixed boards. Another potential tactical response 
may involve the adoption by registrants of additional defenses to 
shareholder interventions. For example, registrants might adopt 
director qualification bylaws or might limit the indemnification or 
committee membership of dissident-nominated directors.\323\ Such 
changes could limit the likelihood of dissident nominees being elected 
or limit their impact if they are elected. Similarly, if dissidents 
anticipate that the proposed amendments could result in fewer dissident 
nominees being elected, they may choose to rely more heavily on other 
types of interventions, such as soliciting consents to replace some 
board members with their own nominees at a special meeting. Also, 
dissidents interested in minority representation may nonetheless choose 
to run longer slates of candidates, to the extent it could increase the 
likelihood that at least some of their nominees are elected.
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    \323\ See, e.g., J.W. Verret, Defending Against Shareholder 
Proxy Access: Delaware's Future Reviewing Company Defenses in the 
Era of Dodd-Frank, 36 J. Corp. Law 391, 404-06 (2011).
---------------------------------------------------------------------------

    While the measures discussed above would serve to blunt the effect 
of the proposed amendments on election outcomes, the effect of other 
potential responses may serve to magnify these effects. For example, 
the parties to a contested election may change what they spend on 
solicitation. Some parties may increase these expenditures in order to 
further capitalize on an advantage that they anticipate the proposed 
amendments would give them, or to mitigate a disadvantage they 
perceive. If so, that may result in a greater likelihood of the 
parties' candidates being selected.
    The composition of boards may also be affected by changes in the 
set of potential nominees that may result from effects that the 
proposed amendments could have on the incentives of directors. As 
discussed above, reputational concerns may be an important 
consideration for directors and potential directors, and research has 
found that proxy contests may have an adverse effect on a director's 
reputation.\324\ For this reason, some potential directors may be 
relatively less willing to be nominated if they believe that universal 
proxies would reduce the likelihood that they are elected to a seat or 
retain their seat on a board. While we do not have specific data that 
suggests the proposed amendments would result in an increase in the 
reluctance of directors to serve, and it is unclear whether any such 
reluctance would be more likely to affect more qualified or less 
qualified candidates, any incremental increase in the reluctance of 
directors to serve may affect the ability of registrants to recruit 
individuals with the different skill sets needed to compose an 
effective board.
---------------------------------------------------------------------------

    \324\ See supra Section IV.B.1.d.
---------------------------------------------------------------------------

    Overall, the proposed amendments may have some effect on the 
composition or control of boards. The effects of any such changes on 
board effectiveness or on registrant performance are difficult to 
predict. On the one hand, if more dissident nominees are elected or 
dissidents are more likely to gain control, it could result in greater 
efficiency and competitiveness to the extent dissident-nominated 
directors may be more effective monitors.\325\ On the other hand, if 
more registrant nominees retain their seats or are more likely to 
retain control, the board may be better able to focus on long-term 
value creation, because a lower risk of board turnover may reduce the 
risk that directors unduly focus on short-term metrics.\326\ Also, a 
lower chance of changes in control may reduce the risk that expensive 
change in control provisions in debt covenants and other material 
contracts and agreements are triggered.\327\ Universal proxies may lead 
to more mixed boards with directors from both parties than under the 
current proxy system, but it is unclear whether such boards would be 
more or less effective than more homogenous boards. Mixed boards may 
increase the effectiveness of boards, such as through a reduction of 
``groupthink'' and benefits stemming from inclusion of directors with 
diverse backgrounds,\328\ particularly because shareholders voting on 
universal proxies would have the ability to vote for the combination of 
directors that they believe provides the best mix of backgrounds given 
the specific circumstances of the registrant.

[[Page 79166]]

However, mixed boards may also lead to more frequent internal conflicts 
and result in less efficient decision-making within boards.\329\
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    \325\ See, e.g., Ian Gow, Sa-Pyung Sean Shin & Suraj Srinivasan, 
Activist Directors: Determinants and Consequences, Harv. Bus. Sch. 
Working Paper No. 14-120 (June 2014), available at http://www.hbs.edu/faculty/Pages/item.aspx?num=47599 (finding that activist 
interventions that result in new directors being appointed to the 
board are associated with significant strategic and operational 
actions by firms, as well as with positive stock reactions and 
improved operating performance).
    \326\ See, e.g., Martijn Cremers, Lubomir P. Litov & Simone M. 
Sepe, Staggered Boards and Long-Term Firm Value, Revisited, working 
paper (Mar. 14, 2016), available at SSRN: http://ssrn.com/abstract=2364165 (providing evidence suggesting that a greater 
likelihood of longer director tenure can serve as a longer-term 
commitment device with positive effects on longer-term value 
creation).
    \327\ For example, one study found in its sample of debt issues 
that over half of the debt issued in 2012 contained change in 
control covenants that gave bondholders an option to require the 
issuer to offer to purchase all of the bonds (typically at 101 
percent of their par value) if, at any time, the majority of the 
board of directors ceased to be those who were directors at the time 
of issuance or those whose election was approved by a majority of 
the continuing directors. See Frederick Bereskin & Helen Bowers, 
Poison Puts: Corporate Governance Structure or Mechanism for 
Shifting Risk?, working paper (Sept. 8, 2015), available at http://irrcinstitute.org/wp-content/uploads/2015/09/FINAL-Poison-Puts-Research-Sept-2015.pdf. Triggering such covenants, often referred to 
as ``proxy puts,'' can result in companies repurchasing their own 
debt at a loss as well as having to incur expenses to refinance with 
a new debt issue. Such covenants are more binding when they are of 
the ``dead hand'' variety, which prevents the board from approving 
dissident-nominated directors in order to avoid triggering the 
covenant. See F. William Reindel, Dead Hand Proxy Puts--What You 
Need To Know, Harvard Law School Forum on Corporate Governance and 
Financial Regulation Blog, June 10, 2015, available at https://corpgov.law.harvard.edu/2015/06/10/dead-hand-proxy-puts-what-you-need-to-know/.
    \328\ See, e.g., Jeffrey Coles, Naveen Daniel & Lalitha Naveen, 
Board Groupthink, working paper (2015), available at https://editorialexpress.com/cgi-bin/conference/download.cgi?db_name=AFA2016&paper_id=1137; David Carter, Betty 
Simkins & Gary Simpson, Corporate Governance, Board Diversity, and 
Firm Value, 38 Fin. Rev. 33 (2003).
    \329\ See, e.g., Anup Agrawal & Mark Chen, Boardroom Brawls: An 
Empirical Analysis of Disputes Involving Directors, working paper 
(2011), available at http://ssrn.com/abstract=1362143 (studying 
boardroom disputes that are disclosed upon directors resigning or 
declining to stand for re-election and finding that directors who 
are likely to be more independent of management are more likely to 
be involved in the dispute).
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4. Potential Effects on Incidence and Threat of Contested Elections
    As discussed in Sections IV.D.2 and IV.D.3 above, the effects of 
the proposed amendments on the outcomes and costs to registrants and 
dissidents of contested elections are uncertain, but could be 
significant. In this section, we consider how any such effects of the 
proposed amendments may change the incentives of dissidents to initiate 
proxy contests and the manner in which registrants react to the 
possibility of a contested election (the perceived ``threat'' of a 
contest), even in the absence of a contest.
    We first consider the incidence and perceived threat of typical 
proxy contests, in which the dissident expends significant resources on 
solicitation. Then we consider the potential incidence or perceived 
threat of nominal contests in which dissidents, taking advantage of the 
proposed mandatory use of universal proxies, may engage in a proxy 
contest in which they invest significantly fewer resources than in a 
typical proxy contest.\330\ Any changes in the incidence of contested 
elections of these different types, or, even in the absence of a 
contest, in managerial decision-making or the relationship between 
shareholders and management as a result of the threat of such contests, 
may result in costs and benefits for shareholders, registrants, and 
dissidents. However, any such effects are uncertain because the extent 
and direction of the effects of the proposed amendments on the outcomes 
and costs of contested elections are unclear, because it is difficult 
to predict how different parties will respond to such effects, and 
because it is difficult to evaluate whether changes in the incidence or 
perceived threat of contests would have positive or negative effects on 
board or registrant performance.
---------------------------------------------------------------------------

    \330\ We also note that there may be effects on the incidence 
and threat of ``late-breaking'' proxy contests, or contests 
initiated close to the meeting date, because of the notice 
requirement and the proxy statement filing deadline prescribed by 
the proposed amendments. These timing requirements and their 
potential effects are discussed in more detail in Section IV.D.5 
infra.
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a. Typical proxy contests
Effects Related to Anticipated Changes In Outcomes
    Any effects on the expected outcomes of typical proxy contests may 
affect the incidence of such contests as well as the likelihood that a 
registrant makes changes (whether in board composition or with respect 
to other decisions) even in the absence of actual contests. The likely 
effects of universal proxies on the outcome of a typical contest depend 
on the dynamics of the particular contest. Thus, it is not clear 
whether, on average, the proposed amendments would increase or decrease 
the likelihood of changes in control or the number of board seats won 
by either party.
    On the one hand, a dissident who expects to gain more seats under 
the proposed amendments than under the baseline may have an increased 
incentive to initiate a typical proxy contest. This would particularly 
be the case for a dissident that expects a greater likelihood of 
gaining control of the board, and for whom majority control of the 
board would be required to institute the changes the dissident desires. 
On the other hand, a dissident who expects, under the proposed 
amendments, to gain fewer seats or face a lower likelihood of gaining 
control than under the baseline may have a decreased incentive to 
initiate a typical contest.
    If, under the proposed amendments, a registrant is expected to face 
a higher risk of losing seats or control of the board to dissident 
nominees, it is likely that a potential dissident could exercise 
greater influence over that registrant. Conversely, it is likely that 
the influence of potential dissidents would be reduced where a lower 
risk of losing seats or control to dissident nominees is expected under 
the proposed amendments. These changes in influence may derive from the 
outcomes of election contests or from negotiations with registrants in 
the course of, or in the absence of, a contest. In particular, 
registrants facing a greater threat of contests or a higher chance of 
losing seats (or control) if a contest were initiated may be more 
likely to enter into a settlement agreement with the dissident and may 
also be more likely to concede at earlier stages of engagement or to 
make changes in response to alternative interventions (such as ``vote 
no'' campaigns).\331\ Registrants facing a reduced threat of contests 
or a lower chance of losing seats (or control) if a contest were 
initiated may be less likely to enter into settlement agreements, to 
engage in negotiations at earlier stages, or to make changes in 
response to alternative interventions.
---------------------------------------------------------------------------

    \331\ See e.g., Roundtable Transcript, comment of Michelle 
Lowry, Professor, Drexel University at 60 and Lisa M. Fairfax, 
Professor, George Washington University Law School, at 48 (noting 
that universal proxies could facilitate settlements with or 
accommodations to dissidents before a contest arose).
---------------------------------------------------------------------------

    Thus, it is likely that any changes in expectations regarding the 
outcome of a potential contest would affect the degree of a dissident's 
influence relative to that of a registrant's incumbent board and 
management. It is difficult to generalize about the effects of the 
proposed amendments as they are very likely to depend on the dynamics 
of a particular contest (or potential contest). Also, it is not clear 
whether the actual incidence of contested elections would increase or 
decrease, because any change in a dissident's incentive to initiate 
contests may be accompanied by a change in the likelihood that a 
registrant makes earlier concessions to prevent a disagreement from 
proceeding to the stage of a proxy contest.
Effects Related to Anticipated Changes in Costs
    While it is unclear whether the proposed amendments are likely to 
change the expected costs of typical proxy contests to registrants and 
dissidents, any such changes in the expected costs may also affect the 
incidence and perceived threat of such contests. In particular, a 
dissident that expects to achieve a similar outcome at a lower cost may 
have a greater incentive to initiate a typical proxy contest.\332\ 
Registrants that expect dissidents to face lower costs, or those 
registrants that expect to bear additional costs in the form of 
increased solicitation expenditures in a contested election, may have 
greater incentive to make concessions. In contrast, a

[[Page 79167]]

dissident that expects to incur additional solicitation expenses to 
achieve the same outcome may have a lower incentive to initiate a 
typical proxy contest, while registrants that expect dissidents to face 
higher costs, or registrants that expect to face lower costs in a 
contested election, may have a lower incentive to make concessions.
---------------------------------------------------------------------------

    \332\ It is possible that a significant reduction in the average 
cost to dissidents in typical proxy contests could have effects that 
reduce the incentive to initiate some contests. In particular, some 
studies have found that a high required cost of proxy contests may 
serve as a credible signal to other shareholders that the value that 
the dissident's slate of directors can bring to the registrant is 
high, or else the dissident would not be bearing the cost of a proxy 
contest. In an environment in which the average cost of a typical 
proxy contest is very low, the ability of dissidents to get support 
for their nominees may be decreased, as it may be more difficult and 
potentially more costly than otherwise for a dissident whose contest 
has strong merit to differentiate their contest from less worthy 
contests. See, e.g., John Pound, Proxy contests and the Efficiency 
of Shareholder Oversight, 20 J. Fin. Econ. 237 (1988); Utpal 
Bhattacharya, Communication Costs, Information Acquisition, and 
Voting Decisions in Proxy Contests, 10 Rev. Fin. Stud. 1065 (1997).
---------------------------------------------------------------------------

Differential Effects Across Registrants
    To the extent that the incidence and perceived threat of typical 
proxy contests may change, certain registrants may be affected more 
than others. For example, relatively smaller to midsize registrants may 
be more affected because they are currently the most likely to be 
involved in proxy contests.\333\ Any marginal changes may therefore 
have the greatest impact on this group of registrants. However, more 
significant changes in the nature of proxy contests could also make it 
more attractive to target types of registrants that were infrequently 
the subject of proxy contests in the past. For example, to the extent 
that large registrants may currently be less likely to be targeted 
because of the greater resources they can expend to counter a 
dissident's solicitation efforts, a significant decrease in dissidents' 
costs or a large increase in their likelihood of success could lead to 
a higher threat or incidence of contests at such registrants. The 
governance structures of registrants are also likely to play a role in 
the impact of the proposed amendments. On the one hand, registrants 
with governance characteristics that may increase the potential impact 
of proxy contests, such as cumulative voting, may be more affected than 
others.\334\ On the other hand, registrants with governance 
characteristics that make them more difficult to target with certain 
kinds of election contests, such as those with high insider control, 
may be less affected by the proposed amendments.\335\
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    \333\ For example, staff estimates that only four of the 72 
registrants involved in proxy contests in 2014 and 2015 were in the 
S&P 500 index. See supra Section IV.B.2.a.
    \334\ See supra note 228.
    \335\ See supra note 231.
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b. Nominal Proxy Contests
    The proposed amendments may also affect the incidence or perceived 
threat of nominal proxy contests, in which the dissidents incur little 
more than the basic costs required to engage in a contest and which are 
currently rare.\336\ The nature of nominal proxy contests may be 
affected by the proposed amendments in two key ways. First, the 
proposed solicitation requirement may increase the costs to dissidents 
of pursuing such contests. Dissidents in nominal contests would have to 
bear the cost required to draft a proxy statement and undergo staff 
review and comment process for that filing, as in the case of current 
nominal contests. However, under the proposal, such dissidents would 
also have to bear the costs required to meet the proposed solicitation 
requirement. We estimate that meeting the proposed solicitation 
requirement would cost approximately $6,000 at the median-sized (based 
on the number of accounts in which its shares are held) registrant, 
though this cost could be lower in cases in which the services of an 
intermediary are not required to meet the solicitation requirement (as 
in the case of registrants with highly concentrated ownership) or 
higher at registrants with a more dispersed shareholder base.\337\ As 
discussed above, while this required solicitation cost would be greater 
than the expenditure currently required in a nominal contest, the costs 
would remain substantially lower than the solicitation costs dissidents 
bear in typical proxy contests.\338\
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    \336\ See supra note 306.
    \337\ See supra Section IV.D.2.b.
    \338\ Id.
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    Second, requiring that registrants use universal proxies would, in 
practice, allow dissidents in nominal contests to put the names of 
their director candidates in front of all shareholders, via the 
registrant's proxy card, without additional expense. This change could 
somewhat increase the likelihood that a dissident in a nominal contest 
succeeds in gaining seats for their nominees, though, as in the case of 
current nominal contests, dissidents may have a very limited chance of 
succeeding in gaining seats if they do not engage in meaningful 
independent soliciting efforts. Dissidents engaging in a nominal 
contest would not be required to meet the eligibility criteria that 
apply to other alternatives that would allow dissidents to include some 
form of information on the registrant's proxy card, such as the 
requirements of a proxy access bylaw, where available. Dissidents may 
therefore consider engaging in a nominal contest when they would not 
qualify to use alternatives such as proxy access or when these 
alternatives are not available. However, the information included in 
the registrant's proxy materials would likely be more limited in the 
case of a nominal contest (just a list of names) than these other 
alternatives.
    Based on staff experience, we expect that a dissident that solicits 
holders that represent at least a majority of voting power and files a 
preliminary and definitive proxy statement, without engaging in any 
other soliciting efforts, would generally have a very limited chance of 
having any of its nominees elected to the board despite their names 
being included on the registrant proxy card. The likelihood that a 
nominal contest results in dissident nominees winning seats may depend 
on many factors including the identity of dissident's nominees, their 
backgrounds and name recognition, the shareholders' level of 
dissatisfaction with the registrant, and the efforts of the registrant 
to dissuade shareholders from supporting dissidents' nominees.\339\ In 
general, we expect that engaging in a nominal contest would not be an 
attractive alternative for most potential dissidents that are truly 
interested in gaining board representation,\340\ particularly if other 
alternatives are feasible.\341\
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    \339\ While the registrant's universal proxy card would permit a 
vote for dissident nominees, its proxy statement can and likely 
would include disclosure arguing against such a vote. If the 
dissident does not counter with positive information about its 
nominees disseminated in a meaningful way to a significant 
percentage of shareholders, we expect that the dissident's odds of 
success in the solicitation would be low.
    \340\ We note that the Commission's 2007 amendments to the proxy 
rules allowing notice and access delivery of proxy statements 
decreased the minimum cost at which a proxy contest could be 
conducted through potentially reduced mailing costs, but did not 
seem to cause an increase in contested elections, which may be 
evidence of the importance of full set delivery and other 
solicitation expenditures in gathering support for dissident 
nominees. See, e.g., Fabio Saccone, E-Proxy Reform, Activism, and 
the Decline in Retail Shareholder Voting, The Conference Board 
Director Notes Working Paper No. DN-021 (Dec. 26, 2010), available 
at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1731362. For 
details on the 2007 amendments to the proxy rules, see Shareholder 
Choice Regarding Proxy Materials, Release No. 34-56135 (July 26, 
2007) [72 FR 42222 (Aug. 1, 2007)].
    \341\ These alternatives may include a typical proxy contest 
(with additional solicitation expenditures but also, potentially, 
with a higher chance of success) or use of a proxy access bylaw (if 
available and if the dissident is eligible to use proxy access). We 
are unaware of any cases in which such bylaws have been used to 
nominate directors to date. However, most proxy access bylaws would 
require a registrant to include information about the dissident 
nominees and a supporting statement from the dissident in its proxy 
materials and would not require the dissident to bear the costs and 
meet the requirements described above. That said, it is possible 
that dissidents interested in board representation but for whom 
additional expenditures are not feasible or justified, and for whom 
proxy access is unavailable, may consider a nominal proxy contest.
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    Even if the chance of obtaining board representation through a 
nominal contest may be low, dissidents may be interested in other 
possible effects of such contests. In particular, introducing the names 
of alternative candidates onto

[[Page 79168]]

the registrant's proxy card may attract attention to the dissident and 
its agenda as shareholders, other market participants, proxy advisory 
services, analysts and journalists seek to understand why these 
candidates have been put forth and whether they deserve consideration. 
For example, shareholders who see the names may look up the dissident's 
proxy materials online to learn more about the candidates and why they 
are being nominated. Such attention could be used by the dissident to 
publicize a desired change or a particular issue,\342\ or to encourage 
management to engage with the dissident. However, it is unclear whether 
the inclusion of dissident nominees on the registrant's proxy card 
would significantly increase the publicity surrounding a nominal proxy 
contest.
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    \342\ While the shareholder proposal process may be used to 
raise some such concerns, and would allow these concerns to be 
expressed more directly in the registrant's proxy statement, such 
proposals would also need to meet the requirements of Rule 14a-8. 
For example, proposals on certain topics, such as those pertaining 
to ordinary business matters, may be properly excluded by 
registrants from their proxy materials. See 17 CFR 240.Rule 14a-
8(i)(7).
---------------------------------------------------------------------------

    It is difficult to say whether and to what extent the possibility 
of such publicity would lead dissidents to more frequently initiate 
nominal contests, and similarly, whether the ability of dissidents to 
run such contests would influence the incentives of management to 
pursue changes in response to such dissidents. Preliminarily, we 
believe the likelihood of a significant increase in nominal contests 
would be mitigated by the new costs associated with the proposed 
solicitation requirements and the current availability to dissidents of 
other (potentially lower-cost) routes to obtaining publicity.\343\ 
Also, while nominal contests are currently rare, it is also possible 
that their incidence could decline further under the proposed 
amendments given the new costs imposed on such contests. In particular, 
dissidents that would otherwise pursue nominal contests might consider 
alternatives that would not trigger the proposed solicitation 
requirement, such as an exempt solicitation, or could choose not to 
take any such actions due to the higher costs imposed on nominal 
contests by the proposed amendments.
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    \343\ For example, for a much lower cost, a dissident could send 
a letter to the board detailing its desired changes and file it as 
an attachment to a voluntary or required Schedule 13D filing, making 
it available to the public (though, unlike a registrant's universal 
proxy card, it would not be disseminated to shareholders).
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c. Effects of Any Changes in Incidence or Threat of Proxy Contests
    Overall, it is unclear whether the proposed amendments would result 
in an increase or decrease in the incidence or perceived threat of 
proxy contests, and thus a change in the level of engagement with and 
the influence of dissidents. However, to the extent that any of these 
factors is significantly affected, we cannot rule out the possibility 
that there may be significant effects on the efficiency and 
competitiveness of registrants. In particular, a change in the 
incidence or perceived threat of proxy contests either could result in 
more effective boards and improved registrant performance, or could 
interfere with the working of boards and managerial decision-making.
    There is some evidence that proxy contests may be beneficial to 
shareholders. For example, studies have found proxy contests to be 
associated with positive share price reactions.\344\ In this vein, some 
observers have argued that the low incidence of proxy contests is due 
to collective action problems related to the high costs of proxy 
contests \345\ and that a higher rate of proxy contests may be 
optimal.\346\ Any increase in engagement between management, 
dissidents, and shareholders that may result because of changes in the 
threat of proxy contests, such as discussions at earlier stages of a 
campaign or reactions to other types of shareholder interventions, 
could similarly be beneficial. Such engagement may improve the 
effectiveness of boards, may lead to value-enhancing changes, and may 
perhaps be a more efficient means to achieve such changes than 
expensive proxy contests. For example, one study found that an 
increased likelihood of being targeted with a proxy contest (even if an 
actual proxy contest does not materialize) is associated with changes 
in corporate policies that are followed by improved operating 
performance.\347\ In these ways, an increase in the incidence or 
perceived threat of proxy contests could represent a valuable 
disciplinary force for some boards.
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    \344\ See, e.g., Yair Listokin, Corporate voting versus market 
price setting, 11 Am. L. & Econ. Rev. 608 (2009) (finding that, in a 
sample of proxy contests, close dissident victories were related to 
positive stock price impacts, while close management victories were 
related to negative stock price impacts); Mulherin & Poulsen Study, 
at 307 (finding that their sample of proxy contests was associated 
with shareholder value increases, particularly when the contests led 
to management turnover or acquisitions). See also Matthew Denes, 
Jonathan M. Karpoff & Victoria McWilliams, Thirty Years of 
Shareholder Activism: A Survey of Empirical Research, J. Corp. Fin. 
(forthcoming 2016), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2608085.
    \345\ That is, when a small group of shareholders must bear all 
of the costs of proxy contests while sharing in only a fraction of 
any benefits, with other shareholders absorbing the rest, the small 
group may be discouraged from initiating potentially value-enhancing 
proxy contests.
    \346\ See, e.g., Lucian A. Bebchuk, The Myth of the Shareholder 
Franchise, 93 Va. L. Rev. 675, 712 (2007); Bernard S. Black, 
Shareholder Passivity Reexamined, 89 Mich. L. Rev. 520 (1990).
    \347\ See Fos Study, at 24-26.
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    Conversely, an increase in the incidence and perceived threat of 
contests could also have a negative impact on the efficiency and 
competitiveness of registrants. For example, studies have found that 
proxy contests in which dissidents win one or more seats but there is 
no change in the incumbent management team and the registrant is not 
acquired are associated with underperformance in the years after the 
contest.\348\ These results are consistent with the idea that conflicts 
in the boardroom may have detrimental effects for shareholders. An 
increase in the perceived threat of proxy contests or in engagement 
with dissidents could also have negative implications. For example, 
some studies have found that boards that face a lower threat of being 
replaced because of poor short-term results may be better able to focus 
on long-term value creation.\349\ Studies have also found that 
increased dissident influence may be detrimental to the extent that 
managers make concessions or policy changes that are value-decreasing 
in order to deter activists.\350\ Thus, in some cases, an increase in 
the incidence or perceived threat of proxy contests could represent a 
costly distraction for boards and corporate officers. It is also 
possible that any increased incentive for companies to stay or go 
private rather than bear the threat of proxy contests could negatively 
affect capital formation.\351\
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    \348\ See, e.g., Mulherin & Poulsen Study, at 305-08; David 
Ikenberry & Josef Lakonishok, Corporate Governance Through the Proxy 
Contest: Evidence and Implications, 66 J. of Bus. 405, 424-25 
(1993).
    \349\ See Martijn Cremers, Lubomir Litov & Simone Sepe, 
Staggered Boards and Long-Term Firm Value, Revisited, working paper 
(2016), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2364165; Martijn Cremers, Erasmo Giambona, 
Simone Sepe & Ye Wang, Hedge Fund Activism and Long-Term Firm Value, 
17-20, working paper (Nov. 19, 2015), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2693231.
    \350\ See, e.g., John Matsusaka & Oguzhan Ozbas, A Theory of 
Shareholder Approval and Proposal Rights, U.S.C. CLEO, Working Paper 
No. C12-1 (Mar. 2016), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1984606.
    \351\ See, e.g., Geoff Colvin, Going Private: Take this Market 
and Shove it, Fortune Magazine (May 29, 2016), available at http://fortune.com/going-private/ (citing the avoidance of proxy contests 
as motivation for firms to go private). While it is possible that 
companies could have some incremental incentive to stay or go 
private, we believe it is unlikely that the proposed amendments 
would result in an increased incentive for registrants to relist or 
redomicile overseas, given that these changes alone would not be 
sufficient to avoid being subject to the U.S. proxy rules. For 
example, foreign issuers may be subject to the U.S. proxy rules 
unless they qualify as foreign private issuers under Exchange Act 
Rule 3b-4(c). In particular, a foreign registrant cannot qualify as 
a foreign private issuer if more than 50 percent of its securities 
are held by U.S. residents and at least one of the following 
applies: (i) A majority of the officers and directors are U.S. 
citizens or residents; (ii) more than 50 percent of the issuer's 
assets are located in the U.S.; or (iii) the issuer's business is 
principally administered in the U.S.

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[[Page 79169]]

    Given these competing factors, to the extent there is any change in 
the incidence and perceived threat of typical proxy contests, the 
effects are likely to vary from registrant to registrant, and it is 
difficult to predict the average effects of changes in the nature of 
proxy contests across all registrants. The possible effects of changes 
in the incidence or threat of nominal proxy contests are similarly 
unclear. To the extent that such contests have the potential to affect 
the results of director elections, the actual incidence or perceived 
threat of such contests may either increase director discipline or 
create a distraction for boards, as in the case of typical proxy 
contests. However, such contests may be used to attract attention in 
the interest of pursuing other changes. In some cases, drawing 
attention to particular issues in this way could lead to value-
enhancing changes. In other cases, dissidents may use such contests to 
pursue idiosyncratic interests which may not be shared by other 
shareholders, in which case the average shareholder may be unlikely to 
benefit and yet likely bear the costs of registrants expending 
additional resources on solicitation in such contests. In these cases, 
the negotiations related to such contests or the perceived threat of 
such contests could also result in registrants making concessions to 
dissidents that may not be in the best interest of the average 
shareholder in order to reduce the costs of contending with such 
contests.
    Finally, the effects of any changes in proxy contests may be 
affected by managers and market participants altering their behavior in 
reaction to the proposed amendments. In particular, changes in the 
nature of proxy contests may increase or decrease the use of 
complementary or substitute governance mechanisms.\352\ For example, 
studies have found that a historical increase in proxy contests was 
associated with a decrease in hostile takeovers, in which an entity 
acquires control of a company against the wishes of the incumbent board 
by purchasing its stock, suggesting proxy contests and hostile 
takeovers may be substitute mechanisms for control challenges.\353\ In 
contrast, activist shareholders with large holdings in a particular 
registrant (or activist blockholders) who may be able to directly 
monitor and communicate with management, may represent a type of 
governance mechanism that can be a complement to proxy contests.\354\ 
For example, if activist blockholders are present, it may be easier to 
overcome collective action problems and initiate and win a proxy 
contest. Thus, any increase in the potential impact of proxy contests 
may be enhanced by the presence of activist blockholders. At the same 
time, if the potential impact of proxy contests increases, the 
incentive of registrants to engage with activist blockholders and make 
suggested improvements may increase, enhancing the monitoring value of 
activist blockholders.\355\
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    \352\ The concepts of complementary and substitute governance 
mechanisms are discussed in Section IV.C. supra.
    \353\ See, e.g., Fos Study, at 5-6, 26.
    \354\ See Section IV.B.1.b. for the frequency and size of 
institutional blockholdings among potentially affected registrants 
for which this data is available.
    \355\ For a broader review of issues concerning the role of 
blockholders in corporate governance, see Alex Edmans, Blockholders 
and Corporate Governance, 6 Ann. Rev. Fin. Econ. 23 (2014).
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    Any effects that follow from increasing the incidence or perceived 
threat of proxy contests may be either mitigated or magnified by 
indirect effects on these substitute and complementary mechanisms. For 
example, any increase in the incidence of proxy contests could be 
offset by reductions in the use of substitute mechanisms such as 
takeovers.\356\ Alternatively, such an increase could be magnified by 
complementary mechanisms whose effectiveness and therefore usage may 
increase (such as by activists being more likely to acquire 
blockholdings) in an environment in which proxy contests are more 
frequent. Such interactions may have significant effects on the overall 
economic effects of the proposed amendments. However, because so many 
different governance mechanisms are closely interrelated, it is 
difficult to predict the extent and impact of such interactions. We 
solicit comment below on the likelihood of changes in the incidence and 
threats of proxy contests as a result of the proposed amendments and 
any corresponding effects, including effects on efficiency, 
competition, and capital formation.
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    \356\ We note that proxy contests may also be a complementary 
mechanism for certain types of takeovers. In particular, proxy 
contests can facilitate some hostile takeovers by removing directors 
who oppose the transaction in question. See Mulherin & Poulsen 
Study, at 309.
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5. Specific Implementation Choices
    In this section, we discuss, to the extent possible, any costs and 
benefits specifically attributable to individual aspects of the 
proposed amendments. We also discuss changes to the proxy voting 
process we considered that present significant implementation 
alternatives and their benefits and costs compared to the amendments as 
proposed.
a. Bona Fide Nominees and the Short Slate Rule
Revision to the Consent Required of a Bona Fide Nominee
    We propose to amend the definition of a bona fide nominee under 
Rule 14a-4(d)(4) for registrants other than funds and BDCs to include 
all director nominees that have consented to being named in any proxy 
statement, whether that of the registrant or that of a dissident, 
relating to the registrant's next meeting of shareholders at which 
directors are to be elected.
    The proposed amendment to the definition of a bona fide nominee 
would remove the impediment imposed by the current rule to including 
other parties' nominees on one's own proxy card. We preliminarily 
believe that this proposed amendment would, in and of itself, likely 
impose no direct cost on parties to contested elections because it 
would not require parties to change their slates of nominees or their 
proxy materials. However, revising Rule 14a-4(d)(4) is a prerequisite 
to any rule that would allow or require universal proxies. As such, all 
of the other costs and benefits discussed above, the details of which 
depend on the other implementation choices in this proposal, are 
conditional on this proposed amendment. Additionally, revising 14a-
4(d)(4) alone, without the other amendments we are proposing, would 
permit the optional use of universal proxies, an alternative we discuss 
below.
Elimination of the Short Slate Rule
    We propose to eliminate the short slate rule, which currently 
permits a dissident seeking to elect a minority of the board and 
running a slate of nominees that is less than the number of directors 
being elected to round out its slate by soliciting authority to also 
vote for certain registrant nominees, for registrants other than funds 
and BDCs. The proposed elimination of the short slate rule potentially 
would impose costs on certain dissidents. Under the existing proxy 
rules, dissidents qualifying to use the short slate rule can

[[Page 79170]]

select the set of registrant nominees that they prefer to round out 
their slate. Eliminating this rule, and imposing a mandatory universal 
proxy, would take away this choice on the part of the dissident, 
reducing any related strategic advantage that the dissident may expect 
to gain, and would instead allow shareholders voting on the dissident 
proxy card to select the registrant nominees, if any, that they prefer.
    We have considered whether, as an alternative to the proposed 
approach, the proxy rules should instead be revised to treat contests 
that do not involve a potential change in the majority of the board 
differently from contests in which control of the board is at stake, as 
in the current short slate rule and as recommended by some 
observers.\357\ For example, we have considered an alternative approach 
that would not require the use of universal proxies in contests that 
may involve a potential change in a majority of the board. When a 
dissident is seeking a majority of seats on the board, electing a mixed 
board where a minority of seats would be held by dissident nominees may 
be inconsistent with the intentions and goals of both the dissident and 
the registrant. Not requiring universal proxy cards in such cases could 
reduce the likelihood of electing a mixed board when such an outcome is 
undesirable to both parties to the contest and could be disruptive. 
However, under this alternative, shareholders would continue to have 
more limited voting options when voting by proxy than when voting in 
person in contests that involve a potential change in a majority of the 
board. Furthermore, the risk of electing a mixed board when it would be 
disruptive or contrary to the goals of both parties to the contest 
could also be mitigated through disclosure emphasizing the importance 
of achieving (or retaining) majority control of the board and 
clarifying the willingness of each nominee to serve in the case control 
is not achieved.
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    \357\ The IAC recommended that the Commission consider providing 
proxy contestants with the option to provide universal proxies in 
connection with short slate director nominations. The IAC did not 
make such a recommendation in the case of elections in which 
majority control of the board is at stake. See IAC Recommendation, 
at 2.
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Solicitations Without a Competing Slate
    Under existing rules, a party may solicit proxies without 
presenting a competing slate, such as when soliciting proxies against 
some or all of the registrant nominees (a ``vote no'' campaign) or when 
soliciting proxies in favor of one or more proposals on matters other 
than the current election of directors. The proposed amendments would 
permit, but not require, proponents conducting solicitations without a 
competing slate to also solicit authority with respect to some or all 
registrant nominees in their proxy statements and proxy cards. To the 
extent that the ability to include these candidates would allow 
shareholders to vote on the proponent's proxy card while still 
exercising their full voting rights, this change may result in somewhat 
increased support for proponents in solicitations without a competing 
slate.
    This potential increase in support may increase proponents' 
incentive to initiate such campaigns. As in the other contexts 
discussed above, it is difficult to predict to what extent proponents 
may increase the incidence of such campaigns, or to what degree the 
involved parties may react in other ways to the potential for somewhat 
higher support in solicitations without a competing slate. For example, 
any resulting increase in the frequency of such campaigns may be 
partially offset by accompanying changes in incentives for registrants 
to engage with proponents. Such interventions could also substitute, in 
some cases, for contested elections. It is unclear whether increased 
support for, or an increased incidence of, proponent initiatives would 
generally enhance or detract from the effectiveness of boards and the 
efficiency and competitiveness of registrants.
    An alternative to the proposed approach would be to require 
proponents conducting solicitations without a competing slate to 
include the names of all duly nominated director candidates on their 
proxy cards (unless they are soliciting votes against all registrant 
nominees). This approach may have limited effect in the case of a 
``vote no'' campaign, because shareholders would already be able to 
vote ``for'' and ``against'' their choice of any registrant nominees by 
using the registrant proxy card. In contrast, in the case of a 
proponent that solicits in favor of a particular proposal, the 
registrant may choose to not include the proposal on its proxy card, in 
which case, shareholders voting on the proponent's proxy card would be 
disenfranchised under the baseline and similarly may be disenfranchised 
under the proposed approach unless the proponent chooses to include all 
director nominees on its proxy card. This alternative would remove the 
risk of such disenfranchisement with respect to voting for directors. 
However, the risk of such disenfranchisement under the proposed 
amendments is likely mitigated because we expect that such proponents 
would have the incentive to include the registrant nominees on their 
proxy card in order to increase the incentive for shareholders to use 
their card and would generally not have strategic reasons to exclude 
registrant nominees from their proxy card because of the lack of a 
competing slate.
b. Use of Universal Proxies
Mandatory Use of Universal Proxies in Non-Exempt Solicitations in 
Contested Elections
    The proposed amendments would require that universal proxies be 
used by each party--the registrant as well as the dissident--in any 
contested election with competing slates, regardless of the number of 
director seats being contested. This requirement would apply to all 
registrants that are subject to the proxy rules other than registered 
investment companies and BDCs.
Mandatory vs. Optional Use of Universal Proxies
    Requiring both the registrant and the dissident in any contested 
election with competing slates to use universal proxies would enable 
all shareholders to vote for the combination of candidates of their 
choice in all such elections, whether they vote by proxy or in person 
at the meeting. Imposing this mandate on the registrant as well as the 
dissident may impose minor direct costs on both parties and may result 
in potentially significant, but uncertain, strategic advantages or 
disadvantages for these parties, leading to further costs and benefits 
for these parties and either benefits or costs for shareholders at 
large. Indeed, many of the potential effects discussed throughout this 
economic analysis are conditional on a mandatory universal proxy 
requirement.
    Mandating the use of universal proxies by registrants in particular 
may have certain significant implications. Specifically, this approach 
would make it possible for all shareholders voting by proxy, even those 
not solicited by the dissident, to vote for dissident nominees. 
Requiring registrants to use universal proxies would likely result in 
all shareholders receiving a proxy card that would allow them to vote 
for any combination of the full set of director nominees, more 
accurately reflecting the voting options available to shareholders at 
the meeting. However, requiring the names of the dissident nominees to 
appear on the registrant's proxy card would allow a form of access to 
the registrant's proxy materials without the eligibility criteria that 
accompany other

[[Page 79171]]

forms of access,\358\ and could result in an increased incidence of 
nominal contests that capitalize on this new channel for such access. 
As discussed in Section IV.D.4.b above, it is unclear to what extent 
any dissidents would choose such an approach and whether any such 
contests would be beneficial or detrimental.
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    \358\ For example, proxy access bylaws, where available, apply 
certain eligibility criteria including an ownership threshold.
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    We considered mandating the availability of universal proxy cards 
while allowing registrants and dissidents to initially disseminate a 
non-universal proxy card if they so choose. In particular, anyone 
soliciting a proxy in a contested election using a non-universal proxy 
card would be required to provide disclosure about the availability of 
a universal proxy card and to provide a universal proxy card upon 
request to any shareholder it solicited. Registrants and dissidents 
would still be subject to other requirements similar to the proposed 
amendments, such as the notice and filing requirements, in order to 
facilitate the effective use of universal proxies. Allowing the names 
of opponent nominees to be excluded from a party's original 
dissemination may allow both parties to the contest to reduce the 
degree of publicity that they provide to their opponent's nominees. 
This approach may therefore reduce the possibility of nominal contests 
that seek to capitalize on such publicity while still providing 
shareholders the ability to vote for their preferred combination of 
nominees by electing to receive a universal proxy card. This approach 
may also involve additional costs and logistical difficulties 
associated with maintaining multiple types of proxy cards and 
fulfilling shareholder requests for universal proxy cards in an 
efficient and equitable way. Further, we note that this approach would 
place some burden, although perhaps not particularly heavy, on 
shareholders to request a universal proxy card.
    There are two main alternatives to mandating that universal proxies 
be used by both parties to a contested election with competing slates. 
First, the use of universal proxies could be optional for all parties 
rather than mandatory. Second, there are hybrid approaches in which 
universal proxies would be mandatory for one party to the contest and 
optional for the other.
    Under an optional approach, which has been recommended by certain 
observers,\359\ whether or not a party chose to provide a universal 
proxy would depend on strategic considerations. Having the option 
rather than a requirement to use a universal proxy may benefit either 
registrants or dissidents, depending on the nature of individual 
contests. Optional universal proxies likely would be used by a 
contesting party, to the possible detriment of its opponent, when the 
party believes that including the names of the opponent's nominees on 
its own card would be in its best interest, but not otherwise. For 
example, a party that expects strong support for its opponent's 
nominees may prefer to include those nominees on its proxy card in 
order to increase the likelihood that shareholders use its card, since 
they would be able to do so without giving up the ability to support at 
least some of the opponent's nominees. Optional universal proxies may 
also mitigate the risk, relative to that under the proposed amendments, 
of electing a mixed board when such an outcome is inconsistent with the 
intentions of both the dissident and the registrant, because both 
parties may be less likely to use a universal proxy in such cases. This 
alternative may also reduce the likelihood of an increase in nominal 
contests because the registrant would control whether or not the names 
of dissident candidates were included on its proxy card. Finally, 
because allowing the optional use of universal proxy cards would 
necessarily entail removing the impediments to such proxies in the 
existing proxy rules, such an approach might facilitate the ``private 
ordering'' of a universal proxy requirement--that is, the ability of 
shareholders to request that individual registrants commit to a policy 
of using universal proxies in future contests through changes to their 
corporate governing documents--at only those registrants where 
shareholders believe mandatory universal proxies would be 
beneficial.\360\
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    \359\ See IAC Recommendation, at 2.
    \360\ The availability of such private ordering may depend on 
developments in state law. Also, if only a minority of shareholders 
is interested in splitting their votes, it may be difficult to 
obtain the support required to revise bylaws or other corporate 
governing documents to require universal proxies.
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    However, under an optional approach it is likely that in many cases 
neither registrants nor dissidents would include their opponent's 
nominees on their proxies, in order to avoid diluting the potential 
support for their own nominees among those shareholders that use their 
proxy card. To the extent that contesting parties were further given 
the option to determine how many and which of their opponent's nominees 
to include, it is likely that the contesting parties would often 
include fewer than all of the duly-nominated candidates on their proxy 
cards, even when they did include some of their opponent's nominees. In 
any such cases, shareholders would continue to have more limited voting 
options when voting by proxy than when voting in person. Thus, we 
expect that an optional approach would result in inconsistent 
application and not fully achieve the goal of allowing shareholders the 
ability to vote by proxy for their preferred combination of director 
candidates, as they could at a shareholder meeting.
    Canada's system of optional universal proxies illustrates the 
potential limitations of an optional system. In Canada, a party to a 
contested election has the option, but is not required, to include some 
or all of its opponent's nominees on its own proxy card. There have 
been roughly 10 to 20 election-related proxy contests per year in 
Canada over the last decade,\361\ representing a significant fraction 
of the annual number of contests in the United States. However, we are 
aware of only five cases in which at least one party to a Canadian 
proxy contest that proceeded to a vote used a universal proxy,\362\ and 
one additional case in which at least one party to the contest included 
some, but not all, of its opponent's nominees on its proxy card.\363\
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    \361\ See Fasken Martineau DuMoulin LLP, Canadian Proxy Contest 
Study--2016 Update (2016), available at http://www.fasken.com/canadian-proxy-contest-study-2016-update/.
    \362\ This estimate includes only those cases that we are aware 
of in which at least one party included all of the registrant 
nominees and all of the dissident nominees on its proxy card. See, 
e.g., Boyd Erman, CP Vote Broke New Ground for Democracy, The Globe 
and Mail (May 30, 2012), available at http://www.theglobeandmail.com/report-on-business/streetwise/cp-vote-broke-new-ground-for-democracy/article4217586/ (reporting on one such 
case).
    \363\ We note that differences in rules and practices in Canada 
as compared to the United States limit our ability to draw direct 
inferences from the experience of Canada. See, e.g., Patricia 
Olasker & Alex Moore, Debunking the Myth: Why Activism is Tough in 
Canada, David Ward Philips & Vineberg (Mar. 2015), available at 
https://www.dwpv.com/~/media/Files/PDF_EN/2015/2015-04-14-Debunking-
the-Myth-Why-Activism-is-Tough-in-Canada.ashx.
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    In contrast, hybrid alternatives would require at least one party 
to a contest to use a universal proxy, potentially allowing a greater 
number of shareholders to split their ticket using a proxy compared to 
an optional approach. One hybrid alternative would be to require the 
dissident to use a universal proxy and allow registrants the option, 
but not the obligation, to include the dissident's nominees on its 
proxy card. This hybrid approach could be implemented with or without a 
notice requirement or a minimum

[[Page 79172]]

solicitation requirement. In this case, shareholders solicited by the 
dissident would be able to cast their votes by proxy for their choice 
of any combination of candidates. If the registrant chose not to use a 
universal proxy, those not solicited by the dissident would not be able 
to vote for dissident nominees or to split their vote across registrant 
and dissident nominees unless they attended the meeting or specifically 
requested the dissident's proxy card.\364\
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    \364\ Existing rules do not require the dissident in an election 
contest to solicit all shareholders; rather, the incentive to 
solicit comes from the dissident's motivation to run a successful 
election campaign.
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    In comparison to the proposed amendments, this hybrid approach 
would prevent the incidence of nominal contests that seek to capitalize 
on the ability of dissidents to include the names of alternative 
director candidates in the registrant's proxy materials. Additionally, 
this approach may confer an advantage to the registrant in some cases. 
For example, if the dissident would otherwise have had a high chance of 
winning many seats in the election, requiring a universal proxy for the 
dissident but not the registrant could dilute support for the dissident 
nominees among those voting on the dissident's card, by providing other 
alternative candidates on the same card. The dissident would not have a 
corresponding opportunity to gain potential votes from the registrant's 
proxy card unless the registrant chose also to use a universal proxy. 
This effect may be mitigated to the extent that registrants may have a 
stronger incentive to use a universal proxy to attract more 
shareholders to use their card in situations in which the dissident is 
likely to draw high levels of support. It may also be mitigated by the 
possibility that shareholders prefer the dissident's universal card 
over the registrant's non-universal proxy card, which may result in 
some additional votes for dissident nominees. Finally, we note that the 
ability of dissidents to select whom they solicit may provide an 
advantage that could help to balance any advantage that registrants 
would gain under this approach.
    Another hybrid approach we considered would be to require 
registrants to use a universal proxy, while dissidents would be given 
the option, but not the obligation, to do so.\365\ This hybrid approach 
may more fully achieve the goal of allowing all shareholders to vote by 
proxy for their choice of candidates because, as a practical matter, 
the registrant likely would distribute a universal proxy card to all 
shareholders. However, in addition to the risk of conferring a slight 
advantage to one party in certain cases, as under the other hybrid 
alternative, this approach would also present a similar likelihood of 
increased nominal contests as under the proposed amendments due to the 
exposure gained by the dissident via the registrant's proxy card.
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    \365\ Registrants with certain advance notice bylaw provisions 
may have the option of using a universal proxy card if they so 
choose. In particular, we are aware of two cases in which dissident 
nominees were required to consent to being included on the 
registrant's proxy card as part of the director questionnaire 
required under the registrant's advance notice bylaw provision. The 
dissident does not have such leverage over registrant nominees and 
in both cases, the registrant nominees did not consent to being 
named on the dissident's proxy card.
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Applicability of Mandatory Universal Proxies to Registered Investment 
Companies and Business Development Companies
    Because the proposed amendments would not apply to funds or BDCs, 
these registrants would remain subject to the federal proxy rules 
currently in effect. Therefore, we do not expect the proposed 
amendments to affect the current nature of director election contests 
among funds and BDCs.
    We currently observe very few director election proxy contests at 
open-end funds.\366\ By contrast, proxy contests do sometimes occur 
among closed-end funds and BDCs. As discussed previously in Section 
II.D, contests at closed-end funds and BDCs are generally driven by 
dissidents seeking to profit from reducing the discount of the fund's 
or BDC's share price relative to NAV.\367\ Staff analysis of proxy 
statement filings by dissidents in calendar years 2014 and 2015 found 
11 contests at closed-end funds and BDCs and in only one contest did 
the dissident seek fewer seats than were up for election.\368\ In three 
out of the four cases where the dissidents successfully achieved board 
representation, all the dissidents' nominees were elected to the 
board.\369\
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    \366\ Staff is not aware of any director election contests in 
open end funds from the year 2000 to July 2016.
    \367\ See supra note 190 and accompanying text.
    \368\ Our analysis found three contests in 2014 and eight in 
2015. Of those 11 contests, nine were at closed-end funds and two at 
BDCs. At 10 of the 11 contests dissidents were either seeking a 
majority of the board or seeking all of the board seats up for 
election.
    \369\ In the one case where the dissident did not get all its 
nominees appointed to the board, there was never a contested vote at 
the annual meeting as the dissident and the registrant negotiated a 
settlement prior to the meeting. In the settlement, the registrant 
agreed to add two of the dissident's four nominees to its own slate 
of nominees for a non-contested election at the annual meeting.
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    We have considered, as an alternative, applying the proposed 
amendments to funds and BDCs, which would also enable shareholders of 
funds and BDCs to vote a split ticket in director election contests 
through the use of universal proxies. In principle, the same general 
types of potential costs savings and increase in voting alternatives 
could apply to shareholders of funds and BDCs as those we discussed 
previously in Section IV.D.1 for shareholders of operating companies. 
Nevertheless, we recognize that funds and BDCs have particular 
characteristics that could impact the economic effects of the proposed 
amendments. Below, we highlight differences between funds and BDCs on 
the one hand, and operating companies on the other, that suggest the 
economic effects of the proposed mandatory universal proxy system could 
be different for funds and BDCs.
    First, it is unclear whether there is a current demand for split-
ticket voting among shareholders of funds and BDCs. In this regard, we 
note that petitioners seeking a universal proxy requirement have not 
specifically expressed a need for universal proxy cards at these types 
of registrants.\370\ Additionally, based on the observation above that 
contests for fewer than all seats up for election, or the election of 
some but not all dissident nominees, have been rare at funds and BDCs, 
we believe that shareholders in these registrants may have been less 
likely to seek split-ticket voting in contested elections. In addition, 
particular characteristics of funds and BDCs that they do not share 
with operating companies may affect the demand for split-ticket voting. 
For example, the types of changes pursued by dissidents at such 
registrants, such as converting a closed-end fund to an open-end fund, 
have tended to be binary in nature. As a result, we generally infer 
that shareholders siding with the dissident's view on one of these 
binary choices would be expected to vote the dissident's slate on the 
dissident's proxy card, as this would maximize the probability of the 
dissidents being able to carry out their proposed change. This is 
particularly true where the dissident nominates directors representing 
all of the seats up for election or a majority of the board--which 
occurs in the vast majority of cases--as this would give the dissident 
the power to enact the preferred fundamental change. This contrasts 
with our understanding of proxy contests for operating companies, where 
the types of changes pursued by

[[Page 79173]]

dissidents are often less binary in nature and may therefore cause 
dissidents to seek a minority of board seats. In particular, 
shareholders may in this case desire to vote a split ticket to express 
support for intermediate or compromise approaches between affecting the 
full scope of changes sought by the dissident and the status quo 
favored by the registrant. Thus, the effect of the proposed amendments 
for funds and BDCs could be different from the effect for operating 
companies, because funds and BDCs may experience a smaller number of 
non-binary contests where shareholders would desire to split their 
votes.
---------------------------------------------------------------------------

    \370\ See supra note 45.
---------------------------------------------------------------------------

    Second, the effects of the proposed amendments on the costs of 
contested elections may be different for funds and BDCs to the extent 
their shareholder base is different from that of operating companies. 
For example, a recent industry report shows that retail investors held 
approximately 89 percent of mutual fund assets in the United 
States,\371\ which is significantly larger than the corresponding 
ownership percentage that has been reported for operating 
companies.\372\ This data may indicate that ownership of funds and BDCs 
is more dispersed than ownership of operating companies, in which case 
any increase in solicitation costs from the proposed amendments may be 
greater for funds and BDCs. However, to the extent this is not the case 
and instead ownership is more concentrated at funds and BDCs than in 
operating companies, any increase in solicitation costs may be lower 
for funds and BDCs.
---------------------------------------------------------------------------

    \371\ See 2016 ICI Fact Book, at 29.
    \372\ See supra note 213.
---------------------------------------------------------------------------

    Third, the effect of the proposed amendments on voting outcomes may 
differ to the extent funds and BDCs have a different shareholder base 
than operating companies. For example, on the one hand, if funds and 
BDCs have a higher portion of shareholders who do not tend to vote 
their shares in proxy contests, there may be a more limited impact of 
universal proxy cards on voting outcomes. On the other hand, to the 
extent funds and BDCs have a higher portion of shareholders 
participating in voting that are currently unable to vote a split 
ticket, there may be a greater impact on voting outcomes.
    Fourth, specific features of the governance environment could make 
the effects of the proposed amendments on the outcomes of director 
election contests different for funds and BDCs compared to their 
effects for operating companies. For example, funds and BDCs that are 
part of larger complexes generally have unitary or cluster board 
structures that are not observed in operating companies. To the extent 
that an increase in split-ticket voting results in a greater rate of 
mixed boards, where some dissident nominees are elected together with 
some registrant nominees, such outcomes may impose more significant 
costs on funds and BDCs with unitary or cluster board structures. These 
companies could be required to make costly and potentially disruptive 
changes in the logistics of board meetings and the discussions held in 
such meetings to accommodate a mixed board in one fund out of the 
larger complex. We note, however, that an increased likelihood of mixed 
board outcomes could be beneficial for funds and BDCs to the extent a 
mixed board would result in more effective monitoring and less 
potential for conflicts of interests.\373\
---------------------------------------------------------------------------

    \373\ Concerns related to the monitoring effectiveness of 
unitary board structures have been raised by industry observers. 
See, e.g., James Sterngold, Is Your Fund's Board Watching Out for 
You?, Wall St. J. (June 9, 2012) (stating that ``it's not uncommon 
for a board member to oversee 100 funds or more,'' and that ``for 
many critics, that's a prescription for overwhelmed and passive 
boards''). But, on the other hand, studies have found that unitary 
boards can be an effective governance mechanism. See, e.g., Sophie 
Xiaofei Kong & Dragon Yongjun Tang, Unitary Boards and Mutual fund 
Governance, 31 J. Fin. Res. 193 (2008) (finding that mutual funds 
with unitary boards are associated with lower fees, are more likely 
to pass the economies of scale benefits to investors, are less 
likely to be involved in trading scandals, and rank higher on 
stewardship).
---------------------------------------------------------------------------

    Finally, the effects of universal proxies on the incidence of 
contested director elections could be different for funds and BDCs. 
Shareholders of funds and BDCs have rights under the federal securities 
laws that are not available to shareholders of operating companies that 
could affect the incidence of contested director elections. 
Shareholders of funds and BDCs must vote to approve changes in certain 
operational matters and to approve advisory contracts and material 
amendments to such contracts.\374\ To the extent these shareholder 
rights enable shareholders to participate effectively in the governance 
of the entity, there may be lower incentives for potential dissidents 
to initiate director election contests at funds and BDCs compared to 
operating companies. As a consequence, depending on how the proposed 
amendments would change the relative attractiveness of contested 
elections for potential dissidents at funds and BDCs, there may be 
either a greater or lesser effect of the proposed amendments on the 
incidence of contests at these entities compared to operating 
companies.
---------------------------------------------------------------------------

    \374\ See supra notes 193-194.
---------------------------------------------------------------------------

    We also note that differences across open-end funds, closed-end 
funds, and BDCs, could lead to differential economic effects of 
universal proxies across these different types of investment companies. 
Historically, director elections generally happen less frequently among 
open-end funds compared to other registrants, including closed-end 
funds and BDCs,\375\ and therefore these types of funds provide 
dissidents with fewer opportunities to launch director election 
contests. In addition, dissatisfied shareholders of open-end funds can 
sell their shares at NAV and invest elsewhere, such as another open-end 
fund that is a close substitute in terms of its portfolio holdings.
---------------------------------------------------------------------------

    \375\ One reason for this is that many open-end funds are not 
required to hold annual meetings. See supra note 185 and 
accompanying text.
---------------------------------------------------------------------------

    In contrast, dissatisfied shareholders of closed-end funds and BDCs 
that are trading at a discount to NAV may be interested in encouraging 
actions that could move the share price closer to NAV, including 
actions that may be sought by dissidents in a proxy contest.
    We request comments in this release on whether, and if so, the 
extent to which investment companies, or different types of investment 
companies, would be differentially affected by a universal proxy 
requirement as well the other changes to the proxy rules contemplated 
in this release. We also request information and data that would help 
us understand and quantify differences in the likely economic effects 
of applying the proposed amendments to investment companies as compared 
to operating companies and to the different types of investment 
companies.
Notice Requirements
    The proposed amendments would require that dissidents in all 
contested elections provide notice to registrants of their intention to 
solicit proxies in favor of other nominees, and the names of those 
nominees, no later than 60 calendar days prior to the anniversary of 
the previous year's annual meeting date.\376\ A notice to the 
registrant is necessary for the registrant to be able to include the 
names on the universal

[[Page 79174]]

proxy card it prepares and distributes to shareholders. Without 
providing such notice, a dissident would not be permitted to run a non-
exempt solicitation in support of its director nominees. The proposed 
amendments would also require registrants to provide similar notice to 
dissidents no later than 50 days before the anniversary of the previous 
year's annual meeting date, in order to allow dissidents sufficient 
time to include the names of registrant nominees on the universal proxy 
card that they prepare and disseminate to shareholders.
---------------------------------------------------------------------------

    \376\ If the registrant did not hold an annual meeting during 
the previous year, or if the date of the meeting has changed by more 
than 30 calendar days from the previous year, then the proposed 
amendments would require that notice must be provided no later than 
60 calendar days prior to the date of the annual meeting or the 
tenth calendar day following the day on which public announcement of 
the date of the annual meeting is first made by the registrant, 
whichever is later.
---------------------------------------------------------------------------

    Because advance notice bylaws commonly require a similar amount of 
notice by dissidents seeking to nominate alternative candidates, the 
effect of the proposed notice requirement for dissidents may be 
limited.\377\ As discussed above, we understand that advance notice 
bylaws generally have deadlines ranging from 60 to 120 days before the 
meeting anniversary date.\378\ However, it is possible that some 
registrants have advance notice bylaws with later deadlines. Also, some 
registrants do not currently have such bylaws and it is possible that 
boards may waive the applicability of such bylaws.\379\ Further, 
relatively smaller registrants are somewhat less likely to have advance 
notice provisions than larger registrants, and proxy contests are more 
common among these relatively smaller registrants.\380\ The proposal 
would, in effect, replicate the primary effects of an advance notice 
bylaw applying to contested elections even at registrants that 
currently have no advance notice bylaw (or bylaws with later deadlines, 
to the extent these exist).
---------------------------------------------------------------------------

    \377\ It has been estimated that 95 percent of S&P 500 firms and 
90 percent of Russell 3000 firms had an advance notice bylaw at the 
end of 2014. See supra Section IV.B.2.
    \378\ See supra note 246.
    \379\ See supra note 244.
    \380\ See supra Section IV.B.2.
---------------------------------------------------------------------------

    Although we believe that only a small fraction of registrants do 
not already have a comparable or stricter notice requirement, because 
the bylaws at different registrants may have been designed to reflect 
their individual circumstances, imposing this new requirement on all 
registrants may not be optimal. In particular, the proposal's notice 
requirements would impose a new constraint on dissidents in cases in 
which the same degree of notice was not otherwise required, potentially 
imposing some incremental costs on such dissidents. The proposal would 
also prevent the incidence (and eliminate the threat) of contests 
initiated later than the proposed notice deadline (``late-breaking'' 
proxy contests) at all registrants. As in the case of other potential 
effects of the proposed amendments on the incidence and perceived 
threat of contested elections, these effects of the proposed notice 
requirements may reduce either the degree of discipline or the risk of 
unproductive distraction for boards.\381\
---------------------------------------------------------------------------

    \381\ See Section IV.D.4.
---------------------------------------------------------------------------

    To consider potential effects on late-breaking proxy contests, we 
reviewed the timing of recent proxy contests. As shown in Table 2 
above, we estimate that dissidents filed their initial preliminary 
proxy statements on average 60 days before the annual meeting for 
contested elections initiated in 2014 and 2015.\382\ We also estimate 
that approximately 56 percent of these contested elections had an 
initial preliminary proxy statement filed by the dissident within 60 
days of the meeting, which may represent late-breaking contests.\383\ 
While the filing of a preliminary proxy statement does not mark the 
earliest point at which a dissident initiates a proxy contest and 
finalizes a slate of nominees, it does provide a threshold date before 
which these actions must have occurred. We also considered the earliest 
date at which a dissident announced its intent to pursue a proxy 
contest in a regulatory filing. For those contests for which we have 
such information, we estimate that in approximately 11 percent of these 
contested elections the dissident announced its intent to pursue a 
proxy contest within 60 days of the meeting, which is another measure 
of potential late-breaking contests.\384\ Disclosing the intent to 
pursue a proxy contest is not the same as providing notice of the names 
of the dissident nominees, but it may mark a threshold date after which 
such notice could have been provided.
---------------------------------------------------------------------------

    \382\ See Section IV.B.2.b.
    \383\ Id.
    \384\ Id.
---------------------------------------------------------------------------

    We therefore cannot rule out that the proposed notice requirement 
may prevent some proxy contests that would otherwise have occurred. 
However, dissidents who might have initiated late-breaking contests may 
simply adjust their timetable to be compatible with the proposed notice 
requirement. Also, any effects of the proposed notice requirements on 
the incidence or threat of late-breaking contested elections may be 
offset somewhat by the ability of dissidents who are unable to meet the 
notice deadline to take other actions, such as initiating a ``vote no'' 
campaign, using an exempt solicitation,\385\ or calling a special 
meeting (to the extent possible under the bylaws) to remove existing 
directors and elect their own nominees, which may allow them to achieve 
similar goals with respect to changes to the board.
---------------------------------------------------------------------------

    \385\ In this case, the total number of persons solicited could 
be no more than 10. See Section IV.B.3.
---------------------------------------------------------------------------

    While advance notice bylaws currently apply to dissidents at many 
registrants, registrants are not currently subject to a requirement 
that they provide notice of their nominees to dissidents. Thus, the 
proposed notice requirement for registrants would represent a new 
obligation for registrants in contested elections. We estimate that 68 
percent of registrants filed a preliminary proxy statement at least 50 
days before the annual meeting for contested elections initiated in 
2014 and 2015,\386\ so we expect that the majority of registrants will 
have a list of nominees ready by the proposed notice deadline. However, 
the proposed notice requirement may require some registrants to 
finalize their list of nominees somewhat earlier than they would 
otherwise.
---------------------------------------------------------------------------

    \386\ Based on staff review of EDGAR filings.
---------------------------------------------------------------------------

    Also, to the extent that a registrant might consider changing its 
selected nominees after providing notice and after the dissident 
thereby disseminates its definitive proxy materials (but perhaps before 
the registrant does so), the proposed notice requirement may provide 
registrants with an increased incentive not to make such changes 
because of the risk that votes for registrant nominees on the dissident 
card could be invalidated. Because the proposed notice requirement may 
require some registrants to finalize their nominees earlier than they 
would otherwise and may increase registrants' incentives not to change 
their nominees, there is a possibility that this requirement could have 
a detrimental effect on the quality of candidates that registrants 
nominate. However, the majority of registrants in recent contests filed 
a preliminary proxy statement at least 50 days before the meeting date, 
so the proposed notice deadline is close to the date by which 
registrants typically disclose their nominees. We therefore expect any 
such effects to generally be minor.
    We have also considered alternatives to the notice requirements 
included in the proposed amendments, such as earlier as well as later 
potential notice deadlines for dissidents. In these alternatives, we 
have assumed that the notice deadline for registrants would also be 
revised to be 10 days after the revised deadline for the dissident, to 
allow the registrant sufficient time to prepare its notice and list of 
nominees

[[Page 79175]]

in reaction to the receipt of a notice from a dissident. Under a later 
notice deadline, the risk of preventing late-breaking proxy contests 
that would otherwise have occurred, particularly at registrants without 
advance notice bylaws, would be reduced. For example, when considering 
a deadline of no later than 45 calendar days (as opposed to 60 calendar 
days, as proposed) prior to the anniversary of the previous year's 
annual meeting date, we found that in approximately 6 percent of 
contested elections initiated in 2014 and 2015 the dissident announced 
its intent to pursue a proxy contest within 45 days of the meeting (as 
compared to 11 percent within 60 days), and in 29 percent of these 
contests the dissident filed a preliminary proxy statement within 45 
days of the meeting (as compared to 56 percent within 60 days). 
Additionally, a later deadline for registrants would reduce the 
likelihood that some registrants may have to finalize their nominees 
earlier than they would otherwise. For example, we estimate that in 
approximately 2 percent of contested elections initiated in 2014 and 
2015, the registrant filed its preliminary proxy statement within the 
35 days before the meeting (as compared to 32 percent within 50 days).
    However, a later deadline may increase the risk of confusion among 
shareholders and impose additional solicitation costs if the 
registrant's non-universal proxy card has already been disseminated and 
requires revision. In particular, we estimate that in 22 percent of 
contests initiated in 2014 and 2015, registrants filed a definitive 
proxy statement at least 45 days before the meeting.\387\ In contrast, 
we found no cases in this sample in which a registrant filed a 
definitive proxy statement earlier than 60 days before the 
meeting.\388\
---------------------------------------------------------------------------

    \387\ Based on staff analysis of EDGAR filings.
    \388\ Id.
---------------------------------------------------------------------------

    An earlier deadline, such as 90 days prior to the anniversary of 
the prior year's meeting, would reduce the risk, relative to the 
proposal, of the potential confusion or costs related to notice being 
received after non-universal registrant proxy cards have already been 
disseminated. However, the risk that registrants will have distributed 
their proxy cards prior to the proposed 60-day deadline seems 
relatively low, and an earlier deadline may further preclude late-
breaking contests beyond those prevented by the proposed deadline. For 
example, when considering a deadline of no later than 90 calendar days 
(as opposed to 60 calendar days, as proposed) prior to the anniversary 
of the previous year's annual meeting date, we found that in a 
significant percentage of contested elections initiated in 2014 and 
2015, the dissident announced its intent to pursue a proxy contest or 
filed its preliminary proxy statement between 60 and 90 days prior to 
the meeting. Some of these contests may have been permitted under a 60-
day deadline but excluded in the case of a 90-day deadline.\389\ 
Additionally, an earlier deadline for registrants would increase the 
likelihood that some registrants may have to finalize their nominees 
earlier than they would otherwise. For example, we estimate that in 
approximately 63 percent of contested elections initiated in 2014 and 
2015, the registrant filed its preliminary proxy statement between 80 
and 50 days before the meeting.\390\
---------------------------------------------------------------------------

    \389\ Staff estimates that in 26 percent of contested elections 
initiated in 2014 and 2015, the dissident announced (in an EDGAR 
filing) its intent to pursue a proxy contest between 60 and 90 days 
prior to the meeting, and that in 34 percent of these contests the 
dissident filed a preliminary proxy statement between 60 and 90 days 
prior to the meeting. See Section IV.B.2.b. Neither the date on 
which intent to pursue a contest is announced nor that on which a 
preliminary proxy statement is filed need correspond to the date on 
which notice could have been provided in these contests, though they 
may provide some indication of the universe of contests that might 
have been affected by a particular notice deadline.
    \390\ Based on staff analysis of EDGAR filings.
---------------------------------------------------------------------------

    A further alternative would be to require universal proxies in 
cases where the dissident provides notice to the registrant, and not 
require them in cases where the dissident does not meet the notice 
deadline. Under this alternative, the dissident would be permitted to 
initiate a late-breaking proxy contest but, because of the risk of 
confusion if proxies have already been disseminated, would not trigger 
the use of universal proxies, while other contests (in which notice was 
provided) would require universal proxies. This alternative may raise 
similar concerns to those discussed above with respect to the optional 
use of universal proxies, in that there would still be some elections 
without universal proxies, and the dissident could strategically time 
its actions to avoid triggering universal proxies when it believes 
there is an advantage to doing so.
    We have also considered not requiring registrants to provide notice 
to dissidents of their nominees. In this case, dissidents would 
generally become aware of the registrant nominees when the registrant 
files its preliminary proxy statement, which is required to be filed at 
least 10 calendar days prior to the date the registrant's definitive 
proxy statement is first sent to shareholders, and would have to 
finalize their own proxy cards thereafter. This alternative would avoid 
imposing a new notice obligation on registrants, and may reduce the 
risk that such an obligation could marginally reduce the quality of 
registrant nominees in some cases. However, requiring that notice be 
provided by both parties to the contest would limit the possibility 
that registrants may gain a strategic advantage by learning about and 
being able to react to the dissident's slate of nominees significantly 
earlier than when the dissident may be informed of the registrant's 
slate.
Minimum Solicitation Requirement for Dissidents
    The proposed amendments would apply certain solicitation 
requirements to all contested elections. In particular, dissidents 
would be required to solicit the holders of shares representing at 
least a majority of the voting power of shares entitled to vote on the 
election of directors. Currently, dissidents in an election contest can 
solicit as many or as few shareholders as they choose, while 
registrants routinely furnish a proxy statement to all shareholders.
    As discussed in detail above, we do not expect the minimum 
solicitation requirements to significantly increase the costs borne by 
dissidents in a typical proxy contest.\391\ In the majority of 
contests, dissidents already solicit all shareholders; in other 
contests, while dissidents do not solicit all shareholders, they 
generally solicit a number of shareholders beyond the required 
threshold.\392\ To the extent that there are some infrequent cases in 
which a dissident may not otherwise have solicited shareholders that 
represented a majority of the voting power of the registrant, we 
preliminarily estimate that the incremental costs of the proposed 
solicitation requirement beyond what such a dissident would be expected 
to spend in the absence of this requirement to be approximately $1,000, 
which represents a minor fraction of the total estimated costs of 
solicitation in a typical proxy contest.\393\ Because the vast majority 
of proxy contests would not be affected by the proposed solicitation 
requirement, and in the infrequent cases where there would be an effect 
this requirement would impose minor incremental costs to dissidents, we 
believe that the proposed solicitation requirement would not have 
significant effects on the costs of typical proxy contests.
---------------------------------------------------------------------------

    \391\ See Section IV.D.2.
    \392\ Id.
    \393\ Id.

---------------------------------------------------------------------------

[[Page 79176]]

    Nevertheless, the proposed solicitation requirement would impose a 
cost on any dissidents that may try to capitalize on the ability to 
introduce the names of alternative candidates on the registrant's proxy 
card by running a nominal proxy contest, in which minimal resources are 
spent on solicitation. As discussed above, in addition to the existing 
cost of pursuing a nominal proxy contest, we estimate that it would 
cost approximately $6,000 at the median-sized (based on the number of 
accounts in which its shares are held) registrant to meet the proposed 
minimum solicitation requirements through an intermediary.\394\ We note 
that this estimate is higher than the incremental cost of $1,000 that 
we estimate could apply in the case of certain typical proxy contests 
because dissidents in nominal proxy contests currently expend minimal 
resources on solicitation. Therefore, the additional cost required to 
comply with the minimum solicitation requirement, beyond current 
expenditures in contests, is likely to represent a relatively larger 
incremental cost in the case of nominal contests. We expect that the 
proposed minimum solicitation requirements may to some degree deter 
dissidents from initiating nominal contests, as discussed in Section 
IV.D.4.b. above.
---------------------------------------------------------------------------

    \394\ Id.
---------------------------------------------------------------------------

    An alternative to the proposed solicitation requirements would be 
to require universal proxies without imposing any minimum solicitation 
requirement on dissidents. This approach would eliminate the risk that 
such a requirement would increase the cost to dissidents of running a 
typical proxy contest in some cases, such as where cumulative voting or 
other registrant characteristics could allow dissidents to gain board 
representation with more limited solicitation. However, without a 
minimum solicitation requirement, requiring registrants to use a 
universal proxy may increase the likelihood that dissidents engage in 
more nominal proxy contests. In particular, a dissident would be able 
to obtain exposure for its nominees on the registrant's proxy card 
without engaging in any meaningful solicitation at its own expense and 
without facing the limitations (such as on the number of nominees put 
forth) as well as the eligibility and procedural requirements of proxy 
access bylaws, where available, or (to the extent the dissident is 
concerned about a particular issue) the shareholder proposal process. 
While this may enable some beneficial contests that could otherwise be 
cost-prohibitive, it would also increase the risk of detrimental 
contests. That is, the ability of dissidents to introduce an 
alternative set of nominees to all shareholders without incurring 
meaningful solicitation expenditures may result in an increase in 
contests that are frivolous or that could be initiated in pursuit of 
certain idiosyncratic interests rather than shareholder value 
enhancement. Such contests could lead registrants to incur significant 
disclosure and solicitation expenses to advocate against the 
dissident's position and could distract management from critical 
business matters. There is also some chance that a frivolous contest 
could result in election outcomes which could disrupt the proper 
functioning of the board.
    Another alternative would be to require a different minimum level 
of solicitation for dissidents than what we have proposed. For example, 
we could require that dissidents solicit all shareholders. This 
approach may reduce the incidence of nominal contests that might not be 
in the interests of shareholders at large. As discussed above, we 
estimate the cost of using the least expensive approach to meet the 
proposed minimum solicitation requirement through an intermediary at 
the median-sized (based on the number of accounts in which its shares 
are held) registrant to be approximately $6,000.\395\ In contrast, we 
estimate that soliciting all shareholders at the median-sized 
registrant would cost approximately $14,500 when using the least 
expensive approach \396\ to solicit through an intermediary.\397\ 
However, a requirement that dissidents solicit all shareholders would 
also affect the cost to dissidents in more typical proxy contests. As 
discussed above, we understand that in 40 percent of recent proxy 
contests, dissidents solicited a number of shareholders fewer than all 
of the shareholders eligible to vote.\398\ We estimate that it would 
have cost dissidents in these contests approximately an additional 
$3,000 to $2.5 million, with a median of approximately $11,500 beyond 
the costs they already incurred, to increase their level of 
solicitation to include all shareholders if using the least expensive 
approach \399\ to expand solicitation.\400\ Thus, requiring dissidents 
to solicit all shareholders would increase the costs borne by 
dissidents in a large fraction of typical proxy contests and may 
prevent some value-enhancing contests from taking place.
---------------------------------------------------------------------------

    \395\ Id.
    \396\ See supra note 300.
    \397\ This estimate was derived by staff based on the NYSE Rule 
451 fee schedule and industry data provided by a proxy services 
provider. See supra note 301 (providing assumptions for the 
estimation of the costs of solicitation at the median-sized 
registrant). In this case, staff estimated the costs of NYSE Rule 
451 fees and postage for soliciting all 4,500 accounts at the 
median-sized registrant using notice and access delivery, and 
assumed that the number of brokers and banks involved for the 
purpose of determination of the nominee coordination fee is equal to 
90. The estimated solicitation cost of approximately $14,500 
includes intermediary unit fees, which apply with a minimum of 
$5,000, plus nominee coordination fees of $22 per bank or broker 
considered a ``nominee'' under NYSE Rule 451, plus basic processing 
fees, notice and access and preference management fees and postage 
totaling $1.57 (for suppressed accounts, such as those that have 
affirmatively consented to electronic delivery) to $1.70 (for other 
accounts) per account. We request comment on this estimate and data 
that could allow staff to obtain a more precise estimate below.
    \398\ See Section IV.B.2.
    \399\ See supra note 300.
    \400\ These estimates were derived by staff based on the NYSE 
Rule 451 fee schedule and industry data provided by a proxy services 
provider. In particular, the required increase in expenses to 
solicit all shareholders was estimated based on the number of 
additional accounts that would have to be solicited and the 
applicable fees under NYSE Rule 451 and postage costs for notice and 
access delivery. For the purpose of the nominee coordination fee, 
staff used information from other proxy contests for which 
information was provided (specifically focusing on those in which 
less than all shareholders were solicited) to interpolate the 
increase in the number of banks or brokers considered ``nominees'' 
under NYSE Rule 451 that might be involved at the higher 
solicitation level. The estimated incremental solicitation cost for 
each contest includes nominee coordination fees of $22 for each of 
the additional nominees expected to be involved, plus basic 
processing fees, notice and access and preference management fees 
and postage totaling $1.57 (for suppressed accounts, such as those 
that have affirmatively consented to electronic delivery) to $1.70 
(for other accounts) per account for additional accounts solicited 
within the first 10,000 accounts solicited, and on a declining scale 
for additional accounts thereafter. Staff assumed that half of the 
additional accounts to be solicited are suppressed and that none of 
these accounts requested full set delivery by prior consent or upon 
receipt of the notice (because such delivery requirements may apply 
to only a small fraction of accounts and is not expected to 
significantly affect the overall estimate of costs). Additional 
notice and access fees of $0.25 per account for the first 10,000 
accounts, and on a declining scale thereafter, were assumed to be 
required for each account that was solicited prior to increasing the 
level of solicitation because of the use of notice and access 
delivery for some accounts. The estimates also include incremental 
intermediary unit fees of $0.25 per account for each additional 
account above 20,000 accounts solicited. This estimate does not 
include printing costs for the notice, for which we do not have 
relevant data to estimate these costs. We request comment on these 
estimates and data that could allow staff to obtain more precise 
estimates below.
---------------------------------------------------------------------------

    We also considered requiring other possible levels of solicitation. 
In general, any solicitation requirement that imposes a very low cost 
on the dissident may increase the risks discussed above that are 
associated with permitting the dissident to obtain exposure for its 
nominees on the registrant's card with minimal expenditure of its own 
resources in the

[[Page 79177]]

solicitation, while a solicitation requirement that imposes a very high 
cost may deter value-enhancing proxy contests. Also, in any approach 
that requires the dissident to solicit less than all of the 
shareholders entitled to vote (such as under the proposed amendments) 
we note that any shareholders not solicited by the dissident would 
still see the names of the dissident's nominees on the registrant's 
proxy card but would have to seek out the dissident's proxy statement 
in the EDGAR system (as directed by the registrant's proxy statement) 
in order to learn about those nominees and make an informed voting 
decision.
Dissemination of Proxy Materials
    We are proposing amendments to Rule 14a-19 that would require any 
dissident in a contested election to file a proxy statement by the 
later of 25 calendar days prior to the meeting date, or five calendar 
days after the date that the registrant files its definitive proxy 
statement, regardless of the choice of proxy delivery method. This 
requirement would help to ensure that all shareholders who receive a 
universal proxy, which will not be required to include complete 
information about the opposing party's nominees, will have access to 
information about all nominees. We do not expect this requirement to 
impose a substantial burden or constraint on dissidents given existing 
requirements and the notice requirement of the proposed amendments.
    In particular, dissidents that elect notice-only delivery are 
currently required to make their proxy statement available at the later 
of 40 calendar days prior to the meeting date or 10 calendar days after 
the registrant files its definitive proxy statement. For such 
dissidents, the proposed filing deadline would provide five fewer days 
to furnish a proxy statement in cases in which the registrant files its 
definitive proxy statement within fewer than 30 calendar days of the 
meeting date, which we estimate occurred in 20 percent of recent 
contested elections, and would not otherwise present an incremental 
timing constraint.\401\ Dissidents that elect full set delivery are not 
currently subject to any such requirement, and thus the proposed 
dissemination requirement would impose a new filing deadline for all 
such dissidents. Some dissidents may therefore be required to prepare 
their proxy statements earlier than they would otherwise. In 
particular, we estimate that dissidents filed a definitive proxy 
statement within 25 days of the meeting in 25 percent of recent 
contested elections.\402\
---------------------------------------------------------------------------

    \401\ Based on staff review of contested elections initiated in 
2014 and 2015.
    \402\ Id.
---------------------------------------------------------------------------

    In the absence of other requirements, the proposed filing deadline 
might prevent late-breaking proxy contests. However, because the 
proposed amendments separately require dissidents to provide notice of 
the contest and the names of their nominees by the 60th calendar day 
before the anniversary of the prior year's meeting (with alternative 
treatment for cases in which the meeting date has changed significantly 
since the prior year), we do not expect this requirement to impose a 
significant further limitation on late-breaking contests. Also, while 
the proposed filing deadline would require some dissidents to prepare 
their proxy statements earlier than they would otherwise, we do not 
expect this requirement to impose a substantial incremental constraint 
or burden in most cases. In particular, because of the proposed notice 
requirement, dissidents would generally have approximately one month to 
furnish a definitive proxy statement after having provided the names of 
their nominees to the registrant. We request comment on the effect of 
the proposed filing deadline on dissidents below.
    Alternatively, we have considered proposing an earlier filing 
deadline for dissidents. While an earlier filing deadline may reduce 
the risk that some shareholders receive the registrant's proxy 
statement and make their voting decisions before the dissident's proxy 
statement is available, such a deadline may also impose an incremental 
burden on dissidents and could prevent some late-breaking proxy 
contests beyond those prevented by the proposed notice requirement.
Form of the Universal Proxy
    The proposed amendments specify certain presentation requirements 
for universal proxies, including that each party's slate of nominees be 
clearly distinguishable and that, within each slate, the names be 
listed in alphabetical order. Also, the form of the universal proxy 
would be required to prominently disclose the maximum number of 
candidates for whom a shareholder can properly grant authority to vote 
and the treatment of any proxy cards that indicate a greater or lesser 
number of ``for'' votes than this permitted number. We do not expect 
the presentation and formatting requirements to impose any significant 
direct costs on registrants or dissidents, though they may bear some 
indirect costs in the form of reduced flexibility to strategically 
design their proxy card.
    These presentation and formatting requirements are expected to 
mitigate the risk that shareholders receiving universal proxies may be 
confused about their voting choices and how to properly mark their 
card. For example, shareholders could otherwise be unsure about the 
total number of candidates for which they can grant authority to vote, 
or about which candidates are nominated by which party. Such confusion 
could increase the likelihood that some shareholders submit invalid 
proxies or submit proxies that do not reflect their intentions. This 
may be exacerbated in the case of nominees being put forth by multiple 
dissidents or when there are proxy access nominees as well as dissident 
and registrant nominees.\403\
---------------------------------------------------------------------------

    \403\ See, e.g., Roundtable Transcript, comment of David Katz, 
Partner, Wachtell, Lipton, Rosen and Katz, at 42.
---------------------------------------------------------------------------

    In addition to preventing confusion, these presentation and 
formatting requirements may also promote the fair and equal 
presentation of all nominees on the proxy cards. In particular, these 
requirements would prevent registrants and dissidents from 
strategically choosing the font, style, sizing, and order of candidate 
names in ways that could create an advantage for their slate. For 
example, political science research has found that the order of 
placement of candidates' names on ballots can affect voting 
outcomes.\404\
---------------------------------------------------------------------------

    \404\ See, e.g., Joanne Miller & Jon Krosnick, The Impact of 
Candidate Name Order on Election Outcomes, 62 Pub. Opinion Q. 291 
(1998); David Brockington, A Low Information Theory of Ballot 
Position Effect, 25 Pol. Behav. 1 (2003); Jonathan G.S. Koppell & 
Jennifer A. Steen, The Effects of Ballot Placement on Election 
Outcomes, 66 J. Pol. 267 (2004).
---------------------------------------------------------------------------

    Alternatively, we could permit some additional flexibility with 
respect to how universal proxies are presented. For example, each party 
to the contest could be allowed to choose how to order the nominees, 
but only within its own slate. This approach may allow registrants and 
dissidents to order their own candidates in a way they believe would be 
most informative to shareholders, such as separately listing 
independent director nominees or by listing the nominees based on their 
skill sets. However, this approach runs the risk of generating some 
(perhaps limited) degree of confusion on the part of a shareholder who 
receives two proxy cards with candidates in different orders. While 
this risk could be mitigated by requiring that each party to the 
contest inform the other party as to

[[Page 79178]]

how to order its slate of candidates, such a requirement would 
introduce some incremental coordination costs to create consistent 
ordering across the registrant and dissident proxy cards.
    Another approach would be to allow all parties to the contest 
complete flexibility in the presentation of nominees on their universal 
proxy cards. This approach may benefit registrants or dissidents that 
would prefer to strategically design their proxy card to better inform 
shareholders or to increase their chances of success, regardless of 
whether such strategic formatting of proxy cards may represent an 
inefficient use of resources from the perspective of shareholders. For 
example, presenting the candidates from both parties in a single, 
alphabetically ordered list may increase the possibility of split-
ticket votes.\405\ However, such an approach could be confusing for 
shareholders to the extent that each party's nominees were not readily 
identifiable as part of a particular slate or opponent nominees were 
de-emphasized (such as through font and sizing choices).
---------------------------------------------------------------------------

    \405\ See R. Darcy & Michael Marsh, Decision Heuristics: Ticket-
Splitting and the Irish Voter, 13 Electoral Stud. 38 (1994) 
(concluding that the alphabetic ordering of candidates in Irish 
elections results in more split tickets relative to comparable 
elections in Malta and Australia, where candidates are grouped by 
parties).
---------------------------------------------------------------------------

c. Additional Revisions
    The proposed amendments require certain disclosures with respect to 
voting options and voting standards in proxy statements. We expect that 
the costs to registrants of such additional disclosures would be 
minimal. To the extent that such disclosures reduce shareholder 
uncertainty or confusion as to the effect of their votes, the 
efficiency of the voting process may be improved. However, we do not 
anticipate significant changes in voting outcomes or corporate 
decisions as a result of these disclosures.
Request for Comment
    Throughout this release, we have discussed the anticipated costs 
and benefits of the proposed amendments. We request and encourage any 
interested person to submit comments regarding the proposed amendments 
and all aspects of our analysis of the potential effects of the 
amendments. We request comment from the point of view of shareholders, 
registrants, dissidents, and other market participants. With regard to 
any comments, we note that such comments are particularly helpful to us 
if accompanied by quantified estimates or other detailed analysis and 
supporting data regarding the issues addressed in those comments. We 
also are interested in comments on the alternatives presented in this 
release as well as any additional alternatives to the proposed 
amendments that should be considered.
    76. We request comment on the prevalence, availability, costs, and 
benefits of split-ticket voting. We request specific estimates of costs 
borne by shareholders to implement split-ticket votes in recent proxy 
contests, itemized by the source of the cost. In particular, please 
provide information about the costs involved in attending a shareholder 
meeting in person, arranging for an in-person representative at the 
meeting, and any other methods of voting a split ticket. We also 
request information about the number of instances in a year in which 
shareholders choose to vote a split ticket.
    77. We request comment on the prevalence, availability, costs, and 
benefits of certain accommodations currently made to facilitate split-
ticket voting, such as a party to a contest arranging for an in-person 
representative to cast votes for a shareholder at the shareholder 
meeting. Alternatively, are there changes that could more effectively 
facilitate alternative means of split-ticket voting (without attending 
the meeting) consistently being made available to shareholders?
    78. We request specific estimates of costs experienced in recent 
proxy contests, for dissidents as well as registrants, itemized by the 
source of the cost.
    79. We request specific statistics regarding the extent to which 
shares are currently voted in person at annual meetings rather than 
voted by proxy in advance of such meetings, and how this varies in the 
case of contested elections versus uncontested elections.
    80. We request specific statistics regarding the frequency of proxy 
contests in which the dissident does not solicit at least a majority of 
the shares eligible to vote.
    81. We request comment on our estimate of the cost to engage in a 
nominal proxy contest, the potential incremental cost imposed by the 
proposed solicitation requirement on certain other proxy contests, and 
other estimates made in this release. We also request data that would 
allow us to make more precise estimates, such as data identifying the 
share ownership structure (including beneficial shareholders as well as 
holders of record) at registrants of different sizes and data on 
printing costs (for notices and for full set proxy materials) for 
dissidents.
    82. Would split-ticket voting increase as a result of the proposed 
amendments? Would the proposed amendments reduce the cost and 
inconvenience currently faced by shareholders who choose to vote a 
split-ticket, while not changing the rate of split-ticket voting? Or 
are there shareholders who would choose to vote a split-ticket in some 
cases but do not because of the current impediments to doing so?
    83. To what extent are votes for the full dissident slate likely to 
increase as a result of including the dissident nominees on registrant 
proxy cards, as proposed? Would dissidents change the number of 
shareholders they solicit as a result of the proposed amendments?
    84. Are some kinds of voting choices more likely to be affected by 
adoption of universal proxy? For example, are either full-slate votes 
for the registrant or full-slate votes for the dissident more likely to 
switch to a split-ticket vote?
    85. Would removing constraints on shareholder voting choices 
through universal proxies result in election outcomes that better 
reflect shareholder preferences, or could there be unintended outcomes? 
That is, would changes in shareholder voting behavior due to the 
availability of universal ballots result in election outcomes that do 
not reflect overall shareholder preferences as well as the outcomes 
that would have occurred without universal ballots? If so, please 
explain.
    86. Would the use of universal proxy cards lead to more mixed 
boards, including both management and dissident nominees? How and to 
what extent? What would be the effect of any such change, including any 
effects on efficiency, competition, and capital formation? Would any 
such increase in mixed boards be beneficial or detrimental, and why is 
that the case?
    87. Would the use of universal proxy cards lead to an increase or 
decrease in the incidence of typical proxy contests (as opposed to the 
nominal contests discussed above)? How and to what extent? What would 
be the effects of any such change, including any effects on efficiency, 
competition, and capital formation? Would any such change in the 
incidence of proxy contests be beneficial or detrimental, and why is 
that the case?
    88. Would requiring the use of universal proxies provide advantages 
or disadvantages to one party or the other in an election contest? 
Would the expected effects of mandating universal proxies lead to an 
increase or decrease in the threat of proxy contests or otherwise 
change the nature of the

[[Page 79179]]

relationship between registrants, dissidents, and shareholders, 
resulting in changes in managerial decision-making or registrant 
performance? How and to what extent? What would be the effects of any 
such change, including any effects on efficiency, competition, and 
capital formation? Would any such changes be beneficial or detrimental, 
and why is that the case?
    89. Would the proposed amendments shift burdens to registrants in 
proxy contests? Would the proposed amendments result in nominal 
contests where the dissident does not expend resources on solicitation 
beyond the minimum required by the proposed amendments? Would 
dissidents be deterred from nominal contests by the cost of the 
proposed minimum solicitation requirement? Or is the magnitude of the 
cost such that it would not serve as a deterrent? What would be the 
effects of such contests, including any costs to registrants and any 
effects on efficiency, competition, and capital formation? Would 
nominal contests be beneficial or detrimental, and why is that the 
case? If we changed the proposed minimum solicitation requirements, 
such as to require solicitation of all shareholders, how would that 
affect the frequency of nominal contests? What would be the effect if 
instead we were to eliminate the proposed minimum solicitation 
requirements?
    90. Would dissidents have a reasonable likelihood of gaining board 
representation under the proposed amendments if they did no more than 
the minimum required under the proposed amendments (i.e., solicitation, 
such as by notice and access, of holders of shares representing at 
least a majority of the voting power of shares entitled to vote)? If 
so, is this due to the ability of shareholders to vote for dissident 
nominees on the registrant's universal proxy card? Are there other 
reasons why dissidents may be likely to initiate nominal contests?
    91. Would dissidents in typical proxy contests bear any incremental 
costs in order to comply with the minimum solicitation requirements of 
the proposed amendments? If so, please provide estimates of such costs. 
Would those incremental costs unduly deter proxy contests, and if so, 
to what extent?
    92. What is the current prevalence and distribution of different 
types of advance notice bylaws? Would the proposed notice deadline of 
60 calendar days prior to the anniversary of the previous year's annual 
meeting date create a new constraint on dissidents, relative to 
existing advance notice bylaws? If so, how and to what extent? What 
would the effect be if we were instead to adopt a different notice 
deadline, such as 90 or 45 days prior to the anniversary of the 
previous year's annual meeting date?
    93. Would the proposed proxy statement filing deadline for 
dissidents of 25 calendar days prior to the meeting date or five days 
after the registrant files its definitive proxy statement be sufficient 
to provide shareholders with the information needed to submit an 
informed vote? Would the proposed filing deadline create a new 
constraint on dissidents? If so, how and to what extent? Would a 
different filing deadline be more appropriate? If so, what deadline 
should apply and why?
    94. Are dissidents or registrants likely to change their 
solicitation expenditures under the proposed amendments? If so, how and 
to what extent?
    95. Are dissidents or registrants likely to incur incremental costs 
other than solicitation expenditures under the proposed amendments? If 
so, please describe and quantify those costs, if possible. For example, 
would registrants or dissidents incur costs to add disclosures to their 
proxy statements in reaction to the proposed amendments, such as 
disclosures urging shareholders not to support their opponent's 
candidates using their card and expressing their views as to the 
importance of a homogenous, rather than a mixed, board? What would it 
cost to prepare such disclosures?
    96. Would there be advantages or disadvantages to shareholders, 
registrants, or dissidents if registrants and dissidents were required 
to make universal proxy cards available on request, but were allowed to 
initially disseminate either a standard or a universal proxy card at 
their option? Would requiring shareholders to request a universal proxy 
card impose a burden on their ability to vote for the combination of 
director nominees of their choice? Would this approach be logistically 
feasible and cost-effective? In particular, how would the process of 
fulfilling shareholder requests be managed to ensure that shareholders 
electing a universal proxy card are provided with one in a timely 
manner? How would the cost of this process be borne by the different 
parties to the contest? Would electronic and logistical systems need to 
be changed to accommodate such an approach? Please provide detail on 
how this approach could be implemented and estimates of the associated 
costs where possible.
    97. Would dissidents and registrants take actions in response to 
the proposed amendments to lessen or capitalize on any potential 
effects of the proposed amendments? If so, what actions would they take 
and why?
    98. If registrants and dissidents were permitted, but not required, 
to use universal proxies, would registrants and/or dissidents choose to 
use universal proxies? To what extent? In what circumstances would 
universal proxies be likely to be used by registrants? In what 
circumstances would universal proxies be likely to be used by 
dissidents? If one party were to choose to use a universal proxy, would 
that decision prompt the opposing party also to use a universal proxy?
    99. If registrants and dissidents were permitted, but not required, 
to include opponent nominees on their proxy cards, should we require 
that all duly-nominated candidates be included, or should we allow 
registrants and dissidents to select which opponent nominees they 
include? What would be the effects of allowing only some of the 
opponent's nominees to be included on a card? Would that give rise to 
confusion in the voting process?
    100. If dissidents were required to use universal proxies, while 
registrants were permitted, but not required, to do so, would such an 
approach provide an advantage to registrants in proxy contests? How and 
to what extent? Would any such advantage be offset by the ability of 
dissidents to choose which and how many shareholders they solicit, in 
contrast to the general practice that registrants solicit all 
shareholders? Would such an approach provide an advantage to 
dissidents? How and why?
    101. We request statistics on the governance characteristics of 
investment companies and data with respect to proxy contests at 
investment companies, including their stated goals and outcomes. We 
also request comment on the prevalence, availability, costs, and 
benefits of split-ticket voting in the case of proxy contests at 
investment companies, including information about the number of 
instances in which shareholders choose to vote a split ticket at such 
contests.
    102. We request statistics on characteristics of the shareholder 
base for different types of investment companies, including the 
dispersion in ownership and the distribution of shareholders of 
different types (e.g., retail vs. institutional). We also request 
statistics regarding the costs of soliciting shareholders in different 
types of investment companies, including the estimated cost of 
soliciting all shareholders or shareholders that represent a majority 
of the voting rights.
    103. What effect would the proposed amendments have on competition?

[[Page 79180]]

Would the proposed amendments put registrants subject to the proxy 
rules or particular types of registrants subject to the proxy rules at 
a competitive advantage or disadvantage? If so, what changes to the 
proposed requirements could mitigate any such impact?
    104. What effect would the proposed amendments have on efficiency? 
Are there any positive or negative effects of the proposed amendments 
on efficiency that we have overlooked? How could the proposed 
amendments be changed to promote any positive effect or to mitigate any 
negative effect on efficiency?
    105. What effect would the proposed amendments have on capital 
formation? How could the proposed amendments be changed to promote 
capital formation or to mitigate any negative effect on capital 
formation resulting from the amendments?

V. Paperwork Reduction Act

A. Background

    Certain provisions of our disclosure rules and forms applicable to 
registrants contain ``collection of information'' requirements within 
the meaning of the Paperwork Reduction Act of 1995 (``PRA'').\406\ The 
Commission is submitting the proposed amendments to the Office of 
Management and Budget (``OMB'') for review in accordance with the 
PRA.\407\ The hours and costs associated with preparing, filing, and 
sending the schedules and forms constitute reporting and cost burdens 
imposed by each collection of information. An agency may not conduct or 
sponsor, and a person is not required to comply with, a collection of 
information requirement unless it displays a currently valid OMB 
control number. The titles for the affected collections of information 
are:
---------------------------------------------------------------------------

    \406\ 44 U.S.C. 3501 et seq.
    \407\ 44 U.S.C. 3507(d); 5 CFR 1320.11.
---------------------------------------------------------------------------

    (1) Regulation 14A (Commission Rules 14a-1 through 14a-21 and 
Schedule 14A) (OMB Control No. 3235-0059); and
    (2) Rule 20a-1 under the Investment Company Act of 1940, 
Solicitations of Proxies, Consents, and Authorizations (OMB Control No. 
3235-0158).
    We adopted Regulation 14A pursuant to the Exchange Act and Rule 
20a-1 pursuant to the Investment Company Act. These rules set forth 
disclosure requirements for proxy statements filed by soliciting 
parties to help investors make informed investment and voting 
decisions. Compliance with the information collection is mandatory. 
Responses to the information collection are not kept confidential and 
there is no mandatory retention period for the collections of 
information.

B. Summary of Proposed Amendments' Impact on Collection of Information

    We are proposing to amend the proxy rules as they apply to 
operating companies to revise the consent required of a bona fide 
nominee, eliminate the short slate rule and add Rule 14a-19 to 
establish new procedures for the solicitation of proxies, the 
preparation and use of proxy cards and the dissemination of information 
about all director nominees in contested elections.\408\ The proposed 
amendments would affect the collection of information requirements of 
soliciting parties by requiring the use of a universal proxy card in 
all non-exempt solicitations in connection with contested elections, 
prescribing requirements for universal proxy cards, and requiring all 
parties to add a reference to the other party's proxy statement for 
information about the other party's nominees and explain that 
shareholders can access the other party's proxy statement on the 
Commission's Web site. The proposed amendments would additionally 
require dissidents in such election contests to provide a notice of 
intent to solicit and a list of their nominees to the registrant and 
eliminate the ability of dissidents to round out their slate with 
registrant nominees through use of the short slate rule. The proposed 
amendments would additionally prescribe filing deadlines for a 
dissident's definitive proxy statement and require dissidents to 
solicit at least a majority of the voting power of shares entitled to 
vote on the election of directors; however, we do not believe that 
these requirements will affect the reporting and cost burden associated 
with the collection of information.\409\
---------------------------------------------------------------------------

    \408\ We are not proposing to amend the proxy rules for 
investment companies and BDCs and the discussion in this section 
does not relate to those entities. See supra Section II.D.
    \409\ Our current proxy rules do not prescribe minimum 
solicitation requirements for either registrants or dissidents; 
however, as discussed in Section II.B.4 supra, customary practice 
has been for soliciting parties to solicit more than a majority of 
shareholders because either, in the case of a registrant, they wish 
to meet notice, informational and quorum requirements for the annual 
meeting, or, in the case of a dissident, such solicitation is 
necessary in order to successfully wage a proxy contest. Based on 
staff analysis of the industry data provided by a proxy services 
provider for 35 proxy contests between June 30, 2015 and April 15, 
2016, less than a majority of shareholders was solicited by a 
dissident in only a single proxy contest in that sample. In that 
instance, we estimate that the proposed amendments would have 
resulted in incremental solicitation expenses (exclusive of printing 
costs) to the dissident of approximately $1,000 if the least 
expensive approach to soliciting through an intermediary had been 
used to solicit the required additional number of shareholders. See 
supra notes 300-301. It is possible that the proposed amendments may 
change the number and type of proxy contests, including a possible 
increase in nominal contests in which dissidents spend little more 
than the basic required costs to pursue a contest. We preliminarily 
estimate that, for a nominal proxy contest, it may cost 
approximately $6,000 at a median-sized registrant using the least 
expensive approach to meet the proposed minimum solicitation 
requirements through an intermediary. See supra notes 307-308. 
Because we are unable to predict how the proposed amendments may 
impact the number and type of election contests, and in light of 
current solicitation practices, for PRA purposes, we are not 
estimating that the majority solicitation requirement for dissidents 
would increase the reporting and cost burden associated with 
Regulation 14A. However, we solicit comment on this point and 
request data to help us estimate any such increase for PRA purposes.
---------------------------------------------------------------------------

    We are also proposing amendments to the proxy rules relating to all 
director elections to:
     Specify that the proxy card must include an ``against'' 
voting option when applicable state law gives effect to a vote 
``against'';
     require proxy cards to give shareholders the ability to 
``abstain'' in an election where a majority voting standard is in 
effect; and
     mandate disclosure about the effect of a ``withhold'' vote 
in an election. The proposed amendments requiring the appropriate use 
of an ``against,'' ``abstain'' or ``withhold'' voting option should 
better enable soliciting parties to properly seek and authorize the 
appropriate voting option for shareholders.
    We arrived at the estimates discussed below by reviewing our burden 
estimates for similar disclosure. We believe that the proposed 
amendments regarding the use of a universal proxy card, required 
notices and related disclosure would result in only a small amount of 
additional required disclosure and the addition of only a limited 
amount of material (the names of duly nominated director candidates for 
which the soliciting party has complied with Rule 14a-19 on proxy 
cards). The application of these amendments would be limited to 
contested elections. In addition, we believe that the additional 
disclosure and changes to the proxy card relating to the appropriate 
use of ``against,'' ``abstain'' or ``withhold'' voting options would 
similarly result in only a small incremental increase in the required 
disclosure; however, the changes would apply to proxy materials in all 
director elections, not just contested elections.

C. Estimate of Burdens

    We derived our new burden hour and cost estimates by estimating the 
total

[[Page 79181]]

amount of time it would take to prepare and review the required 
disclosures called for by the proposed rules. This estimate represents 
the average burden for all soliciting parties, both large and small. In 
deriving our estimates, we recognize that the burdens will likely vary 
among soliciting parties. We believe that some soliciting parties will 
experience costs in excess of this average in the first year of 
compliance with the amendments and some parties may experience less 
than the average costs.
    As discussed more fully in Section IV.D.4. above, it is unclear 
whether the proposed amendments would result in an increase or decrease 
in the number of election contests, and we therefore estimate no change 
in the number of proxy statement filings as a result of the proposed 
amendments. We estimate that the average incremental burden for a 
registrant to prepare a universal proxy card in a contested election 
and include the required disclosure would be two hours. We similarly 
estimate that the average incremental burden for a dissident to prepare 
a universal proxy card in a contested election and include the required 
disclosure would be two hours. We additionally estimate that the 
average incremental burden for a dissident and registrant to prepare 
the notice to the opposing party containing the names of its nominees 
in a contested election would be approximately one hour. Thus, we 
estimate that the total incremental burden for Schedule 14A would 
increase by three hours per election contest for registrants and three 
hours per election contest for other soliciting parties.\410\ For 
purposes of the PRA, we estimate there would be 36 annual election 
contests per year,\411\ resulting in 216 additional total incremental 
burden hours (6 hours x 36 election contests) under Schedule 14A as a 
result of proposed Rule 14a-19 and the related amendments.
---------------------------------------------------------------------------

    \410\ There may be a range of burdens by soliciting parties as 
they determine exactly how to present the proxy card and the 
language of the required disclosure; however, we estimate the 
burdens described above as the average burden for soliciting 
parties.
    \411\ We do not estimate that there would be additional election 
contests as a result of the proposed amendments. We estimate 
approximately 36 election contests per year based on the average of 
actual proxy contests for elections of directors in 2014 (37) and 
2015 (35).
---------------------------------------------------------------------------

    We estimate that the additional disclosure and changes to the proxy 
card relating to the appropriate use of ``against,'' ``abstain'' or 
``withhold'' voting options in proxy materials for all director 
elections would be considerably less than one hour for each proxy 
statement and card relating to an election of directors. Unlike the 
proposed amendments relating to election contests, these proposed 
amendments would apply to all director elections, including director 
elections for funds and BDCs. The disclosure and changes to the proxy 
card are being proposed to require registrants to clarify existing 
standards, and many of the descriptions and standards, once revised, 
are not likely to require significant revision from year to year. We 
estimate that these changes would result in an average of 10 minutes of 
additional burden per response.\412\ For purposes of the PRA, we 
estimate the proposed changes would result in 931 hours of additional 
total incremental burden under Schedule 14A (10 minutes x 5,586 proxy 
statements) and 185 hours of total incremental burden under Rule 20a-1 
(10 minutes x 1,108 filings).
---------------------------------------------------------------------------

    \412\ We estimate that the incremental burden for the proposed 
disclosure and changes to the proxy card would increase by 20 
minutes in the first year and then be reduced to five minutes in 
years two and three, resulting in a three year average of an 
increased 10 minute burden per response.
---------------------------------------------------------------------------

    These estimates include the time and cost of preparing disclosure 
that has been appropriately reviewed, including, as applicable, by 
management, in-house counsel, outside counsel and members of the board 
of directors. This burden would be added to the current burden for 
Regulation 14A and Rule 20a-1, as applicable. For proxy statements 
under Regulation 14A, we estimate that 75 percent of the burden of 
preparation is carried internally and that 25 percent of the burden of 
preparation is carried by outside professionals retained at an average 
cost of $400 per hour. The portion of the burden carried by outside 
professionals is reflected as a cost, while the portion of the burden 
carried internally is reflected in hours. We estimate a similar 
allocation between internal burden hours and outside professional costs 
with respect to the PRA burden for Rule 20a-1.
    As a result of the estimates discussed above, we estimate for 
purposes of the PRA that the total incremental burden on all soliciting 
parties of the proposed amendments under Regulation 14A would be 860 
hours for internal time (1,147 total incremental burden hours x 75 
percent) and $114,700 (1,147 total incremental burden hours x 25 
percent x $400) for the services of outside professionals. We further 
estimate for purposes of the PRA that the total incremental burden on 
all soliciting parties of the proposed amendments under Rule 20a-1 
would be 138.75 hours for internal time (185 total incremental burden 
hours x 75 percent) and $18,500 (185 total incremental burden hours x 
25 percent x $400) for the services of outside professionals.
    A summary of the proposed changes is included in the table below.

                                                                    Table 1--Calculation of Incremental PRA Burden Estimates
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                      Current        Proposed                                                         Current       Increase in      Proposed
                                                                      annual          annual          Current       Increase in      Proposed      professional    professional    professional
                                                                     responses       responses     burden  hours   burden  hours   burden  hours       costs           costs           costs
                                                                             (A)             (B)             (C)             (D)     (E) = C + D             (F)             (G)         = F + G
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Schedule 14A....................................................           5,586           5,586         546,814             860         547,674     $72,908,472        $114,700     $73,023,172
Rule 20a-1......................................................           1,108           1,108          94,180             139          94,319      33,240,000          18,500      33,258,500
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

D. Request for Comment

    Pursuant to 44 U.S.C. 3506(c)(2)(B), we request comments in order 
to:
     Evaluate whether the proposed collections of information 
are necessary for the proper performance of the functions of the 
Commission, including whether the information will have practical 
utility;
     Evaluate the accuracy of our assumptions and estimate of 
the burden of the proposed collections of information;
     Determine whether there are ways to enhance the quality, 
utility, and clarity of the information to be collected;
     Evaluate whether there are ways to minimize the burden of 
the collections of information on those who respond, including through 
the use of automated collection techniques or other forms of 
information technology; and
     Evaluate whether the proposed amendments would have any 
effects on

[[Page 79182]]

any other collections of information not previously identified in this 
section.
    Any member of the public may direct to us any comments about the 
accuracy of these burden estimates and any suggestions for reducing 
these burdens. Persons submitting comments on the collection of 
information requirements should direct the comments to the Office of 
Management and Budget, Attention: Desk Officer for the Securities and 
Exchange Commission, Office of Information and Regulatory Affairs, 
Washington, DC 20503, and send a copy to Brent J. Fields, Secretary, 
U.S. Securities and Exchange Commission, 100 F Street NE., Washington, 
DC 20549-1090, with reference to File No. S7-24-16. Requests for 
materials submitted to OMB by the Commission with regard to the 
collection of information should be in writing, refer to File No. S7-
24-16, and be submitted to the U.S. Securities and Exchange Commission, 
Office of FOIA Services, 100 F Street NE., Washington, DC 20549-2736. 
OMB is required to make a decision concerning the collection of 
information between 30 and 60 days after publication of this proposed 
rule. Consequently, a comment to OMB is best assured of having its full 
effect if OMB receives it within 30 days of publication.

VI. Small Business Regulatory Enforcement Fairness Act

    For purposes of the Small Business Regulatory Enforcement Fairness 
Act of 1996 (``SBREFA''),\413\ the Commission must advise OMB as to 
whether a proposed regulation constitutes a ``major'' rule. Under 
SBREFA, a rule is considered ``major'' where, if adopted, it results or 
is likely to result in:
---------------------------------------------------------------------------

    \413\ Public Law 104-121, Tit. II, 110 Stat. 857 (1996).
---------------------------------------------------------------------------

     An annual effect on the economy of $100 million or more 
(either in the form of an increase or a decrease);
     a major increase in costs or prices for consumers or 
individual industries; or
     significant adverse effects on competition, investment or 
innovation.

If a rule is ``major,'' its effectiveness will generally be delayed for 
60 days pending congressional review.
    We request comment on whether our proposed amendments would be a 
``major rule'' for purposes of SBREFA. We solicit comment and empirical 
data on:
     The potential effect on the U.S. economy on an annual 
basis;
     any potential increase in costs or prices for consumers or 
individual industries; and
     any potential effect on competition, investment or 
innovation.

We request those submitting comments to provide empirical data and 
other factual support for their views to the extent possible.

VII. Initial Regulatory Flexibility Act Analysis

    The Regulatory Flexibility Act \414\ requires us, in promulgating 
rules under Section 553 of the Administrative Procedure Act,\415\ to 
consider the impact of those rules on small entities. The Commission 
has prepared this Initial Regulatory Flexibility Act Analysis in 
accordance with 5 U.S.C. 603. This Initial Regulatory Flexibility Act 
Analysis relates to proposed amendments to Exchange Act Rules 14a-2, 
14a-3, 14a-4, 14a-5, 14a-6, and 14a-101 and proposed new Exchange Act 
Rule 14a-19.
---------------------------------------------------------------------------

    \414\ 5 U.S.C. 601 et seq.
    \415\ 5 U.S.C. 553.
---------------------------------------------------------------------------

A. Reasons for, and Objectives of, the Proposed Action

    In a contested election today, the choices available to 
shareholders voting for directors through the proxy process are not the 
same as those available to shareholders voting in person at a 
shareholder meeting. Shareholders voting in person at a meeting may 
select among all of the duly nominated director candidates proposed for 
election by any party in an election contest and vote for any 
combination of those candidates. Shareholders voting by proxy, however, 
generally are limited to the selection of candidates provided by the 
party soliciting the shareholder's proxy.
    In 2013, the IAC recommended that we explore revising our proxy 
rules to provide proxy contestants with the option to use a universal 
proxy card in connection with short slate director nominations.\416\ A 
2014 rulemaking petition requested that we require the use of a 
universal proxy to allow shareholders to vote for their preferred 
combination of registrant and dissident nominees in contested director 
elections.\417\ The Commission held a roundtable in February 2015 to 
explore ways to improve proxy voting, including through the adoption of 
universal proxies. As a result of these recommendations and our review 
of the proxy rules, we are proposing amendments that would allow a 
shareholder voting by proxy to choose among director nominees in an 
election contest in a manner that more closely reflects the choice that 
could be made by voting in person at a shareholder meeting. To this 
end, we are proposing to amend the proxy rules to:
---------------------------------------------------------------------------

    \416\ See IAC Recommendation.
    \417\ See Rulemaking Petition.
---------------------------------------------------------------------------

     Revise the consent required of a bona fide nominee;
     eliminate the short slate rule; and
     require the use of universal proxy cards in all non-exempt 
solicitations in connection with contested elections and prescribe 
requirements for universal proxy cards including notice, filing and 
solicitation requirements.
    We have also considered and are proposing additional improvements 
to the proxy voting process by making changes to the form of proxy. 
These changes would apply to all director elections and would require 
disclosure regarding the effect of shareholder action to vote 
``against,'' ``withhold'' or ``abstain'' and that the appropriate 
voting option be listed on the proxy card.

B. Legal Basis

    We are proposing the rule amendments pursuant to Sections 14 and 
23(a) of the Exchange Act.

C. Small Entities Subject to the Proposed Rules

    The proposed amendments would affect small entities that file proxy 
statements under the Exchange Act. For purposes of the Regulatory 
Flexibility Act, under our rules, an issuer of securities, other than 
an investment company,\418\ is a ``small business'' or ``small 
organization'' if it had total assets of $5 million or less on the last 
day of its most recent fiscal year.\419\ We estimate that there are 
approximately 692 issuers that are required to file with the 
Commission, other than investment companies, that may be considered 
small entities.\420\
---------------------------------------------------------------------------

    \418\ An investment company is a small entity if, together with 
other investment companies in the same group of related investment 
companies, it has net assets of $50 million or less as of the end of 
its most recent fiscal year. 17 CFR 270.0-10(a). The staff estimates 
that, as of December 2015, approximately 129 funds and approximately 
34 BDCs are small entities. As discussed in Section II.D. supra, we 
are not proposing that the amendments to change the consent required 
of a bona fide nominee, to eliminate the short slate rule or to 
require the use of a universal proxy card apply to investment 
companies. The only proposed amendments that would potentially 
affect small entities that are investment companies are the 
amendments that would apply to all director elections and require 
disclosure regarding the effect of shareholder action to vote 
``against,'' ``withhold'' or ``abstain.''
    \419\ 17 CFR 240.0-10(a). The Regulatory Flexibility Act defines 
``small entity'' to mean ``small business,'' ``small organization,'' 
or ``small governmental jurisdiction.'' 5 U.S.C. 601(6).
    \420\ The estimate is based on staff review of Form 10-K filings 
in 2015 by registrants that have a class of equity securities 
registered under Section 12 of the Exchange Act.

---------------------------------------------------------------------------

[[Page 79183]]

    The proposed amendments to the federal proxy rules establishing new 
procedures for use of a universal proxy card only would affect small 
entities engaged in a contested election. Based on a review of 
contested elections from 2014 and 2015, we are not aware of any \421\ 
contested elections involving small entities during that time period. 
While we anticipate that these proposed amendments may affect some 
small entities in the future, due to the small size of the entities and 
the higher concentration of ownership in smaller entities,\422\ we do 
not expect many such entities would be affected. Additionally, we are 
proposing to amend the procedures and disclosure applicable to director 
elections generally requiring clear disclosure about the effect of 
shareholder action to vote ``against,'' ``withhold'' or ``abstain'' and 
require that the appropriate voting option be listed on the proxy card. 
We expect these changes would affect small entities when those entities 
solicit proxies in a director election contest and when drafting 
applicable disclosure relating to voting standards in all director 
elections.
---------------------------------------------------------------------------

    \421\ A staff review of 72 Form 10-K filings for registrants 
involved in director election contests that were initiated through 
the filing of preliminary proxy statements by dissidents in calendar 
years 2014 and 2015 revealed that none of these registrants had 
total assets of $5 million or less on the last day of the fiscal 
year prior to the contest.
    \422\ See supra Table 1 in Section VI.B.1.b. showing increasing 
concentration of ownership by management as registrant market 
capitalization decreases.
---------------------------------------------------------------------------

D. Projected Reporting, Recordkeeping and Other Compliance Requirements

    The proposed amendments to the proxy rules would:
     Revise the consent required of a bona fide nominee;
     eliminate the short slate rule;
     require the use of universal proxy cards in all non-exempt 
solicitations in connection with contested elections and prescribe 
requirements for universal proxy cards including notice, filing and 
solicitation requirements; and
     require disclosure regarding the effect of shareholder 
action to vote ``against,'' ``withhold'' or ``abstain'' and that the 
appropriate voting option be listed on the proxy card.

The proposed changes in reporting requirements for soliciting parties 
are outlined in detail above. We do not believe the proposed amendments 
would impose significant recordkeeping requirements.

E. Duplicative, Overlapping or Conflicting Federal Rules

    We believe that there are no federal rules that duplicate, overlap 
or conflict with the proposed amendments.

F. Significant Alternatives

    The Regulatory Flexibility Act directs us to consider alternatives 
that would accomplish our stated objectives, while minimizing any 
significant adverse impact on small entities. Pursuant to Section 3(a) 
of the Regulatory Flexibility Act,\423\ we considered certain types of 
alternatives, including: (1) The establishment of differing compliance 
or reporting requirements or timetables that take into account the 
resources available to small entities; (2) the clarification, 
consolidation or simplification of compliance and reporting 
requirements under the rule for small entities; (3) the use of 
performance rather than design standards; and (4) an exemption from 
coverage of the rule, or any part of the rule, for small entities.
---------------------------------------------------------------------------

    \423\ 5 U.S.C. 603(c).
---------------------------------------------------------------------------

    We considered a variety of alternatives to achieve our regulatory 
objective to allow a shareholder voting by proxy to choose among 
director nominees in an election contest in a manner that reflects as 
closely as possible the choice that could be made by voting in person 
at a shareholder meeting. In the alternative, we considered making the 
use of universal proxies optional for all parties or establishing a 
hybrid approach where use of a universal proxy would be mandatory for 
only one party.\424\ We have not proposed these alternative approaches 
in this rulemaking because we do not believe they meet the regulatory 
objective as well as the proposal; they do not replicate the choice 
that could be made by voting in person at a shareholder meeting as 
effectively as the proposed amendments.
---------------------------------------------------------------------------

    \424\ See supra Section IV.D.5.b.
---------------------------------------------------------------------------

    The current proxy rules relating to election contests and the proxy 
rules generally do not impose different standards or requirements based 
on the size of the registrant or dissident. These rules contain both 
performance and design standards in order to achieve appropriate 
disclosure in the proxy voting process under the Exchange Act.\425\ The 
proposed amendments require very limited additional disclosure by 
either the registrant or the dissident, but do impose additional filing 
and solicitation requirements on dissidents and an obligation on both 
parties in an election contest to include the other side's nominees on 
their respective proxy cards and to notify the other party of the names 
of their respective director nominees. We believe that the proposed 
amendments effectively meet the regulatory objective to permit 
shareholders voting by proxy in an election contest to reflect their 
choices as they could if voting in person at a shareholder meeting. We 
believe the proposed amendments are equally appropriate for parties of 
all sizes seeking to engage in an election contest because they are 
intended to facilitate shareholder enfranchisement, which does not 
depend on the size of the soliciting party. For that reason, we are not 
proposing differing compliance or reporting requirements or timetables 
for small entities, or an exception for small entities. However we seek 
comment on whether and how the proposed amendments could be modified to 
provide differing compliance or reporting requirements or timetables 
for small entities and whether such separate requirements would be 
appropriate. Additionally, we request comment on whether we should 
exempt small entities (either registrants or dissidents) from the 
proposed amendments.
---------------------------------------------------------------------------

    \425\ For example, the proxy rules include filing deadlines and 
some required specific disclosure. However, Schedule 14A generally 
permits parties to craft their disclosure as they deem appropriate.
---------------------------------------------------------------------------

    Similarly, we believe that the proposed amendments do not need 
further clarification, consolidation, or simplification for small 
entities, although we solicit comment on how the proposed amendments 
could be revised to reduce the burden on small entities. We also note 
that, as with the current proxy rules, the proposed requirements 
include both performance and design standards. In particular, the 
proposed universal proxy card is subject to certain presentation and 
formatting requirements but there is flexibility as to the exact design 
of the card within those parameters. We solicit comment as to whether 
there are additional aspects of the proposed amendments for which 
performance standards would be appropriate.

G. Solicitation of Comment

    We encourage the submission of comments with respect to any aspect 
of this Initial Regulatory Flexibility Analysis. In particular, we 
request comments regarding:
     How the proposed amendments can achieve their objective 
while lowering the burden on small entities;
     the number of small entities that may be affected by the 
proposed amendments;

[[Page 79184]]

     the existence or nature of the potential impact of the 
proposed amendments on small entities discussed in the analysis; and
     how to quantify the impact of the proposed amendments.

Respondents are asked to describe the nature of any impact and provide 
empirical data supporting the extent of the impact. We will consider 
such comments in the preparation of the Final Regulatory Flexibility 
Analysis, if the proposed amendments are adopted, and will place those 
comments in the same public file as comments on the proposed amendments 
themselves.

VIII. Statutory Authority and Text of Proposed Rule Amendments

    The amendments contained in this release are being proposed under 
the authority set forth in Sections 14 and 23(a) of the Exchange Act.

List of Subjects in 17 CFR Part 240

    Reporting and recordkeeping requirements, Securities.

Text of the Proposed Amendments

    For the reasons set out above, the Commission proposes to amend 17 
CFR part 240 as follows:

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 
1934

0
1. The general authority citation for part 240 continues to read, in 
part, as follows:

    Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78c-3, 78c-5, 78d, 78e, 78f, 
78g, 78i, 78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o, 78o-4, 
78o-10, 78p, 78q, 78q-1, 78s, 78u-5, 78w, 78x, 78ll, 78mm, 80a-20, 
80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 80b-11, 7201 et seq., and 
8302; 7 U.S.C. 2(c)(2)(E); 12 U.S.C. 5221(e)(3); 18 U.S.C. 1350; 
Pub. L. 111-203, 939A, 124 Stat. 1376 (2010); and Pub. L. 112-106, 
sec. 503 and 602, 126 Stat. 326 (2012), unless otherwise noted.
* * * * *
0
2. Amend Sec.  240.14a-2 by revising paragraph (b) introductory text to 
read as follows:


Sec.  240.14a-2  Solicitations to which Sec.  240.14a-3 to Sec.  
240.14a-15 apply.

* * * * *
    (b) Sections 240.14a-3 to 240.14a-6 (other than paragraphs 14a-6(g) 
and 14a-6(p)), Sec.  240.14a-8, Sec.  240.14a-10, Sec. Sec.  240.14a-12 
to 240.14a-15 and Sec.  240.14a-19 do not apply to the following:
* * * * *


Sec.  240.14a-3  [Amended]

0
3. Amend Sec.  240.14a-3 as follows:
0
a. In paragraph (a)(3)(i) remove the period at the end of the paragraph 
and add in its place ``; or'';
0
b. In paragraph (a)(3)(ii) remove the semi-colon and add a period in 
its place.
0
4. Amend Sec.  240.14a-4 as follows:
0
a. Revise paragraph (b)(2);
0
b. Remove Instruction 1 and 2 to paragraph (b)(2);
0
c. Redesignate paragraph (b)(3) as paragraph (b)(5);
0
d. Add new paragraphs (b)(3) and (4);
0
e. Add Instruction to paragraphs (b)(2), (3), and (4);
0
f. Revise paragraphs (c)(5) and (d)(1);
0
g. Amend (d)(3) by adding a comma before ``or'' at the end of the 
paragraph; and
0
h. Revise paragraph (d)(4).
    The revisions and additions read as follows:


Sec.  240.14a-4  Requirements as to proxy.

* * * * *
    (b) * * *
    (2) A form of proxy that provides for the election of directors 
shall set forth the names of persons nominated for election as 
directors, including any person whose nomination by a shareholder or 
shareholder group satisfies the requirements of Sec.  240.14a-11, an 
applicable state or foreign law provision, or a registrant's governing 
documents as they relate to the inclusion of shareholder director 
nominees in the registrant's proxy materials.
    (3) Except as otherwise provided in Sec.  240.14a-19, a form of 
proxy that provides for the election of directors may provide a means 
for the security holder to grant authority to vote for the nominees set 
forth, as a group, provided that there is a similar means for the 
security holder to withhold authority to vote for such group of 
nominees. Any such form of proxy which is executed by the security 
holder in such manner as not to withhold authority to vote for the 
election of any nominee shall be deemed to grant such authority, 
provided that the form of proxy so states in bold-face type. Means to 
grant authority to vote for any nominees as a group or to withhold 
authority for any nominees as a group may not be provided if the form 
of proxy includes one or more shareholder nominees in accordance with 
Sec.  240.14a-11, an applicable state or foreign law provision, or a 
registrant's governing documents as they relate to the inclusion of 
shareholder director nominees in the registrant's proxy materials.
    (4) When applicable state law gives legal effect to votes cast 
against a nominee, then in lieu of providing a means for security 
holders to withhold authority to vote, the form of proxy shall provide 
a means for security holders to vote against each nominee and a means 
for security holders to abstain from voting. When applicable state law 
does not give legal effect to votes cast against a nominee, such form 
of proxy shall clearly provide any of the following means for security 
holders to withhold authority to vote for each nominee:
    (i) A box opposite the name of each nominee which may be marked to 
indicate that authority to vote for such nominee is withheld; or
    (ii) An instruction in bold-face type which indicates that the 
security holder may withhold authority to vote for any nominee by 
lining through or otherwise striking out the name of any nominee; or
    (iii) Designated blank spaces in which the security holder may 
enter the names of nominees with respect to whom the security holder 
chooses to withhold authority to vote; or
    (iv) Any other similar means, provided that clear instructions are 
furnished indicating how the security holder may withhold authority to 
vote for any nominee.
    Instruction to paragraphs (b)(2), (3), and (4). These paragraphs do 
not apply in the case of a merger, consolidation or other plan if the 
election of directors is an integral part of the plan.
* * * * *
    (c) * * *
    (5) The election of any person to any office for which a bona fide 
nominee is named in a proxy statement and such nominee is unable to 
serve or for good cause will not serve.
* * * * *
    (d) * * *
    (1) To vote for the election of any person to any office for which 
a bona fide nominee is not named in the proxy statement,
    (i) A person shall not be deemed to be a bona fide nominee and 
shall not be named as such unless the person has consented to being 
named in a proxy statement relating to the registrant's next annual 
meeting of shareholders at which directors are to be elected (or a 
special meeting in lieu of such meeting) and to serve if elected.
    (ii) Notwithstanding paragraph (d)(1)(i) of this section, if the 
registrant is an investment company registered under the Investment 
Company Act of 1940 (15 U.S.C. 80a-1 et seq.) or a business development 
company as defined by section 2(a)(48) of the Investment Company Act of 
1940 (15 U.S.C. 80a-2(a)(48)), a person shall not

[[Page 79185]]

be deemed to be a bona fide nominee and shall not be named as such 
unless the person has consented to being named in the proxy statement 
and to serve if elected. Provided, however, that nothing in this Sec.  
240.14a-4 shall prevent any person soliciting in support of nominees 
who, if elected, would constitute a minority of the board of directors 
of an investment company registered under the Investment Company Act of 
1940 or a business development company as defined by section 2(a)(48) 
of the Investment Company Act of 1940, from seeking authority to vote 
for nominees named in the registrant's proxy statement, so long as the 
soliciting party:
    (A) Seeks authority to vote in the aggregate for the number of 
director positions then subject to election;
    (B) Represents that it will vote for all the registrant nominees, 
other than those registrant nominees specified by the soliciting party;
    (C) Provides the security holder an opportunity to withhold 
authority with respect to any other registrant nominee by writing the 
name of that nominee on the form of proxy; and
    (D) States on the form of proxy and in the proxy statement that 
there is no assurance that the registrant's nominees will serve if 
elected with any of the soliciting party's nominees.
* * * * *
    (4) To consent to or authorize any action other than the action 
proposed to be taken in the proxy statement, or matters referred to in 
paragraph (c) of this section.
* * * * *
0
5. Amend Sec.  240.14a-5 as follows:
0
a. Revise paragraph (c);
0
b. In paragraph (e)(2) remove the ``and'' at the end of the paragraph;
0
c. In paragraph (e)(3) remove the period and add ``; and'' in its 
place; and
0
d. Add paragraph (e)(4).
    The revisions and addition read as follows:


Sec.  240.14a-5  Presentation of information in proxy statement.

* * * * *
    (c) Any information contained in any other proxy soliciting 
material which has been or will be furnished to each person solicited 
in connection with the same meeting or subject matter may be omitted 
from the proxy statement, if a clear reference is made to the 
particular document containing such information.
* * * * *
    (e) * * *
    (4) The deadline for providing notice of a solicitation of proxies 
in support of director nominees other than the registrant's nominees 
pursuant to Sec.  240.14a-19 for the registrant's next annual meeting 
unless the registrant is an investment company registered under the 
Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.) or a business 
development company as defined by section 2(a)(48) of the Investment 
Company Act of 1940 (15 U.S.C. 80a-2(a)(48)).
* * * * *
0
6. Amend Sec.  240.14a-6 by revising NOTE 3 TO PARAGRAPH (a) to read as 
follows:


Sec.  240.14a-6  Filing requirements.

* * * * *
    (a) * * *

     Note 3 to Paragraph (a): Solicitation in Opposition. For 
purposes of the exclusion from filing preliminary proxy material, a 
``solicitation in opposition'' includes: (a) Any solicitation 
opposing a proposal supported by the registrant; (b) any 
solicitation supporting a proposal that the registrant does not 
expressly support, other than a security holder proposal included in 
the registrant's proxy material pursuant to Sec.  240.14a-8; and (c) 
any solicitation subject to Sec.  240.14a-19. The inclusion of a 
security holder proposal in the registrant's proxy material pursuant 
to Sec.  240.14a-8 does not constitute a ``solicitation in 
opposition,'' even if the registrant opposes the proposal and/or 
includes a statement in opposition to the proposal. The inclusion of 
a shareholder nominee in the registrant's proxy materials pursuant 
to Sec.  240.14a-11, an applicable state or foreign law provision, 
or a registrant's governing documents as they relate to the 
inclusion of shareholder director nominees in the registrant's proxy 
materials does not constitute a ``solicitation in opposition'' for 
purposes of Sec.  240.14a-6(a), even if the registrant opposes the 
shareholder nominee and solicits against the shareholder nominee and 
in favor of a registrant nominee.

* * * * *
0
7. Add Sec.  240.14a-19 to read as follows:


Sec.  240.14a-19  Solicitation of proxies in support of director 
nominees other than the registrant's nominees.

    (a) No person may solicit proxies in support of director nominees 
other than the registrant's nominees unless such person:
    (1) Provides notice to the registrant in accordance with paragraph 
(b) of this section unless the information required by paragraph (b) of 
this section has been provided in a preliminary or definitive proxy 
statement previously filed by such person;
    (2) Files a definitive proxy statement with the Commission in 
accordance with Sec.  240.14a-6(b) by the later of:
    (i) 25 calendar days prior to the security holder meeting date; or
    (ii) Five (5) calendar days after the date that the registrant 
files its definitive proxy statement; and
    (3) Solicits the holders of shares representing at least a majority 
of the voting power of shares entitled to vote on the election of 
directors and includes a statement to that effect in the proxy 
statement or form of proxy.
    (b) The notice shall:
    (1) Be postmarked or transmitted electronically to the registrant 
at its principal executive office no later than 60 calendar days prior 
to the anniversary of the previous year's annual meeting date, except 
that, if the registrant did not hold an annual meeting during the 
previous year, or if the date of the meeting has changed by more than 
30 calendar days from the previous year, then notice must be provided 
by the later of 60 calendar days prior to the date of the annual 
meeting or the 10th calendar day following the day on which public 
announcement of the date of the annual meeting is first made by the 
registrant;
    (2) Include the names of all nominees for whom such person intends 
to solicit proxies; and
    (3) Include a statement that such person intends to solicit the 
holders of shares representing at least a majority of the voting power 
of shares entitled to vote on the election of directors in support of 
director nominees other than the registrant's nominees.
    (c) If any change occurs with respect to such person's intent to 
solicit the holders of shares representing at least a majority of the 
voting power of shares entitled to vote on the election of directors in 
support of director nominees other than the registrant's nominees or 
with respect to the names of such person's nominees, such person shall 
notify the registrant promptly.
    (d) A registrant shall notify the person conducting a proxy 
solicitation subject to this section of the names of all nominees for 
whom the registrant intends to solicit proxies unless the names have 
been provided in a preliminary or definitive proxy statement previously 
filed by the registrant. The notice shall be postmarked or transmitted 
electronically no later than 50 calendar days prior to the anniversary 
of the previous year's annual meeting date, except that, if the 
registrant did not hold an annual meeting during the previous year, or 
if the date of the meeting has changed by more than 30 calendar days 
from the previous year, then notice must be provided no later than 50 
calendar days prior to the date of the annual meeting. If any change 
occurs with respect to the names of the registrant's

[[Page 79186]]

nominees, the registrant shall notify the person conducting a proxy 
solicitation subject to this section promptly.
    Instruction to paragraphs (b)(1) and (d). Where the deadline falls 
on a Saturday, Sunday or holiday, the deadline will be treated as the 
first business day following the Saturday, Sunday or holiday.
    (e) Notwithstanding the provisions of Sec.  240.14a-4(b)(2), if any 
person is conducting a proxy solicitation subject to this section, the 
form of proxy of the registrant and the form of proxy of any person 
soliciting proxies pursuant to this section shall:
    (1) Set forth the names of all persons nominated for election by 
the registrant and by any person or group of persons that has complied 
with this section and the name of any person whose nomination by a 
shareholder or shareholder group satisfies the requirements of an 
applicable state or foreign law provision or a registrant's governing 
documents as they relate to the inclusion of shareholder director 
nominees in the registrant's proxy materials;
    (2) Provide a means for the security holder to grant authority to 
vote for the nominees set forth;
    (3) Clearly distinguish between the nominees of the registrant, the 
nominees of the person or group of persons that has complied with this 
section and the nominees of any shareholder or shareholder group whose 
nominees are included in a registrant's proxy materials pursuant to the 
requirements of an applicable state or foreign law provision or a 
registrant's governing documents;
    (4) Within each group of nominees referred to in paragraph (e)(3) 
of this section, list nominees in alphabetical order by last name;
    (5) Use the same font type, style and size for all nominees;
    (6) Prominently disclose the maximum number of nominees for which 
authority to vote can be granted; and
    (7) Prominently disclose the treatment and effect of a proxy 
executed in a manner that grants authority to vote for the election of 
fewer or more nominees than the number of directors being elected and 
the treatment and effect of a proxy executed in a manner that does not 
grant authority to vote with respect to any nominees.
    (f) If any person is conducting a proxy solicitation subject to 
this section, the form of proxy of the registrant and the form of proxy 
of any person soliciting proxies pursuant to this section may provide a 
means for the security holder to grant authority to vote for the 
nominees of the registrant set forth, as a group, and a means for the 
security holder to grant authority to vote for the nominees of any 
other soliciting person set forth, as a group, provided that there is a 
similar means for the security holder to withhold authority to vote for 
such groups of nominees unless the number of nominees of the registrant 
or of any other soliciting person is less than the number of directors 
being elected. Means to grant authority to vote for any nominees as a 
group or to withhold authority for any nominees as a group may not be 
provided if the form of proxy includes one or more shareholder nominees 
in accordance with an applicable state or foreign law provision or a 
registrant's governing documents as they relate to the inclusion of 
shareholder director nominees in the registrant's proxy materials.
    (g) This section shall not apply to:
    (1) A consent solicitation; or
    (2) A solicitation in connection with an election of directors at 
an investment company registered under the Investment Company Act of 
1940 (15 U.S.C. 80a-1 et seq.) or a business development company as 
defined by section 2(a)(48) of the Investment Company Act of 1940 (15 
U.S.C. 80a-2(a)(48)).
0
9. Amend Sec.  240.14a-101 as follows:
0
a. Revise Instruction 3(a)(i) and (ii) to Item 4;
0
b. Add Item 7(h); and
0
c. In Item 21, revise paragraph (b) and add paragraph (c).
    The revisions and addition read as follows:


Sec.  240.14a-101  Schedule 14A. Information required in proxy 
statement.

* * * * *
    Item 4. Persons Making the Solicitation * * *
    Instructions. * * *
    3. For purposes of this Item 4 and Item 5 of this Schedule 14A:
    (a) * * *
    (i) In the case of a solicitation made on behalf of the registrant, 
the registrant, each director of the registrant and each of the 
registrant's nominees for election as a director;
    (ii) In the case of a solicitation made otherwise than on behalf of 
the registrant, each of the soliciting person's nominees for election 
as a director;
* * * * *
    Item 7. Directors and executive officers. * * *
* * * * *
    (h) If a person is conducting a solicitation that is subject to 
Sec.  240.14a-19, the registrant must include in its proxy statement a 
statement directing shareholders to refer to any other soliciting 
person's proxy statement for information required by Item 7 of this 
Schedule 14A with regard to such person's nominee or nominees and a 
soliciting person other than the registrant must include in its proxy 
statement a statement directing shareholders to refer to the 
registrant's or other soliciting person's proxy statement for 
information required by Item 7 of this Schedule 14A with regard to the 
registrant's or other soliciting person's nominee or nominees. The 
statement must explain to shareholders that they can access the other 
soliciting person's proxy statement, and any other relevant documents, 
for free on the Commission's Web site.
* * * * *
    Item 21. Voting Procedures. * * *
* * * * *
    (b) Disclose the treatment and effect under applicable state law 
and registrant charter and bylaw provisions of abstentions, broker non-
votes and, to the extent applicable, a security holder's withholding of 
authority to vote for a nominee in an election of directors.
    (c) When applicable, disclose how the soliciting person intends to 
treat proxy authority granted in favor of any other soliciting person's 
nominees if such other soliciting person abandons its solicitation or 
fails to comply with Sec.  240.14a-19.
* * * * *

    By the Commission.

    Dated: October 26, 2016.
Brent J. Fields,
Secretary.
[FR Doc. 2016-26349 Filed 11-9-16; 8:45 am]
 BILLING CODE 8011-01-P