Quiero saber acerca de...

Federal Register / Vol. 86, No. 228 / Wednesday, December 1, 2021 / Rules and Regulations
lotter on DSK11XQN23PROD with RULES2

of public companies with a class of securities registered under the Exchange Act attend a registrants meeting to vote in person.4 Instead, the primary means for shareholders to become informed about matters to be decided on at a meeting and to vote on the election of directors and other matters is through the proxy process.
When a shareholder votes by proxy, the shareholder executes a written directive instructing the entity to whom the proxy is granted how to vote on that shareholders behalf at the meeting.
Although state law typically authorizes the use of proxies to vote shares without requiring in-person attendance at a shareholder meeting,5 registrants and other parties soliciting proxy authority must comply with the Federal proxy rules.6 Regulation of the proxy process has been a core function of the Commission since its inception.7
Further, protecting the ability of shareholders to vote, including their right to elect directors through the proxy process, has been the focus of numerous 4 During the COVID19 pandemic, many registrants have held virtual rather than in-person shareholder meetings. Because registrants holding virtual shareholder meetings conducted proxy solicitations in the same manner as they would for in-person meetings, for purposes of this release, our references to in-person meetings include virtual shareholder meetings unless otherwise indicated.
Although virtual shareholder meetings have become more prevalent, it remains unclear whether virtual shareholder meetings will be used as frequently in the future. Because voting at a virtual shareholder meeting still requires attendance by a shareholder, most shareholders are likely to continue to rely on the proxy voting system to exercise their vote. This is supported by the fact that, during 2020, the vast majority of shareholders who attended virtual shareholder meetings did not vote at the meetings.
Instead, to the extent they voted, they did so in advance by proxy or via voting instruction forms submitted in advance of the meetings, rather than by attending the virtual shareholder meeting and casting their votes at the meeting. Based on 1,957
virtual meetings hosted by one proxy services provider in 2020, the average number of shareholders voting at virtual meetings rather than voting in advance by proxy was 13 shareholders for meetings with shareholder proposals 218 cases and 2 shareholders for meetings without shareholder proposals. See Broadridge, Virtual Shareholder Meetings 2020 Facts and Figures April 2021, available at https www.broadridge.com/_
assets/pdf/vsm-facts-and-figures-2020-brochureapril-2021.pdf. Accordingly, the use of virtual shareholder meetings will not obviate the need for the final rules regarding universal proxy cards.
5 See, e.g., Del. Code Ann. tit. 8, section 212.
6 15 U.S.C. 78na.
7 Section 14 of the Exchange Act authorizes the Commission to establish rules and regulations governing the solicitation of any proxy, 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 15d and foreign private issuers are not subject to the Federal proxy rules with respect to solicitations of their own security holders.

VerDate Sep<11>2014

19:03 Nov 30, 2021

Jkt 256001

Commission rulemakings and other efforts over the years.8
As described in greater detail in Section I.B of the Proposing Release 81
FR 79122, Nov. 10, 2016, the current proxy rules do not allow shareholders voting by proxy in a contested election 9
to replicate the vote they could cast if they voted in person at a shareholder meeting. Shareholders voting in person at a meeting may select among all of the duly nominated 10 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, do not have this same flexibility. The interplay between state and Federal law means that shareholders voting by proxy generally are unable to choose a mix of dissident 11 and registrant nominees.
The dissident and registrant each send a proxy card to shareholders, with the registrants proxy card typically listing only the registrants nominees and the dissidents proxy card typically listing only the dissidents nominees. State law provides that a later-dated proxy card invalidates an earlier-dated card.12
Additionally, shareholders voting by proxy are limited by Federal law in their choice of nominees by Exchange Act 8 See, e.g., Reexamination of Rules Relating to Shareholder Communications, Shareholder Participation in the Corporate Electoral Process, and Corporate Governance Generally, Release No.
3413901 Aug. 29, 1977 42 FR 44860 Sept. 7, 1977; Regulation of Communications Among Shareholders, Release No. 3430849 June 23, 1992
57 FR 29564 July 2, 1992 Short Slate Rule Revised Proposing Release; and Regulation of Communications Among Shareholders, Release No.
3431326 Oct. 16, 1992 57 FR 48276 Oct. 22, 1992 Short Slate Rule Adopting Release;
Roundtable on Proxy Voting Mechanics May 24, 2007 materials available at https www.sec.gov/
spotlight/proxyprocess.htm; Proxy Voting Roundtable Feb. 19, 2015 materials available at http www.sec.gov/spotlight/proxy-votingroundtable.shtml; and Roundtable on the Proxy Process Nov. 15, 2018 materials available at https www.sec.gov/proxy-roundtable-2018.
9 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 registrants nominees.
10 A duly nominated director candidate is a candidate whose nomination satisfies the requirements of any applicable state or foreign law provision and a registrants governing documents as they relate to director nominations.
11 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 registrants nominees.
12 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, section 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..

PO 00000

Frm 00003

Fmt 4701

Sfmt 4700

68331

Rule 14a4d1, the bona fide nominee rule, 13 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 under Rule 14a4d is a nominee who has consented to being named in the proxy statement and to serve if elected. 14 Thus, in an election contest, one party cannot include the other partys nominees on its proxy card without the other partys nominees consent. In practice, such consent is rarely provided.15 Therefore, shareholders voting by proxy in a director election contest must choose between the dissidents or registrants proxy card. This effectively precludes such shareholders from voting by proxy for a mix of director candidates from both sides slates in the contest.
Although the Commission attempted to address some aspects of this problem by adopting the short slate rule in 1992, shareholders voting by proxy still lack the ability to make selections based solely on their preferences for particular director candidates as they could were they voting in person at a shareholder meeting.16 For years, shareholders and their advocates have expressed concerns arising from being unable to choose a mix of dissident and registrant nominees when voting by proxy, and support for universal proxy has grown over time.17
In response to the concerns outlined above, the Commission proposed rule amendments in 2016 to mandate the use of universal proxy cards in contested director elections to allow shareholders to vote by proxy in the same manner as they could do if attending a shareholder meeting Proposed Rules.18 In 2021, 13 17

CFR 240.14a4d1.
CFR 240.14a4d4.
15 Even if a nominee consents to being named on the other partys proxy card, each party currently can decide whether to include the others nominees for strategic or other reasons. These kinds of strategic decisions may impede shareholder voting options.
16 17 CFR 240.14a4d4. The short slate rule permits a dissident in certain circumstances to solicit votes for some of the registrants 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 dissidents proxy card to vote for a particular split ticket combination. However, as described in greater detail in Section I.B of the Proposing Release, shareholders voting on the dissidents proxy card are still limited to voting for those registrant nominees selected by the dissident, rather than any registrant nominee of their choice.
17 See Section I.C of the Proposing Release and infra Section II.A.2 and II.A.3.
18 The Proposed Rules were set forth in a release published in the Federal Register on November 10, 14 17

E:FRFM01DER2.SGM

Continued
01DER2