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Federal Register / Vol. 86, No. 228 / Wednesday, December 1, 2021 / Rules and Regulations
mandatory use of universal proxy cards would address this disparity and remove this impediment to retail investors ability to exercise their right to vote to the full extent allowed by state law.
Use of a universal proxy card should not be dependent on the potentially selfinterested considerations of the contesting parties, the registrants board of directors, or any controlling shareholders, as it would be under an optional system, or one where a registrant through, for example, a board or shareholder vote could opt out of a universal proxy requirement. Mandating a universal proxy is a more efficient and effective means to achieve the objective of allowing shareholders to elect their preferred candidates through the proxy process. Similarly, a universal proxy requirement should not be dependent on the size of a dissidents equity stake in a registrant or the period of time it has maintained its equity position. The purpose of requiring a universal proxy is to allow shareholders to exercise their right to vote for directors in the same manner as they could vote through inperson attendance at a shareholder meeting. Conditioning a universal proxy mandate on a minimum ownership threshold or holding period, as certain commenters advocated, would be contrary to this purpose. Conditioning a universal proxy mandate in such manner would inappropriately subject shareholders ability to vote in director election contests through the proxy process to conditions that are not imposed upon shareholders ability to vote if attending a shareholder meeting.
In response to commenters arguing for an optional universal proxy system, an optional system without additional accompanying rule changes would raise problems not presented by a mandatory requirement, such as issues related to how and when shareholders presented with a universal proxy card would access information about the other partys nominees in order to make an informed voting decision. Mandating a universal proxy in all non-exempt election contests is less likely to cause shareholder confusion than an optional system which would operate differently, depending on whether one or both sides elected to opt in or opt out of universal proxy. Finally, in response to the
commenter who advocated an optional system to allow us to study the impact of universal proxy, we note that we already have experience with optional universal proxy. Our existing proxy rules already effectively allow optional universal proxy for registrants because a registrant can require dissident nominees to consent to being named on the registrants proxy card as part of an advance notice bylaw provision and associated director and officer D&O
questionnaire, a tactic used by registrants on multiple occasions.43 This form of optional universal proxy, however, falls well short of meeting the objectives of our rulemaking. Use of this tactic creates an unfair advantage for registrants, who are then able to place dissident nominees on the registrants proxy card without granting dissidents the same ability to place registrant nominees on the dissidents cards.
Further, use of universal proxy cards and the ability of shareholders to select their preferred mix of nominees would exist at the sole discretion of the registrant and would be subject to managements self-interest.
As discussed in Section IV.C.4 below, it is unclear whether the rule changes we are adopting will increase or decrease the number of proxy contests.
Similarly, it is unclear whether they will increase the influence, directly or indirectly, of dissidents, including short-term activist investors, as some commenters predicted. Under current rules, a shareholder may be forced to make an all or nothing choice between one or the other soliciting partys proxy card. However, a universal proxy card may result in increased split votes where dissidents do not gain majority control of a board of directors in one election. We view the arguments that mandatory universal proxy will lead to distraction for registrants, hamstring directors, and lead to greater balkanization of boards of directors as unpersuasive. Even with the use of universal proxy cards, registrants and dissidents will retain the same ability to advocate the election of their nominees and raise concerns about negative boardroom dynamics that they have today. Shareholders will continue to have the ability to evaluate these concerns, including potential
shareholders including many retail investors hold their shares in street name and, as such, would need to obtain a legal proxy from the securities intermediaries that hold their shares such as a broker-dealer in advance to vote at a virtual shareholder meeting, as they would need to do to vote at the meeting in person. We therefore expect that the vast majority of retail investors will continue to vote by proxy and will continue to rely on the ability to do so.

43 For example, both the dissident group and the registrant used universal proxy cards at EQT
Corporations 2019 Annual Meeting. See DEFC14A
filed May 20, 2019 by dissidents and DEFC14A
filed May 22, 2019 filed by EQT Corp. The registrant but not the dissident group used a universal proxy card at Sandridge Energys 2018
Annual Meeting. See DEFC14A filed May 10, 2018
by Sandridge Energy, Inc. and DEFC14A filed May 11, 2018 by dissidents.

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balkanization of the board, when they make their voting decisions. The rule amendments we are adopting are intended to improve the mechanics of the proxy voting process, not influence its outcome. Further, it is not apparent that allowing shareholders to more easily base their vote on individual and collective characteristics of board candidates, rather than forcing an either or choice between dissident or registrant nominees, would negatively impact registrants or boardroom dynamics. We are also unaware of such arguments about mix and match voting being made in the context of in-person voting, where such a choice is already possible for larger shareholders and institutions who expend the effort to vote through an in-person representative. Lastly, even if the use of universal proxy will lead to greater frequency of split boards, it is unclear whether that effect will necessarily lead to detrimental changes in board dynamics, with some viewing a diversity of viewpoints among board members as a positive development.44
The mandatory use of universal proxy cards will permit shareholders to choose their preferred mix of directors, taking into consideration both complementary skill sets and other board dynamics.
For the same reason, we do not believe the universal proxy requirement we are adopting will result in promoting the interests of special interest groups and short term activists, at the expense of shareholders generally. Even with the use of universal proxy cards, a dissident must ultimately persuade shareholders that its agenda is in their best interests in order to successfully elect its nominees. Moreover, if elected to the board of directors, such dissident nominees will be subject to the same state-law fiduciary duties to the corporation and, and by extension, all of its shareholders as all other directors, many of whom are also commonly affiliated with other entities.
Similarly, it is unclear to us how these rule amendments, which improve the mechanics of the proxy process, would increase the influence of proxy advisory firms,45 also referred to as proxy voting advice businesses. These businesses provide voting recommendations to their clients, mainly institutional investors and investment advisers, who then may consider such recommendations as part of their decision-making process. The 44 See
infra note 295 and accompanying text.
commenters suggested that the use of universal proxies could increase the influence of proxy advisory firms. See letters from Sidley;
CCMC; CGCIV.
45 Several
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