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Federal Register / Vol. 86, No. 228 / Wednesday, December 1, 2021 / Rules and Regulations of solicitation requirement for dissidents.99
3. Final Amendments
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For reasons described in more detail in the Proposing Release,100 a universal proxy requirement without a minimum solicitation requirement could enable dissidents to capitalize on the registrants solicitation efforts while relieving dissidents of the time and expense necessary to undertake meaningful solicitation efforts, thereby potentially exposing registrants to frivolous proxy contests. The minimum solicitation requirement establishes a fundamentally important check in that regard.101
After careful consideration of the many comments received on this topic, and an updated economic analysis of the costs and benefits of setting the minimum solicitation threshold at various levels, we have decided to adopt the requirement that dissidents solicit holders of shares representing at least 67% of the voting power of shares entitled to vote on the election of directors. We have raised the threshold from a majority of the voting power to 67% of the voting power in response to commenters concerns that setting the threshold at the proposed majority of the voting power would insufficiently deter the potential for freeriding of dissident nominees on the registrants proxy card. A 67% threshold represents an appropriate balance between achieving the benefits of the universal proxy requirement for shareholders and preventing dissidents from capitalizing on the inclusion of dissident nominees on the registrants universal proxy card without undertaking meaningful solicitation efforts. Comments from a wide range of market participants, including comments received from the Universal Proxy Working Group and the IAC indicated that a 67% threshold enjoys broad support and represents a reasonable compromise between the competing policy objectives related to this topic.102
99 See letter dated Dec. 5, 2016 from Bulldog Investors, LLC Bulldog asserting that The Commission seems troubled by the prospect that such a condition is needed to deter nominal or frivolous proxy contests but fails to clearly articulate the actual harm resulting from such contests.
100 See Proposing Release at Section II.B.4.
101 In response to the commenter who questioned whether actual harm results from frivolous contests, unserious contests launched by dissidents who are not truly invested in the registrants they target impose costs on those registrants and their shareholders without a corresponding benefit. See supra Section II.D.2 discussing comments regarding such contests.
102 See letter from UPWG and IAC Report.

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The increase in the dissident minimum solicitation requirement to 67% should mitigate concerns that the originally-proposed threshold would have incentivized dissidents to solicit only the minimum number of shareholders while ignoring all others, particularly retail shareholders with small holdings. Notably, our analysis of data provided by a proxy services provider demonstrates that dissidents overwhelmingly tend to solicit a substantial majority of voting power despite not being subject to any minimum solicitation threshold in contested elections.103 We agree that a higher threshold better incentivizes dissidents to engage and solicit votes from more shareholders without imposing an undue burden on dissidents. As a practical matter, those shareholders who are not solicited by the dissident will receive the registrants proxy materials with the names of the dissidents nominees and information on how to access the dissidents materials on the Commissions website.
Therefore, those shareholders who wish to do so can take steps to access information about dissident nominees before exercising their vote, whether or not they are solicited by the dissident.
As noted above, current proxy rules do not require a dissident to solicit any minimum number of shareholders, so the 67% minimum solicitation threshold we are adopting represents an important step forward in establishing a minimum requirement for dissidents to engage with shareholders.
A requirement for dissidents to solicit holders of 100% of the voting power, as some commenters recommended, would represent a substantial burden on dissidents and would likely deter bona fide efforts by dissidents, particularly those with fewer resources, to elect directors to a registrants board.104
While we recognize that a minimum solicitation threshold of anything less than 100% of voting power may mean that dissidents may exclude some retail shareholders from their solicitation efforts, as noted above, current proxy rules do not contain a requirement to solicit any minimum number of 103 Based on industry data from a proxy services provider, all dissidents solicited a number of shareholders that exceeded a 67% threshold of shares entitled to vote in a sample of 31 proxy contests for annual meetings held between July 1, 2018 and June 30, 2019. In addition, data provided by a proxy services provider for an earlier sample of 35 proxy contests from June 30, 2015 through April 15, 2016, which we used in the economic analysis in the Proposing Release, show that only two dissidents around 6% of the sample solicited less than 67% of the shares entitled to vote. See infra Section IV.C.2.a.
104 See infra Section IV.C.5.b.

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shareholders. Under the rules we adopt in this document, as under current rules, the primary incentive for a dissident to solicit is to have its director nominees elected, which remains more likely the more shareholders the dissident solicits. In addition to the sizeable costs imposed by a 100%
voting power solicitation requirement, such a requirement would represent a drastic change from current proxy rules, which do not mandate that dissidents solicit even a single shareholder. In establishing a minimum solicitation requirement for dissidents, we are cognizant of the fact that those soliciting on behalf of an incumbent board of directors can, win or lose, routinely expect to be reimbursed by the company for their costs under state law, while a dissidents only hope of reimbursement occurs if its solicitation succeeds, or if it otherwise reaches a settlement with the registrant.105 A significant increase in the minimum solicitation threshold may therefore further tip the economic scales in favor of the registrant. Finally, given the practical possibility of a very small number of shareholders being unintentionally omitted from a proxy solicitation, we would envision justifiable concerns regarding compliance, and the potential for related gamesmanship contrary to shareholder interestsin the form of registrants seeking to take advantage of dissidents technical or immaterial failures to solicit every last shareholder accountif a 100% minimum threshold were adopted.
One commenter suggested imposing a threshold based on a minimum number of registered shareholders in addition to a voting power threshold to prevent frivolous use of the Universal Proxy rule. 106 We do not agree that such a requirement is necessary to prevent proxy contests where dissidents have no intention of conducting their own solicitations. We note that there are relatively few registered shareholders, as the vast majority of voting shares of public companies are held in street name through securities intermediaries such as broker-dealers.107 Imposing an additional requirement for dissidents to solicit those relatively few registered shareholders when most voting shares are held by street name shareholders would increase the burdens on 105 See
IAC Report.
letter from CalSTRS.
107 See Concept Release on the U.S. Proxy System, Release No. 3462495 Jul. 14, 2010 75 FR
42982 Jul. 22, 2010, at Section II.A, for an explanation of registered shareholders and street name shareholders.
106 See
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