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Federal Register / Vol. 86, No. 228 / Wednesday, December 1, 2021 / Rules and Regulations for operating companies. The amended short slate rule, however, will continue to be available for funds in contested elections, which will not be subject to the universal proxy requirements at this time.158 If we later adopt rule changes to make the universal proxy requirement applicable to some or all funds, we will consider whether to eliminate the short slate rule completely at that time.
2. Modification of the Bona Fide Nominee Rule a. Proposed Rules In order to facilitate the ability of both parties in a contested election to include the names of all nominees on each sides proxy card, the Proposed Rules would revise the bona fide nominee rule. To remove the technical impediment to including the names of the other sides nominees on a universal proxy card created by Rule 14a4d1
and 4, the Proposed Rules would revise the determination of a bona fide nominee in Rule 14a4d.159 The proposed revisions would change the requirement that a nominee consent to being named in the proxy statement of the party listing that nominee on its card, to a more general requirement that a nominee consent to being named in a proxy statement of either side in the contest. Proposed Rule 14a4d1i would maintain the requirement that a nominee consent to serve, if elected.
b. Comments Received Multiple commenters who supported the adoption of a universal proxy requirement supported the proposed changes to the bona fide nominee rule to effectuate that system.160 Several of these commenters expressly supported allowing a soliciting party to include the names of some or all of the registrants nominees on its own proxy card even when the soliciting party is not nominating its own candidates.161
Some commenters advocated more limited changes to the consent required by the bona fide nominee rule to narrow its application. As proposed, revised Rule 14a4 would permit but not require a dissident soliciting in favor of its own proposal, without its own slate 158 See
Rule 14a4d1iiAD.
proposed Rule 14a4d1i. Without the adoption of the proposed revisions, Rule 14a 4d1 and 4 would limit the ability of one side in a contested election from seeking proxy authority to vote for any director nominee unless such nominee consented to being named in that sides proxy statement, and to serve if elected.
160 See, e.g., letters from CII; CalSTRS; CalPERS;
Colorado PERA; UPWG; NY Comptroller; AFSCME;
SBAFL; Elliott; CFA Institute.
161 See letters from CalSTRS; Colorado PERA;
CFA Institute; letter from CII dated Dec. 28, 2016.

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of director candidates, to include some or all of the registrants nominees on the dissidents proxy card. Similarly, a dissident conducting a vote no campaign against some of the registrants nominees could but would not be required to include on the dissidents proxy card those registrant nominees it did not oppose. One commenter warned of the shareholder confusion that might result in those instances in which the dissident chooses not to include all registrant nominees on the dissidents card, and argued that such confusion could lead to under-voting that would distort voting results.162 Several commenters favored limiting the consent provided under the revised bona fide nominee rule to situations where the opposing side solicits in favor of its own nominees.163
c. Final Amendments We are adopting changes to the consent requirement for a bona fide nominee in Rule 14a4d1ii as proposed. This rule change expands the scope of a nominees consent in an election contest to include consent to being named in any proxy statement for the applicable meeting. The rule amendment is necessary to permit the universal proxy requirement we adopt in this document, because it expands the concept of consent to allow a nominee to be considered a bona fide nominee when named on any sides proxy card in a director election contest.
As a practical matter and as noted by commenters, it will also permit a dissident soliciting in favor of a proposal but not its own director nominees to include some or all of the registrants nominees on its proxy card.
It further allows a dissident conducting a vote no campaign without presenting its own slate of competing nominees to permit shareholders to vote for select registrant nominees on the dissidents card. In both of these circumstances, the changes to the bona fide nominee rule will further shareholder enfranchisement. Although including a registrants nominees on its own proxy card in both of these circumstances will remain optional for the dissident under the final rules, this optionality will not limit shareholders voting choices. If the dissident does not include some or all registrant nominees on the dissidents card, shareholders will always be able to vote on the registrants proxy card. Where a dissident includes some but not all 162 See 163 See
letter from BR.
letters from Society; Sidley; Davis Polk;

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registrant nominees on its proxy card, or where it solicits in favor of a proposal but does not include registrant nominees on its proxy card, the dissident shouldin order to avoid potential liability under Rule 14a9 for omission of material factsdisclose the fact that its proxy card does not include some or all of the registrant nominees and that shareholders who wish to vote for nominees not included on the dissidents proxy card may do so on the registrants proxy card. Such disclosure should mitigate the risk of shareholder confusion.
In addition, and in response to the commenter who was concerned with the potential of under-voting, we note that the potential for disenfranchisement exists under the status quo, but in a more severe form. Under current rules, dissidents who are ineligible to use the short slate rule including those not soliciting on behalf of their own director nominees lack the ability to list registrant nominees on their proxy card.
The risk of any disenfranchisement under the final amendments may be mitigated because we expect that dissidents will have an incentive to include the registrant nominees on their proxy card so as to increase the incentive for shareholders to use their card and will generally not have strategic reasons to exclude registrant nominees from their proxy card due to the lack of a competing slate. Finally, to the extent that shareholders vote for fewer nominees than open board seats because they are voting on a dissidents proxy card that does not list all registrant nominees, this will occur in the context of an uncontested election, in which the consequences of casting fewer votes in favor of any particular nominee are less significant than in the context of a contested election.
The final rules maintain the requirement that a bona fide nominee consent to serve if elected.164 This will ensure that neither party nominates an individual who has not consented to serve if elected as a director. To the extent that any nominee would not serve if elected with other nominees or would not serve unless certain other nominees were elected, we would expect this material fact to be disclosed prominently in the proxy statement of the party nominating such individual. If one or more of the registrants nominees will not serve under such circumstances, the registrant should explain in its proxy statement how such vacancies would be filled.
164 See
BR.

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