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Federal Register / Vol. 86, No. 228 / Wednesday, December 1, 2021 / Rules and Regulations applicable voting standards give effect to abstain or withhold votes. Given these changes, the same transition period for compliance for shareholder meetings held after August 31, 2022 is appropriate for all of the rule amendments we adopt in this document.
III. Other Matters If any of the provisions of these rules, or the application thereof to any person or circumstance, is held to be invalid, such invalidity shall not affect other provisions or application of such provisions to other persons or circumstances that can be given effect without the invalid provision or application.
Pursuant to the Congressional Review Act, the Office of Information and Regulatory Affairs has designated these rules a major rule, as defined by 5
U.S.C. 8042.
IV. Economic Analysis We are attentive to the costs imposed by and the benefits obtained from the final amendments.179 The discussion below addresses the potential economic effects of the final amendments, including the likely benefits and costs, as well as the likely effects on efficiency, competition, and capital formation. We also analyze the potential costs and benefits of reasonable alternatives to the amendments.

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A. Introduction As discussed above, we are adopting amendments that will require the use of a universal proxy card in all contested elections with competing slates of director nominees 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. These amendments will 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 179 Exchange Act Section 3f 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. 15 U.S.C. 78cf. Exchange Act Section 23a2 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. 15
U.S.C. 78wa2.

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all of the duly nominated candidates. By contrast, shareholders currently voting by proxy are typically limited to voting for only registrant nominees or voting for only the dissidents nominees or, in the case of certain short slate elections, for the dissidents nominees and certain registrant nominees chosen by the dissident.180 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 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. Therefore, these shareholders may not currently be able to vote for their preferred selection of candidates.
The mandated use of universal proxies will allow shareholders to vote for any combination of nominees when voting their shares by proxy in advance of the meeting, which is generally the way in which the vast majority of shares are voted. For shareholders who would otherwise incur incremental costs to vote for a combination of candidates that could not be voted for by proxy, such as by attending the meeting in person, universal proxies will result in direct cost savings. Universal proxies will also enable shareholders who want to split their vote but are unwilling or unable to bear additional costs to be able to vote for their preferred combination of nominees to do so without incurring additional costs.
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 final amendments will be to improve the efficiency of the voting process and permit shareholders greater choice when voting by proxy in contested director elections, they will also likely impose direct costs on dissidents and 180 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 proxy contest in operating companies from 20172020 that involved more than one dissident with separate slates of nominees.

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registrants in certain contests. The final amendments may also have broader impacts on corporate governance and the relationship between shareholders and management. For reasons discussed below,181 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.182 For example, enabling split-ticket voting could lead to a greater number of boards that are composed of a mix of registrant-nominated 183 and dissident-nominated directors mixed boards, which may affect the effectiveness of boards, either positively or negatively. Additionally, mandating the use of universal proxies by registrants as well as dissidentswhich, in practice, would likely result in the names of dissident nominees being disseminated via registrant proxy cards to all shareholdersmay 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.184 The overall incidence of contested elections may change as well. These and other potential effects, as well as possible mitigating factors, are discussed in detail below.
At the outset, where possible, we have attempted to quantify the benefits, costs, and effects on efficiency, competition, and capital formation expected to result from the final amendments. In many cases, however, we are unable to quantify the potential economic effects because we lack information necessary to provide a reasonable estimate. For example, we are unable to quantify the 181 See
Section IV.C.
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. A recent study submitted by a commenter see letter from Prof. Hirst 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, Yale J.
on Reg. 35, 437 2018 Hirst Study. This is an updated version of a study we previously discussed in the Proposing Release see note 209 in the Proposing Release. We note that this study relies on several critical assumptions that might not be reliable. See infra note 284.
183 For ease of exposition, we refer throughout this economic analysis to the nominees of the board, including those that are incumbent directors, or its nominating committee, as the nominees of the registrant and, in total, as the registrant slate.
184 See, e.g., letter from CCMC arguing that Seeking to avoid the cost and distraction of an SEC-sanctioned proxy fight, many companies will simply follow the path of least resistance and negotiate to place dissident directors directly on their boards without the need for a shareholder vote..
182 We
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