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Federal Register / Vol. 86, No. 228 / Wednesday, December 1, 2021 / Rules and Regulations We also are adopting some changes to the form of proxy and proxy statement disclosure requirements applicable to all director elections. Because these changes apply to all registrants subject to the Federal proxy rules, they will also apply to registered funds. As of September 30, 2021, there were 14,062
registered management investment companies that were subject to the proxy rules: i 13,347 Open-end funds, out of which 2,497 were Exchange Traded Funds ETFs registered as open-end funds or open-end funds that had an ETF share class; ii 701 closedend funds; and iii 14 variable annuity separate accounts registered as management investment companies.195
In addition, as of June 2021, we identified 99 BDCs that were subject to the proxy rules.196
There is substantial variation across registrants in characteristics such as incumbent executive and director ownership and governance structure, which may affect the degree to which different registrants are affected by the final amendments.

Incumbent Executive and Director Ownership We expect that incumbent executives and directors would vote in support of the registrants slate of nominees in a director contest at the annual meeting,197 and that the mandated use of a universal proxy card is unlikely to change this expected voting behavior.
We therefore think that the percentage of total voting power held by a registrants incumbent executives and directors can have an effect on the impact of the final amendments on the incidence and outcome of contested director elections.
Table 1 below reports estimates of the average combined vote ownership by incumbent executives and directors for a broad sample of 3,841 potentially affected registrants, as well as for several size-related sub-samples of registrants: Those included in the S&P
500 index large-cap stocks, in the S&P 400 index mid-cap stocks, in the S&P 600 index small-cap stocks, and outside the S&P 1500 index that is
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composed of these three indices and which tend to be smaller than those registrants in the S&P 1500. The average median percentage is 14.6%
5.8% for all registrants, and this percentage is greatest for registrants outside the S&P 1500 index. We also estimate the percentage of registrants for which incumbent executives and directors hold a majority of the voting power, and hence can control who is elected to the board in most circumstances. Overall, incumbent executives and directors hold a majority of votes in 8.1% of registrants. This percentage ranges from 2.0% for S&P
500 registrants to 11.4% for non-S&P
1500 registrants.
The data in Table 1 indicates that to the extent incumbent executives and directors tend to vote for the registrants slate of director nominees in contested elections, the impact of such behavior on the economic effects of the final amendments is likely to be more important in the non-S&P 1500 category of smaller registrants.

TABLE 1INCUMBENT EXECUTIVE AND DIRECTOR VOTE OWNERSHIP OF REGISTRANTS SUBJECT TO PROXY RULES 198
Incumbent executive and director vote ownership % of total voting power Mean
lotter on DSK11XQN23PROD with RULES2

All registrants
S&P 500 registrants
S&P 400 registrants
S&P 600 registrants
Non-S&P 1500 registrants

14.6
4.4
6.8
9.5
19.3

25th percentile
Median
1.8
0.3
1.0
1.8
4.0

5.8
0.8
2.0
3.4
10.4

75th percentile 18.8
2.3
5.5
8.4
27.8

Percentage with majority ownership 8.1
2.0
2.0
4.1
11.4

Governance Structure Registrants governance characteristics may affect the incidence and outcomes of proxy contests currently as well as the effects, if any, of potential changes in the proxy rules on the incidence and outcomes of proxy contests.199 For example, as discussed in more detail in the Proposing Release,
the presence of a staggered board structure in a registrant will mitigate the impact on board composition of any final amendments to the proxy rules by prolonging the time over which any changes in board composition would occur.200 We estimate that approximately 42% of registrants have a staggered board.201 This percentage
varies substantially across market capitalization categories: Approximately 14% for S&P 500 registrants, 38% for S&P 400 registrants, 43% for S&P 600
registrants, and 48% for non-S&P 1500
registrants.202
As discussed in more detail in the Proposing Release, cumulative voting for directors may increase the ability of
Forms 10D and 10D/A during calendar year 2020
with the Commission are excluded from this estimate. This estimate also excludes BDCs; see infra note 196.
195 We estimate the number of unique registered management investment companies based on Forms NCEN filed between December 2020 and September 2021 with the Commission. Open-end funds are registered on Form N1A, while closedend funds are registered on Form N2. Variable annuity separate accounts registered as management investment companies are trusts registered on Form N3.
196 BDCs are entities that have been issued an 814-reporting number. Our estimate includes 82
BDCs that filed Form 10K in 2020, as well as 17
BDCs that were not traded.

197 Note that in the case of a dissident who is also an insider such as an incumbent director, this may not be the case.
198 Estimates based on staff analysis of director and senior executive vote ownership data from Institutional Shareholder Services Inc. ISS as of calendar year 2019. This data is available for 3,841
of the potentially affected registrants and may include ownership through options exercisable within 60 days. The sample represents over 70% of potentially affected registrants. It is our understanding that the registrants for which data is missing in the ISS database tend to be the smallest registrants in terms of market capitalization, and therefore the data presented may not be representative for these registrants. In particular, we believe it is likely that incumbent management ownership for this group of registrants is on average
even greater than for the non-S&P 1500 registrants listed in Table 1.
199 In the Proposing Release, we also discussed the use of dual class shares, where one class of shares has greater voting rights than the other, as a mechanism that could potentially concentrate the voting control of a registrant in the hands of insiders see Section IV.B.1.b of the Proposing Release. However, the potential impact of such dual class share structures on the economic effects of the final amendments would ultimately flow through the vote ownership of insiders, which we discuss above.
200 See Section IV.B.1.b of the Proposing Release.
201 Estimates based on staff analysis of board characteristics data from ISS as of calendar year 2019. This data is available for 3,841 of the potentially affected registrants.
202 Id.

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