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Federal Register / Vol. 86, No. 228 / Wednesday, December 1, 2021 / Rules and Regulations
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likelihood of the different potential outcomes of the contest. Changes in discretionary solicitation efforts may include increases or decreases in expenditures on proxy solicitors or the degree of outreach through phone calls or mailings to convince shareholders to vote for a partys candidates. In particular, while we estimate that the median total solicitation cost for dissidents was approximately $750,000, we estimate that the median basic cost of soliciting shareholders, namely the proxy distribution fees and postage costs for the first mailing, was approximately $14,000.266 The large expenditures on solicitation beyond the basic costs of soliciting shareholders an estimated median incremental expenditure of over $736,000, demonstrate the potential for substantial increases or decreases in costs if a party were to change its approach to discretionary solicitation activities.
However, it is difficult to predict the extent or direction of this potential effect because any changes in discretionary solicitation expenditures are highly dependent on the particular situation and the parties own views as to how the final amendments would affect their likelihood of gaining or retaining seats and the potential impact of solicitation efforts.267
For example, registrants that expect that a universal proxy may otherwise result in more dissident nominees being elected may incur additional costs to increase outreach to shareholders in an effort to limit support for dissident nominees. Similarly, dissidents may increase solicitation expenditures in cases in which they expect the use of universal proxies and any corresponding increase in split-ticket voting to result in more registrant nominees retaining seats than otherwise expected. At the same time, registrants or dissidents may reduce solicitation expenditures in cases in which they believe that any increased split-ticket voting related to universal proxies would result on average in more support for their own nominees, given that they may therefore be able to achieve the 266 Our estimate of total solicitation costs is based on costs reported in proxy statements in calendar years 20172020. See supra Section IV.B.2.b. Our estimate of proxy distribution fees and postage costs is based on industry data provided by a proxy services provider for a sample of 31 proxy contests from July 1, 2018 through June 30, 2019, and excludes dissident printing costs for which we do not have relevant data to make an estimate.
267 Effects on strategic discretionary expenditures, whether increases or decreases, are more likely in the case of what would otherwise be close contests.
We estimate that approximately 24% of proxy contests that went to a vote in 20172020 were close contests, as defined in supra Section IV.B.2.c.

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same expected outcome at a lower cost than in the absence of universal proxies.268 They may also reduce their expenditure if the use of universal proxies is more likely to lead to a less consequential outcome for example, an expected mixed-board outcome instead of an expected change in majority control, or if the expenditure were less likely to change that outcome than under the current rules.
Supporting the possibility of no change in discretionary expenses at all, one commenter expressed doubt that dissidents or registrants will materially alter solicitation expenditures under the amendments, with the argument that proxy fights already put a premium on each side getting its message out to investors and that letting shareholders vote by proxy for their preferred mix of candidates will not alter this equation.269
b. Nominal Proxy Contests The final amendments may also have implications for nominal contests, in which the dissidents incur little more than the basic required costs to pursue a contest by refraining from material solicitation efforts, such as arranging for full set delivery, use of a proxy solicitor, and other outreach. As discussed in the Proposing Release, despite the fact that there may be a low chance of succeeding in obtaining a board seat if a dissident does not undertake substantial solicitation efforts as it would in a typical proxy contest, dissidents may nevertheless choose to initiate nominal contests to pursue goals other than changes in board composition. Such contests are currently rare 270 but could become more or less attractive as a result of the final amendments, as discussed in Section IV.C.4.b below.
A dissident engaging in a nominal proxy contest currently must bear the cost of drafting a preliminary proxy statement and undergoing the staffs review and comment process for that filing. Under the final amendments, such a dissident would also be required to meet the notice requirements and bear the cost of meeting the solicitation requirements of the final amendments.
Using aggregated data on average share account distributions by account size for registrants in four different size market 268 That said, such registrants or dissidents could alternatively decide to increase solicitation expenditures relative to what they would otherwise have spent if they think that they may actually be able to gain or retain more seats than would otherwise have been feasible.
269 See letter from CII dated Dec. 28, 2016.
270 Based on staff experience. See supra Section IV.B.2.b.

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capitalization categories,271 we estimate the average cost of using the least expensive approach 272 to meet the 67% minimum solicitation requirement through an intermediary for each of these categories of registrants.273
Specifically, we estimate that the average cost for a dissident to meet the solicitation requirement is approximately $5,300 at companies with less than $300 million in market capitalization, approximately $5,800 at companies with between $300 million and $2 billion in market capitalization, 271 Based on aggregated industry data provided by a proxy services provider for more than 5,000
operating companies holding shareholder meetings from July 1, 2018 through June 30, 2019. The four different categories for which we have data on operating companies average distribution of shares are: i Less than $300 million in market capitalization, ii between $300 million and $2
billion, iii between $2 billion and $10 billion, and iv above $10 billion.
272 See supra note 262.
273 The cost estimates were derived by staff based on the NYSE Rule 451 fee schedule and industry data provided by a proxy services provider. The required cost to meet the proposed solicitation requirement was estimated based on the number of accounts that would have to be solicited on average at a registrant in each of four market capitalization categories and the applicable fees under NYSE Rule 451 and postage costs for notice and access delivery. Specifically, industry data provided by a proxy services provider indicates that to reach 67%
of the voting power a dissident would have to solicit on average approximately 46 accounts at companies with less than $300 million in market capitalization, approximately 88 accounts at companies with between $300 million and $2
billion in market capitalization, approximately 147
accounts at companies with between $2 billion and $10 billion in market capitalization, and approximately 529 accounts at companies with market capitalization above $10 billion. See supra Section IV.B.1.a for statistics on average total number of accounts in each respective category.
Staff also estimated that the number of brokers and banks involved for the purpose of determination of the nominee coordination fee ranges from 12 for the smallest category to 176 nominees for the largest category of registrants. The estimated solicitation costs ranging from $5,300 to $9,800 includes intermediary unit fees, which apply with a minimum of $5,000, plus nominee coordination fees of $22 per bank or broker considered a nominee under NYSE Rule 451, plus basic processing fees, notice and access fees, preference management fees, and postage totaling $1.57 for suppressed accounts, such as those that have affirmatively consented to electronic delivery to $1.80 for other accounts per account. Staff assumed that half of the accounts in question are suppressed and that none of these accounts requested full set delivery by prior consent or upon receipt of the notice because such delivery requirements may apply to only a small fraction of accounts and are not expected to significantly affect the overall estimate of costs. This estimate does not include printing costs for the notice, for which we do not have relevant data to make an estimate. Note that an individual shareholder may have more than one account, so the number of beneficial shareholders likely is lower than the number of beneficial shareholder accounts. For the purpose of estimating costs related to distribution of proxy materials, the number of accounts is the more relevant number because dissemination costs such as intermediary and processing fees apply on a per account basis per NYSE Rule 451.

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