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Federal Register / Vol. 86, No. 228 / Wednesday, December 1, 2021 / Rules and Regulations
approximately $6,300 at companies with between $2 billion and $10 billion in market capitalization, and approximately $9,800 at companies with market capitalization above $10
billion.274 These estimated average costs are significantly less than the average total solicitation expenses incurred by a dissident in a typical proxy contest. As noted above in Section IV.B.2.b, reported proxy solicitation expenses for dissidents in recent contests range from $20,000 to $25 million, with an average median of approximately $1.8 million $750,000. These expenses substantially exceed the estimated cost of a nominal contest in part because a dissident in a typical proxy contest would generally incur higher proxy dissemination costs through the use of full set delivery and the solicitation of a larger fraction of the shareholders entitled to vote, but also because of substantial additional expenditures on solicitation beyond the cost of proxy dissemination, such as the expense of hiring a proxy solicitor to perform additional outreach.
The basic required cost to contest an election at a given registrant may also be affected by the dissidents own voting stake in the registrant and the characteristics of the shareholder base, such as whether share ownership is widely dispersed or more concentrated in a given registrant. In particular, these costs may be substantially lower in cases where a dissident can meet the solicitation requirement by disseminating materials on its own, without hiring a proxy services provider or similar intermediary, as in the case of a registrant with a very concentrated shareholder base and majority owners that are known and easily contacted. By contrast, these costs are likely to be substantially higher, for example, at larger registrants with highly dispersed ownership where the total number of shareholder accounts that will need to be solicited to reach at least 67% of the voting power can be very high.
Some commenters raised concerns that mandated use of universal proxy would increase the number of proxy contests and thereby expose more registrants to costly distraction.275 In the Proposing Release we acknowledged that the mandated use of universal proxy may result in an increased incidence of nominal contests, and that we expect that registrants that are the subject of such additional contests will bear incremental costs. We continue to expect these costs to be higher than in the case of current nominal contests for 274 Id.
275 See,
e.g., letters from BR; CCMC; CGCIV.

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which we believe that the costs borne by registrants are relatively low, but still significantly lower than in the case of a typical proxy contest. In particular, registrants may revise their proxy materials and increase their solicitation expenditures to explain the appearance of the names of dissident nominees on their proxy cards and urge shareholders not to support the dissidents nominees.
However, we do not expect solicitation expenditures to rise as much as they would in the average typical proxy contest because the registrant, in its solicitation efforts, would not be competing with a dissident that is spending significant resources on solicitation. For these reasons, we estimate that the cost borne by a registrant facing a nominal proxy contest may be approximately $65,000, based on the lowest incremental solicitation cost reported by registrants in recent proxy contests.276
3. Potential Effects on Outcomes of Contested Elections In addition to reducing costs for certain shareholders who would submit split-ticket votes even in the absence of universal proxies, the mandated use of universal proxies we are adopting may result in additional shareholders submitting split-ticket votes. For those shareholders not solicited by dissidents, to the extent they do not support any of the registrants nominees, universal proxies may also result in an increase in voting support for some or all of the dissidents nominees, as they will now have the ability to cast their votes for dissident nominees without being directly solicited by dissidents or needing to make other arrangements to be able to vote for dissident nominees.
Such changes in voting behavior could be significant enough to affect election outcomes in the contests that would have occurred even in the absence of the final amendments, as well as to change the incentive to initiate contests.277 In particular, either more registrant nominees or more dissident nominees might be elected than under the baseline, where vote splitting is harder to achieve and some shareholders do not receive a proxy card that includes the dissident slate. Any resulting changes in board composition or changes in control of the board may result in both benefits and costs for the affected parties. However, these effects are uncertain because it is difficult to 276 See
supra Section IV.B.2.b.
potential incidence of additional contests that would not have occurred in the absence of the final amendments is discussed in Section IV.C.4
infra.
277 The
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predict the extent or direction of any changes in voting behavior as a result of the final amendments and to evaluate whether any resulting changes in board composition will lead to more or less effective board oversight.
There may be elections in which universal proxies will result in changes to the percentage of the vote obtained by each director candidate, but in which the changes in vote totals would not be sufficient to change the ultimate election results. In our assessment this would be the likely outcome for the majority of contested elections that would have taken place in the absence of the final amendments. We estimate that approximately three-quarters of recent contests that went to a vote were not close contests and would require shareholders holding significant voting power greater than 5% to change their voting behavior to lead to a different election result.278 We also note that the voting power represented by shareholders that may potentially change their voting behavior is limited due to the fact that some shareholders, particularly large shareholders, are currently able to send representatives to shareholder meetings or use other mechanisms to implement split-ticket votes when desired. We do not expect the votes submitted by these shareholders to change as a result of the final amendments. The extent to which other shareholders are interested in splitting their tickets or, for those not solicited by dissidents, in voting solely for some or all of the dissident nominees, is unclear, particularly as the option has not generally been available to them without additional cost under the current rules.279
278 Based on staff review of contested elections initiated in 20172020, votes representing greater than 5% of the total outstanding voting power would have to change in order to change the result in about 76% of the elections. Within that 76%, almost two-thirds of the elections would have required a change in votes representing greater than 20% of the outstanding voting power to result in a change in the election outcome.
279 For example, it has been asserted that retail shareholders, when they vote, tend to support management. See, e.g., Neil Stewart, Retail Shareholders: Looking out for the Little Guy, IR
Magazine May 15, 2012, available at http
www.irmagazine.com/articles/shareholdertargeting-id/18761/retail-shareholders-looking-outlittle-guy/ stating that as a rule, retail investors tend to support management; Mary Ann Cloyd, How Well Do You Know Your Shareholders?, Harvard Law School Forum on Corporate Governance and Financial Regulation Blog, June 18, 2013, available at https corpgov.law.harvard.edu/
2013/06/18/how-well-do-you-know-yourshareholders/ stating that retail shareholders support managements voting recommendations at high rates. Additionally, a recent study, using proprietary data on retail investors voting behavior from a proxy services provider, found further evidence on retail investors voting in support of
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