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Federal Register / Vol. 86, No. 228 / Wednesday, December 1, 2021 / Rules and Regulations shareholders voting on universal proxies would have the ability to vote for the combination of directors that they believe provides the best mix of backgrounds given the specific circumstances of the registrant.296
However, mixed boards may also lead to more frequent internal conflicts and result in less efficient decision-making within boards,297 as also argued by some commenters.298

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4. Potential Effects on Incidence and Perceived Threat of Contested Elections As discussed in Sections IV.C.2 and IV.C.3 above, the effects of the final amendments on the outcomes and costs to registrants and dissidents of contested elections are uncertain, but could be significant. In this section, we consider how any such effects of the final amendments may change the incentives of dissidents to initiate proxy contests and the manner in which registrants react to the possibility of a contested election the perceived threat of a contest, even in the absence of a contest.
We first consider the potential impact of the final rule on the incidence or perceived threat of typical proxy contests, in which the dissident expends significant resources on solicitation. We then consider the impact on the incidence or perceived threat of nominal contests, in which dissidents, taking advantage of the mandatory use of universal proxies, expend significantly fewer resources than in a typical proxy contest.299 Any retrieved from SSRN Elsevier database; David Carter, Betty Simkins & Gary Simpson, Corporate Governance, Board Diversity, and Firm Value, 38
Fin. Rev. 33 2003; Gennaro Bernile, Vineet Bhagwat & Scott Yonker, Board diversity, firm risk, and corporate policies, 127 J. Fin. Econ. 588 2018.
296 See letter from CII dated Dec. 28, 2016.
297 See, e.g., Anup Agrawal & Mark Chen, Boardroom Brawls: An Empirical Analysis of Disputes Involving Directors, 7 Quart. J. Fin. 1
2017 studying boardroom disputes that are disclosed upon directors resigning or declining to stand for re-election and finding that directors who are likely to be more independent of management are more likely to be involved in the dispute; Jason Roderick Donaldson, Nadya Malenko & Giorgia Piacentino, Deadlock on the Board, 33 Rev. Fin.
Stud.4445 October 2020 showing that board diversity can exacerbate deadlock because differences in preferences over alternative polices gives directors an incentive to block implementation of alternatives preferred by other directors, to preserve their option to get their preferred alternative implemented in the future.
298 See supra notes 35 and 36 and accompanying text.
299 We also note that there may be effects on the incidence and perceived threat of late-breaking proxy contests, or contests initiated close to the meeting date, because of the notice requirement and the proxy statement filing deadline prescribed by the final amendments. These timing requirements and their potential effects are discussed in more detail in Section IV.C.5 infra.

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changes in the incidence of contested elections of these different types, or, even in the absence of a contest, in managerial decision-making or the relationship between shareholders and management as a result of a change in the perceived threat of such contests, may result in costs and benefits for shareholders, registrants, and dissidents.
Several commenters argued that mandating the use of universal proxy cards will likely increase the frequency of proxy contests, thereby increasing costs for registrants and distracting their managers.300 By contrast, one commenter argued that mandating the use of universal proxy cards is unlikely to increase the frequency of contested elections, stating that shareholders invest significant resources in running a proxy contest; the decision to proceed generally is driven by the shareholders thesis regarding the economics of the engagement and likelihood of success. 301 Other commenters argued the effect on the number of contests is difficult to predict.302 We disagree with the commenters arguing that contests are likely to increase due to the amendments; instead, we generally agree with the commenters arguing that any effects on the number of contests is hard to predict. In addition, although we to some extent agree with the commenters that argue that the costs to registrants will increase if the number of contests increases, we recognize that there could be benefits as well, which we discuss in more detail below.
Overall, the effects on costs and benefits for all affected parties due to any changes in the incidence or perceived threat of contests are uncertain, as the extent and direction of the effects of the final amendments on the outcomes and costs of contested elections are unclear, both because it is difficult to predict how different parties will respond to such effects, and because it is difficult to evaluate whether changes in the incidence or perceived threat of contests would have positive or negative effects on board or registrant performance.
a. Typical Proxy Contests Effects Related to Anticipated Changes in Outcomes Any effects on the expected outcomes of typical proxy contests may affect the incidence of such contests as well as the likelihood that a registrant makes changes whether in board composition or with respect to other decisions even in the absence of actual contests. The 300 See
letters from BR; CCMC; CGCIV; IBC.
letter from CII dated Dec. 28, 2016.
302 See letters from Trian; Hermes.
301 See
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likely effects of universal proxies on the outcome of a typical contest depend on the dynamics of the particular contest.
Thus, it is not clear whether, on average, the final amendments would increase or decrease the likelihood of changes in control or the number of board seats won by either party.
On the one hand, a dissident who expects to gain more seats under the final amendments than under the baseline may have an increased incentive to initiate a typical proxy contest. This would particularly be the case for a dissident that expects a greater likelihood of gaining control of the board, and for whom majority control of the board would be required to institute the changes the dissident desires. On the other hand, a dissident who expects, under the final amendments, to gain fewer seats or face a lower likelihood of gaining control than under the baseline may have a decreased incentive to initiate a typical contest.
If, under the final amendments, a registrant is expected to face a higher risk of losing seats or control of the board to dissident nominees, it is likely that a potential dissident could exercise greater influence over that registrant.
Conversely, it is likely that the influence of potential dissidents would be reduced where a lower risk of losing seats or control to dissident nominees is expected under the final amendments.
These changes in influence may derive from the outcomes of election contests or from negotiations with registrants in the course of, or in the absence of, a contest. In particular, registrants facing a greater likelihood of contests, or a higher chance of losing seats or control if a contest were initiated, may be more likely to enter into a settlement agreement with the dissident and may also be more likely to concede at earlier stages of engagement or to make changes in response to alternative interventions such as vote no campaigns.303
Registrants facing a reduced likelihood of contests or a lower chance of losing seats or control if a contest were initiated may be less likely to enter into settlement agreements, to engage in negotiations at earlier stages, or to make 303 See, e.g., Unofficial Transcript of the Proxy Voting Roundtable Feb. 19, 2015, available at https www.sec.gov/spotlight/proxy-votingroundtable/proxy-voting-roundtable-transcript.txt Roundtable Transcript, comment of Michelle Lowry, Professor, Drexel University, at 60 and Lisa M. Fairfax, Professor, George Washington University Law School, at 48 noting that universal proxies could facilitate settlements with or accommodations to dissidents before a contest arose.

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