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Federal Register / Vol. 86, No. 228 / Wednesday, December 1, 2021 / Rules and Regulations
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commenters favored a mandatory system to avoid logistical issues that would arise in the absence of such a system, and several commenters cited the potential for shareholder confusion arising from a voluntary approach.27
Several commenters noted that an optional system would promote gamesmanship, and would lead to the use of a universal proxy card as a tactical strategy to benefit a particular participant in a contest.28 Another noted that proxy contest participants would have little incentive to use a universal proxy card under an optional system.29
One commenter advocated a mandatory Hoc Coalition; letter dated Jan. 9, 2017 from CFA
Institute CFA Institute; letters dated Jan. 11, 2017 and Jun. 16, 2021 from Securities Industry and Financial Markets Association SIFMA; letter dated Jan. 11, 2017 from State Board of Administration of Florida SBAFL; letter dated Jan. 9, 2017 from United Brotherhood of Carpenters and Joiners of America Carpenters; letter dated Jan. 9, 2017 from Office of the Comptroller, State of New York NY Comptroller; letter dated Jan.
9, 2017 from California State Teachers Retirement System CalSTRS; letter dated Jan. 6, 2017 from American Federation of State, County and Municipal Employees AFSCME; letters dated Dec. 19, 2016 and Jun. 7, 2021 from Investment Company Institute ICI; letter dated Jun. 7, 2021
from Institutional Shareholder Services Inc. ISS;
letter dated Jun. 4, 2021 from Elliott Investment Management L.P. Elliott; letter dated Jun. 3, 2021 from Canadian Coalition for Good Governance CCGG; letter dated Jun. 4, 2021 from Domini Impact Investment LLC Domini; letters dated Jan. 9, 2017 and Jun. 7, 2021 from Better Markets BM; letter dated Jun. 7, 2021 from Mediant, Inc.
Mediant; letter dated Jun. 28, 2021 from Principles for Responsible Investment PRI;
letter dated Jun. 7, 2021 from 41 Signatories with AUM of $309,413,549,298; letter dated Jun. 7, 2021
from Professor Scott Hirst, Boston University School of Law Prof. Hirst, letter dated Jun. 15, 2021 from Matthew P. Lawlor M. Lawlor; letter dated Jun. 17, 2021 from Chris Fowle C. Fowle;
letter dated Apr. 19, 2021 from Undisclosed Majority Shareholder in Numerous Ventures Anonymous 1; letter dated Dec. 8, 2017 from Eamonn Burke E. Burke. See also Recommendation of the SEC Investor Advisory Committee IAC: Proxy Plumbing, dated Sep. 5, 2019, available at https www.sec.gov/spotlight/
investor-advisory-committee-2012/iacrecommendation-proxy-plumbing.pdf IAC
Report. The IAC Report indicated support for the mandatory universal proxy system proposed, while noting that a minority of Committee members favored making universal proxy voluntary rather than mandatory. Previously, as discussed in the Proposing Release, in 2013, the IAC recommended that we explore revising our proxy rules to provide proxy contestants with the option to use a universal proxy card in connection with short slate director nominations. Exchange Act Section 39g2
requires the Commission to promptly issue a public statementA assessing the finding or recommendation of the Investor Advisory Committee; and B disclosing the action, if any, the Commission intends to take with respect to the finding or recommendation. We have carefully considered the recommendations of the IAC on the use of universal proxy cards in connection with this rulemaking.
27 See letters from CalSTRS; SIFMA; ISS.
28 See letters from SIFMA; CCGG.
29 See letter dated Jan. 9, 2017 from Fidelity Investments Fidelity.

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system that registrants could opt out of with approval of a majority of shareholders.30
Several commenters favored making the use of a universal proxy card optional. One noted that this would allow the Commission to study the effect of its use before making it mandatory.31 Another advocated that registrants be able to opt out of a universal proxy requirement through a board vote.32 Two commenters argued that shareholders should have to demonstrate a continued and significant ownership stake in a registrant in order to trigger the use of a universal proxy card.33
Some commenters did not support the use of a universal proxy card. Some argued that a mandate would increase the number of proxy contests and thereby expose more registrants to costly distraction or increased influence of short-term activist investors at the expense of other investors.34 Two of these commenters argued that the mandatory use of universal proxies would encourage balkanization of the boards of public companies by facilitating mix and match voting between nominees from different slates of director candidates, ultimately providing a disincentive for companies to go public in the United States.35
Similarly, another commenter claimed that the mix and match voting enabled by universal proxy cards could result in suboptimal board compositions in which board members lack complementary skill sets.36 Various commenters who opposed the adoption of a universal proxy requirement contended that there was not a compelling reason to change the existing system 37 and noted that adoption of universal proxy could have 30 See
letter from Prof. Hirst.
letter dated Jan. 4, 2017 from Davis Polk & Wardwell LLP Davis Polk.
32 See letter dated Jun. 7, 2021 from Sidley Austin LLP Sidley.
33 See letter from Sidley and letters dated Jan. 10, 2017 and Jun. 7, 2021 from Society for Corporate Governance Society comparing universal proxy to 17 CFR 240.14a8 Rule 14a8 and vacated 17
CFR 240.14a11 Rule 14a11.
34 See letters dated Jan. 9, 2017 and Jun. 7, 2021
from Center for Capital Markets Competitiveness, U.S. Chamber of Commerce CCMC; letter dated Jan. 9, 2017 from Corporate Governance Coalition for Investor Value CGCIV; letter dated Apr. 30, 2021 from International Bancshares Corporation IBC; letters from Society. The letters from CCMC and CGCIV also objected to the mandatory use of a universal proxy on First Amendment grounds. See Section II.F below for additional detail.
35 See letters from CCMC; CGCIV.
36 See letter dated Jan. 3, 2017 from National Association of Corporate Directors NACD.
37 See, e.g., letters from Davis Polk; CCMC;
CGCIV.
31 See
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unintended consequences, such as shareholder confusion and more frequent disqualification of defective ballots.38 Several commenters argued that a universal proxy requirement would increase the influence of proxy advisory firms.39 One commenter opposed the proposed amendments, suggesting that the Proposed Rules would likely exceed the Commissions authority under the Exchange Act and arguing that a universal proxy requirement represents a substantial change in policy that the Commission had not justified under the Administrative Procedure Act.40 That commenter noted that if the Commission proceeds with the rulemaking, it should adopt an optional approach rather than a mandatory one.
Another commenter supported mandated universal proxy for operating companies, but expressly opposed its use for funds, in part due to the additional protections afforded by the Investment Company Act of 1940.41
3. Final Amendments We are adopting Rule 14a19e, as proposed, to require the mandatory use of universal proxy cards by operating companies in all non-exempt director election contests. A mandatory system better protects the shareholder voting franchise, while avoiding the confusion that could result from a voluntary universal proxy system, where one party or the other strategically uses universal proxy only when they perceive it to be to their advantage. The logistics of how votes are cast through the proxy voting system should not affect the substantive voting options of shareholders, and therefore potential outcomes of the vote.
The ability of shareholders to fully exercise their right under state law to elect their preferred candidates through the proxy process represents a key reason to adopt the rule amendments. In particular, we note that under existing rules, institutional and other large shareholders can split their vote between registrant and dissident candidatesalbeit with effort and expensebecause they can arrange for a representative to attend the shareholder meeting and vote in person. Retail and other smaller investors, however, are unlikely to have the resources or sophistication to be able to do so.42 The 38 See,
e.g., letters from CCMC; CGCIV.
letters from Sidley; CCMC; CGCIV.
40 See letter from Davis Polk.
41 See letters from ICI.
42 While an increase in virtual meetings and corresponding technological advances may theoretically make it easier for certain retail investors to attend and vote at meetings, most 39 See
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