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Federal Register / Vol. 86, No. 228 / Wednesday, December 1, 2021 / Rules and Regulations
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client, not the proxy voting advice business, retains the legal right to vote and makes the ultimate decision on how it wishes to exercise that right in the election.46 In addition, investment advisers and other institutional investors using these recommendations are also subject to fiduciary duties and other legal obligations with respect to their proxy voting obligations. This would not change if universal proxy cards are used. Rather, the rule amendments we are adopting simply make it easier for the shareholder to vote for the nominees that it wants, regardless of whether they are from the dissidents slate or the registrants slate.
In response to the commenter questioning our authority to adopt a universal proxy requirement,47 the final rules are well within the plain language of the authority granted by Congress to the Commission under Section 14a.
The fact that the Commission in the past enacted measures that did not provide for universal proxies in no way suggests that the Commission lacked the statutory authority to do so.
In our view, the suggestion that the Commission has not provided a sufficient justification for these rules is unfounded. We are adopting these rules now because they best effectuate the Commissions goal of having proxy voting mirror the choices that a shareholder has in person at a meeting.
As noted above, the Commission has long understood the limitations that the proxy rules place on a shareholders ability to select its preferred mix of registrant and dissident nominees.48 As discussed below, the Commission adopted the short slate rule in 1992 in an attempt to address this problem. Yet, the short slate rule has not resolved the problem, with its conditions limiting the full exercise of shareholders ability to vote for director nominees through the proxy process. Further, based on the Commission staffs experience, substantial confusion exists regarding the use of the short slate rule, including by dissidents attempting to use it.
For many years, we have received comments from shareholders and their advocates expressing strong concerns about the limitations on their rights when voting by proxy.49 Many commenters on the Proposing Release 46 To the extent a proxy voting advice business has an interest in the director contest, such as a material relationship with the dissident or registrant, the Federal proxy rules require the proxy voting advice business to disclose this conflict of interest, which may mitigate concerns about the objectivity of the advice.
47 See letter from Davis Polk.
48 See, e.g., Short Slate Rule Revised Proposing Release and Short Slate Rule Adopting Release.
49 See Section I.C of the Proposing Release.

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reiterated those concerns and supported a mandatory universal proxy system to address them.50 Since the issuance of the Proposing Release in 2016, the call for universal proxy cards has persisted.51 Further, voluntary use of universal proxy cards in director contests has increased since 2016,52
along with an increased presence of provisions in registrants governing documents such as advance notice bylaws designed to facilitate the use of universal proxy cards including by requiring dissidents to provide consents for their nominees to be listed in the registrants proxy materials. These provisions, however, do not typically provide dissidents with similar consents to include the registrants nominees and, as discussed above, do not adequately address many shareholders concerns. The concerns described above are valid and can be addressed through the universal proxy requirement we are adopting in this document. The fact that we previously took other steps to try to address some of these same concerns does not preclude us from making the changes now that will address the current voting limitations. Additionally, we have carefully considered the economic effects of the rule, including the costs and benefits to shareholders, in Section IV.C below.
We recognize that whether proxy contests become more frequent may depend in part on whether the rule amendments increase a dissidents chances of electing some or all of its nominees. We discuss the costs associated with proxy contests in Section IV.C below. However, assuming these rule amendments result in more frequent proxy contests, the ultimate decision on who is elected to the board of directors rests with shareholders. In this sense, the mere fact that a dissident mounts a proxy contest does not necessarily mean it will be successful unless shareholders are persuaded that its platform will benefit them and the registrant. Again, these decisions at the heart of corporate governance are best left to shareholders.
The additional disclosure and presentation provisions adopted in this document and described in greater detail below will help to avoid some of the concerns of those who do not favor mandatory universal proxies. For example, participants in a contested election will not be required to include information about the opposing sides 50 See, e.g., letters from CII; OPERS; Trian, CalSTRS; Elliott; Domini; PRI.
51 See, e.g., IAC Report; letter dated Aug. 6, 2020
from Universal Proxy Working Group UPWG.
52 See supra note 43 and accompanying text.

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nominees in their own proxy statement.
Rather, each sides proxy statement must direct shareholders to the opposing sides proxy statement for information about that participants nominees.53 Each universal proxy card will be subject to the formatting and presentation requirements in the revised rules we adopt in this document. These requirements are intended to ensure that each sides nominees are grouped together and clearly identified as such, and presented in a fair and impartial manner.54 In addition, each universal proxy card must disclose the treatment of proxy cards containing over-votes and under-votes.55 These disclosure and presentation mandates in our rule amendments are intended to avoid shareholder confusion that could result in an increase in defective ballots and shareholder disenfranchisement. As shareholders become more familiar with universal proxy cards in director election contests, any initial confusion will likely abate.56 While we are mindful of the arguments that mandated universal proxy could have unintended consequences with respect to the mechanics of voting, the safeguards described above are intended to reduce that possibility.
B. Dissidents Notice of Intent To Solicit Proxies in Support of Nominees Other Than the Registrants Nominees 1. Proposed Rules The Commission proposed to require the dissident to provide notice to the registrant of the names of the dissidents nominees no later than 60 calendar days prior to the anniversary of the previous years annual meeting date.57 The proposed notice had to include a statement that the dissident intends to solicit the specified percentage of the voting power of the shares entitled to vote.58
53 See
newly-adopted Item 7f of Schedule 14A.
Rule 14a19e.
55 See Rule 14a19e7. By under-votes, we mean instances in which a shareholder returns a proxy card in a director election contest but does not exercise a vote with respect to all of the board seats up for election at the relevant shareholder meeting.
56 Current proxy rules relating to split-ticket voting in a director election contest may also be confusing to shareholders. Rule 14a4d4 permits a dissident to round out the slate of nominees listed on its proxy card under specified circumstances. However, Rule 14a4d4ii prevents a dissident from directly naming a director nominee whom the dissident supports. See Section II.I below. The staff has observed confusing descriptions in proxy statements and proxy cards as a result of this rule. We believe that shareholder confusion will decrease, not increase, as a result of the amendments we are adopting.
57 See proposed Rule 14a19a and b.
58 See proposed Rule 14a19b3.
54 See
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