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Federal Register / Vol. 86, No. 228 / Wednesday, December 1, 2021 / Rules and Regulations
alternatives to these implementation choices.
Our economic analysis of the final amendments reflects our consideration of a number of broad issues related to corporate governance and the proxy system. First, the design of the voting process, as a primary mechanism through which shareholders provide input into the composition of boards, can affect the ability of shareholders to exercise one of their most fundamental rightsto select and hold accountable the fiduciaries responsible for overseeing their investments. Second, it is difficult to predict how the various parties involved in contested elections are likely to respond to any changes to the proxy process, complicating the evaluation of whether such changes would enhance or detract from board effectiveness and registrants efficiency and competitiveness. Third, corporate governance involves a number of closely interrelated mechanisms, so any effects on contested elections may be either mitigated or magnified by changes in the use or effectiveness of other mechanisms. These issues are discussed in more detail in the Proposing Release and provide context for the discussion of potential economic effects that follows.242
1. Effects on Shareholder Voting By mandating the use of a universal proxy in contested elections, the final amendments will allow all shareholders to vote through the proxy system for the combination of director nominees of their choice, as they will no longer be limited to voting for only nominees chosen by the registrant or for only nominees chosen by the dissident.243 In addition, the ability to vote for dissident nominees by proxy would no longer be limited to shareholders solicited by the dissident because any shareholders not solicited by the dissident would still be able to vote for those nominees using the registrants proxy card.244 This 242 See
Section IV.C in the Proposing Release.
chosen by the dissident may include certain registrant nominees. The short slate rule permits a dissident in certain circumstances to solicit votes for some of the registrants nominees through the use of its proxy card where the dissident is not nominating enough director candidates to gain majority control of the board in the contest, thereby allowing shareholders using the dissidents proxy card to split their vote. However, shareholders voting on the dissidents proxy card would still be limited to voting for those registrant nominees selected by the dissident, rather than any registrant nominee of their choice.
244 For shareholders not solicited by the dissident, while the registrants universal proxy card would allow them to support dissident nominees, they would still need to seek out the dissidents proxy statement in the EDGAR system as directed by the registrants proxy statement to obtain information about the dissident nominees.

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change is expected to increase the efficiency with which shareholders vote in contested elections. In particular, universal proxies will result in benefits in the form of cost savings for shareholders who would otherwise expend time and resources to attend a shareholder meeting in person or otherwise arrange to vote for a combination of candidates that could not be voted for by proxy. Other shareholders may be newly able to vote for their most preferred candidates. That is, there may be shareholders who would vote for a combination of management and dissident candidates if a universal proxy were available but who do not currently do so because it is not feasible and in particular costeffective to undertake such a vote. In the Proposing Release, we discussed in more detail the current cost or inability for investors to vote for their preferred mix of director candidates from both slates of nominees, as well as investors express demand for split-ticket voting.245
Several commenters expressed general support for the use of universal proxy to enable split-ticket voting, arguing that split-ticket voting is currently either too costly or outright impossible to achieve for most shareholders given currently available approaches.246 By contrast, one commenter argued against the mandated use of universal proxy and claimed that there already exist less costly work arounds for investors who want to be able to choose candidates from both slates without voting in person.247 We acknowledge work arounds exist, but as discussed above, such approaches may still be too costly or are not generally available to all shareholders who wish to split their ticket, whereas mandated use of universal proxy will ensure all shareholdersregardless of time, resources, sophistication, or ability to use other approacheshave access to a comparatively low-cost alternative for split-ticket voting.
As described in Section IV.B.2.d, the increased use of virtual meetings can reduce the cost for shareholders to vote a split-ticket at the annual meeting by eliminating the time and expenses associated with travelling to physically attend the meeting. However it is unclear how widespread the use of virtual meetings will be after the current COVID19 pandemic is over, especially for meetings with contested director elections. Despite the lower cost of 245 See
Section IV.D.1.a in the Proposing Release.
e.g., letters from CII dated Dec. 28, 2016;
Fidelity; Hermes; Trian.
247 See letter from Society dated Jan. 10, 2017.
246 See,
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attending virtual meetings, voting by proxy card is likely to be less timeconsuming and gives shareholders the flexibility to fill out the card with their votes at a time of their choosing, compared to having to attend a virtual meeting at one specific point in time.
Supporting this, the evidence on shareholder attendance and voting at virtual meetings show that a vast majority of shareholders rely on the proxy process to vote even when the meeting is held virtually.248
For reasons discussed in more detail in the Proposing Release, we expect that institutional shareholders and large shareholders are relatively more likely than other shareholders to implement a split-ticket vote under current rules, and therefore will experience cost savings by being able to do so more easily via the proxy process under the final amendments adopted in this document.249
As discussed in more detail in the Proposing Release, the availability of universal proxies would also expand the voting alternatives of shareholders, such as retail shareholders or other small shareholders, for whom it would not otherwise be practical or feasible to vote for their preferred combination of candidates.250 To the extent that such shareholders are interested in splitting their ticket, the availability of universal proxies may result in a greater number of split-ticket votes than under the current system.
In addition, because dissidents currently are not required to solicit all shareholders, we observe that, in a substantial fraction of proxy contests, many shareholders do not receive the dissidents proxy card and thus cannot vote by proxy for dissident candidates.251 The requirement in the 248 See
supra note 235 and accompanying text.
Section IV.D.1.a of the Proposing Release.
See supra Section IV.B.1.a and IV.B.1.d for updated data on shareholders, including ownership statistics.
250 One commenter particularly highlighted increased access to split-ticket voting for retail investors and other small shareholders as a benefit of mandating the use of universal proxy; see letter from CII dated Sep. 7, 2017 stating that Importantly, requiring a universal proxy would benefit retail investors and institutional investors with relatively smaller positions by allowing them to choose among all board nominees without attending the shareholder meeting, which can involve travel and other costs that may be prohibitive..
251 Based on industry data provided by a proxy services provider for a sample of proxy contests from July 1, 2018 through June 30, 2019, we estimate that there are some shareholders that dissidents do not solicit in approximately 48% of contested elections, while dissidents in the remainder of contested elections solicit all shareholders. In contests in which fewer than all shareholders were solicited, only those accounts 249 See
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