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Federal Register / Vol. 86, No. 228 / Wednesday, December 1, 2021 / Rules and Regulations
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solicitation requirement in typical contests is generally a small fraction of the total accounts outstanding. For example, within a sample of recent proxy contests, we estimate the number of accounts that one would have had to solicit to meet the 67% minimum solicitation requirement ranges from about 0.1% to 13% of the outstanding shareholder accounts, with the median number of accounts required equaling about 1.4% of the total shareholder accounts.261 Based on our sample, we expect that the incremental cost to a dissident currently soliciting less than the required 67% of the voting power will be minor relative to the total costs incurred by dissidents in typical proxy contests. However, because of the increase in the minimum solicitation requirement compared to the proposal, any such incremental costs will be larger under the final amendments compared to what they would have been under the proposed majority of the voting power requirement.
Specifically, in the infrequent case in which a dissident would otherwise have solicited shareholders representing a substantial fraction, but not 67%, of the voting power, we estimate that such a dissident would bear an incremental cost of approximately $5,400, if using the least expensive approach,262 to expand solicitation to meet the minimum 67% solicitation requirement.263 This estimated 261 Based on industry data provided by a proxy services provider for a sample of 31 proxy contests from July 1, 2018 through June 30, 2019.
262 As in the Proposing Release, staff assumed that the dissident would use the least expensive approach i.e., notice and access delivery to solicit additional accounts given that the dissident would not have chosen to solicit these accounts but for the proposed minimum solicitation requirement. To the extent that dissidents were to use an approach other than the least expensive approach to solicit additional shareholders to meet this requirement, their incremental costs would likely be higher than estimated here. Such approaches may include using full set rather than notice and access delivery, soliciting more than the minimum required number of shareholders, or incurring additional solicitation expenditures on phone calls or other forms of outreach. It is difficult to estimate how much more these approaches would cost than the least expensive approach because of the variety of approaches that could be used and because of the degree of variation in expenses, such as postage and printing costs, that would depend on the total size of the dissidents proxy materials.
263 This estimate was derived by the staff based on the NYSE Rule 451 fee schedule and industry data provided by a proxy services provider. In particular, staff based this estimate on the two cases out of the 35 contests from June 30, 2015 through April 15, 2016 for which information was provided in which less than 67% of the shares eligible to vote were solicited by the dissident. The required increase in expenses to solicit 67% of the shares eligible to vote was estimated based on the number of additional accounts that would have to be solicited and the applicable fees under NYSE Rule 451 and postage costs for notice and access
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incremental cost is larger than the $1,000 incremental cost we estimated in the Proposing Release for dissidents not meeting the proposed majority solicitation requirement. However, it is still minor compared to the median total solicitation expenses estimated for dissidents in director election contests, representing less than one percent of the median total solicitation cost reported in recent proxy statements by dissidents which may include expenditures for proxy solicitors, attorneys, and public relations advisors as well as the more basic proxy distribution fees and postage costs.264 The level of any such incremental cost will be driven by any shortfall in the number of shareholders that would otherwise be solicited compared to the number that will be required to be solicited to meet the 67%
voting threshold. Factors that may affect this shortfall include the size of the dissidents own voting stake in the registrant and the demographics of the shareholder base, such as whether share ownership is widely dispersed or more concentrated in a given registrant.
It is possible dissidents in future typical contests could target companies more similar to the general population of registrants rather than the type of target companies we have observed in recent contests. Based on aggregated data provided by a proxy services provider for more than 5,000 operating companies holding shareholder meetings from July 1, 2018 through June 30, 2019, we have information on the average distribution of shares by delivery. The staff also used the provided data on the proxy contests to estimate the increase in the number of banks or brokers considered nominees under NYSE Rule 451 that might be involved at the higher solicitation level. The estimated average incremental solicitation cost of approximately $5,400 includes nominee coordination fees of $22
for each of the additional nominees expected to be involved, plus basic processing fees, notice and access fees, preference management fees, and postage totaling $1.57 for suppressed accounts, such as those that have affirmatively consented to electronic delivery to $1.80 for other accounts per additional account to be solicited. Staff assumed that half of the additional accounts to be solicited are suppressed and that none of these accounts requested full set delivery by prior consent or upon receipt of the notice because such delivery requirements may apply to only a small fraction of accounts and are not expected to significantly affect the overall estimate of costs. Additional notice and access fees of $0.25 per account were assumed to be required for each account that was solicited prior to increasing the level of solicitation because of the use of notice and access delivery for some accounts.
Given the number of accounts involved, no additional intermediary unit fees were expected to apply. This estimate does not include printing costs for the notice, for which we do not have relevant data to make an estimate.
264 The median total solicitation cost reported in proxy statements by dissidents in proxy contests in years 20172020 is approximately $750,000. See supra Section IV.B.2.b.

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account size within four different size in terms of market capitalization categories of registrants. Using this data, we estimate that in the broader population of operating companies, the average fraction of accounts needed to be solicited to meet the minimum requirement ranges from approximately 0.2% for companies with more than $10
billion in market capitalization to approximately 1% for companies with less than $300 million in market capitalization. These estimated fractions fall within the range of the observed solicited fractions of accounts in the sample of recent proxy contests, which further supports our expectation that the solicitation requirement is unlikely to impose a large incremental cost burden on dissidents in typical proxy contests in which the dissident engages in substantial solicitation efforts.
Registrants may also incur minor incremental costs in typical proxy contests as a direct result of the final amendments to implement the required changes to their proxy cards. For example, under the final amendments, registrants must list dissident nominees on their proxy cards and provide disclosure about the consequences of voting for a greater or lesser number of nominees than available director positions. In addition, both registrants and dissidents may incur costs to make additional changes to their proxy statements in reaction to the final amendments, such as additional disclosures urging shareholders not to support their opponents candidates using their card and expressing their views as to the importance of a unified or a mixed board. These costs are expected to be minimal in comparison to the total costs that registrants and dissidents bear in a typical proxy contest.265
We next consider indirect effects of the final amendments on the costs of proxy contests. As noted in the Proposing Release, for both registrants and dissidents in typical proxy contests, other effects of the final amendments have the potential to result in more significant changes in costs than the effects related to revising proxy materials or the solicitation requirement. This is because the greatest potential impact on the cost of proxy contests is likely related to strategic increases or decreases in discretionary solicitation efforts in response to any changes that the final amendments may bring about in the actual or perceived 265 See infra Section V for estimates for purposes of the Paperwork Reduction Act of 1995 of the incremental burden that may be required to prepare proxy materials under the final amendments.

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