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Federal Register / Vol. 86, No. 228 / Wednesday, December 1, 2021 / Rules and Regulations
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However, any changes in voting behavior due to universal proxies could affect election outcomes in those contests that would otherwise have been very close contests. We estimate that in the 24% of contests that we consider to be close contests, the director elected with the fewest votes received no more than 13% more votes than the nonelected nominee with the most votes.280
In such cases, universal proxies may be more likely to affect the election outcome. Close contests may be more likely to occur at registrants with cumulative voting.281
A recent study uses an alternative approach to estimate the percentage of contests in which universal proxies may be more likely to affect the election outcome.282 This study estimates that it is possible that universal proxies would have led to different election outcomes in up to 15% of cases in a sample of proxy contests from 2001 through 2016.283 This statistic is somewhat lower than our estimate that close contests may represent approximately one-fourth of recent contests, but is also a more direct attempt to estimate how many of the sample contests might have had different outcomes if, hypothetically, universal proxy had been used. However, we note that the study makes several assumptions in management. Specifically, the studys analysis suggested that more retail ownership leads to more successful management proposals and fewer successful shareholder proposals in close votes. See Alon Brav, Matthew Cain & Jonathon Zytnick, Retail Shareholder Participation in the Proxy Process: Monitoring, Engagement, and Voting, J.
Fin. Econ Aug. 2021 forthcoming. By contrast, a survey of 801 retail investors found that the majority of these retail investors believe activists add long-term value, and may thus be more likely to support activists than generally thought. See Brunswick Group, A look at Retail Investors Views of Shareholder Activism and Why it Matters July 2015, available at https www.brunswickgroup.
com/media/597919/Brunswick-Group-RetailInvestors-Views-of-Shareholder-Activism-Summaryof-Results.pdf.
280 See supra Section IV.B.2.c.
281 Under cumulative voting, each shareholder is generally allowed to cast as many votes as there are nominees and may allocate more than one vote to certain nominees, which may lead to a more concentrated distribution of votes. By contrast, close contests may be relatively less likely at registrants with majority voting standards that do not revert to a plurality standard in the case of a contested election, or with high levels of incumbent executive and director ownership. For example, we estimate that approximately 3% of S&P 1500
registrants have cumulative voting, approximately 6% of S&P 1500 registrants have majority voting standards that do not revert to a plurality standard in a proxy contest, and approximately 3% of registrants have incumbent executives and directors who together own a majority of the outstanding shares. See supra Section IV.B.1.
282 See Hirst Study.
283 See Hirst Study, at 488 finding that 40 out of 269 proxy contests examined may have had outcomes that were distorted as a result of barriers to split-ticket voting.

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arriving at this statistic, and it is unclear whether these assumptions can be relied upon.284
To the extent universal proxies lead to changes in election outcomes, it is not clear how this would affect the composition of boards. There may be either more registrant nominees or more dissident nominees elected to boards, or there may be no change, on average, in the types of nominees elected.285 Also, there may be either fewer changes in control or more changes in control, or there may be the same frequency of changes in control as under the baseline. The impact of forcing shareholders to choose between one proxy card and the other in an election contest depends on the dynamics of the particular contest. On the one hand, where dissatisfaction with current management is greater, shareholders who would otherwise prefer to split their vote may be more likely under the current proxy system to utilize the dissidents card and forego the opportunity to vote for some registrant nominees, to send the message that board change is needed. This choice will no longer be necessary under the final amendments, which may lead to a greater likelihood that one or more registrant nominees retain their seats.
On the other hand, there also may be cases in which the registrant nominees would, in the absence of the final amendments, have retained all of their seats. Currently, we observe that registrant nominees retain all of the seats up for election in 62% of the contests that proceed to a vote.286 In such cases, an increase in split-ticket voting, as well as any incremental votes 284 For example, the estimates in this study are based on an assumption that facilitating split-ticket voting through the availability of universal proxies could result only in changes in votes that were otherwise marked as withheld from a candidate, while votes for any candidate would be assumed not to change. Also, the study assumes that the degree of increase in for votes for any given candidate upon facilitating split-ticket voting would be limited to the number of votes withheld from a single opposing candidate, while votes withheld from a different opposing candidate would be assumed not to switch to be in favor of this candidate. For the studys own discussion of the validity and reliability of these assumptions, see Hirst Study, at 488. We are unable to test independently the reliability of these assumptions because we do not have data that would allow us to predict how voting behavior might change with the availability of a universal proxy.
285 One study finds no evidence that universal proxies are likely to favor dissident nominees; if anything the evidence suggests that the opposite may be the case. See Hirst Study. However, this conclusion is based on several critical assumptions about how shareholder behavior may change upon the availability of universal proxy, and we are unable to test the reliability of these assumptions.
See supra note 284.
286 See supra Section IV.B.2.c.

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for the full dissident slate by shareholders not solicited by the dissident, may increase the likelihood of dissident nominees gaining one or more of those seats.
Given some of these possible dynamics, we expect that the election of mixed boards will be somewhat more likely under the final amendments than under the current proxy system. We expect this in particular for typical contests where the dissidents are engaging in meaningful solicitation efforts.287 By contrast, due to the expected minimal level of solicitation efforts by dissidents in nominal contests, we expect the registrant slate to prevail intact in most such contests.
However, we cannot predict whether any increase in mixed boards would be the result of one or more registrant nominees retaining seats when a board composed of only dissident nominees would otherwise have been elected or one or more dissident nominees gaining seats when all registrant nominees would have retained their seats, nor can we predict the magnitude of any increase in the frequency of such mixed board outcomes under the final amendments.288 Also, it is not necessarily the case that any such changes in outcomes would more accurately reflect shareholder preferences, even though these outcomes may be the product of removing constraints on the combination of nominees that shareholders can vote for, because of limitations in the way that voting rules can communicate preferences.289
287 We estimate that approximately 38% of recent contests that proceeded to a vote resulted in a mixed board being elected. Id.
288 One study questions whether universal proxies would result in a substantial increase in mixed board outcomes, based on an analysis indicating that mixed board outcomes could increase by no more than approximately 3% of the contests studied. See Hirst Study. However, this analysis and conclusion are based on several critical assumptions about how shareholder behavior may change upon the availability of universal proxies, and we are unable to test the reliability of these assumptions. See supra note 284.
289 For example, consider a registrant with 100
voting shareholders, three director seats up for election, and a dissident with two nominees.
Assume that 54 of the shareholders prefer to elect the dissident nominees but are indifferent about which registrant nominee retains the third seat. On a universal proxy, each of these shareholders therefore votes for one registrant nominee, with equal probability across the three registrant nominees. The remaining 46 prefer the full registrant slate. In this case, with a universal proxy, 54 votes would be earned by each of the dissident nominees, but 64 votes 46 plus one-third of 54
votes would be earned by each of the registrant nominees, leading to the registrant slate winning the election even though a majority of shareholders prefer that the dissidents gain two seats. See also letter from CII dated Nov. 8, 2018 providing
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