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Federal Register / Vol. 86, No. 228 / Wednesday, December 1, 2021 / Rules and Regulations
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a universal proxy requirementthat is, the ability of shareholders to request that individual registrants commit to a policy of using universal proxies in future contests through changes to their corporate governing documentsat only those registrants where shareholders believe mandatory universal proxies would be beneficial.343
However, under an optional approach it is likely that in many cases neither registrants nor dissidents would include their opponents nominees on their proxies, to avoid diluting the potential support for their own nominees among those shareholders that use their proxy card. To the extent that contesting parties were further given the option to determine how many and which of their opponents nominees to include, it is likely that the contesting parties would often include fewer than all of the dulynominated candidates on their proxy cards, even when they did include some of their opponents nominees. In any such cases, shareholders would continue to have more limited voting options when voting by proxy than when voting in person. Thus, we expect that an optional approach would result in inconsistent application and not fully achieve the goal of allowing shareholders the ability to vote by proxy for their preferred combination of director candidates, as they could at a shareholder meeting. Several commenters also raised concerns about an optional approach based on the risk for such inconsistent application of universal proxy due to strategic considerations by both registrants and dissidents.344 As discussed in more detail in the Proposing Release, we additionally note that Canadas system of optional universal proxies has not resulted in widespread and consistent application of universal proxy in director contests.345
Some commenters recommended different versions of an opt-out approach rather than a mandatory approach. For example, one commenter advocated a mandatory requirement that registrants could opt out of with approval of a majority of non-insider 343 The availability of such private ordering may depend on developments in state law. Also, if only a minority of shareholders is potentially interested in splitting their votes, it may be difficult to obtain the support required to revise bylaws or other corporate governing documents to require universal proxies.
344 See letters from SIFMA; CCGG; Fidelity.
345 See Section IV.D.5.b of the Proposing Release.
See also letter from CCGG stating that Universal proxy ballots are currently legal in Canada, and nothing prevents parties from using them now and yet they are seldom used, presumably because the parties do not see an advantage..

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shareholders.346 Another commenter advocated that registrants be able to opt out of universal proxy through a board vote.347 Theoretically, such opt-out approaches could maximize the benefits and minimize the costs of a mandatory approach if shareholders or boards would only opt out from the mandatory use in those cases where it is expected to be harmful to shareholders. However, in practical application this is less likely to be the case, since there is a risk that self-interested large shareholders or board members would vote to opt out precisely in such cases where mandated use of universal proxy and shareholder enfranchisement in director elections is optimal to shareholders at large. In addition, such opt-out alternatives would run counter to the objective of allowing shareholders to elect their preferred candidates through the proxy process as they can at the annual meeting, and the efficiency gains to shareholders that are interested in splitticket voting would be lost for the registrants that would opt out of mandatory universal proxies.
In the Proposing Release, we also considered hybrid alternatives that would require at least one party to a contest to use a universal proxy, potentially allowing a greater number of shareholders to split their ticket using a proxy compared to an optional approach but also potentially allowing fewer shareholders the ability to split their ticket compared to the final rule.
We discuss the potential economic effects of these hybrid alternatives in more detail in the Proposing Release.348
We did not receive any support for the hybrid alternatives from commenters, whereas two commenters were explicitly against such approaches.349
Applicability of Mandatory Universal Proxies to Registered Investment Companies and Business Development Companies As discussed above, the Commission is continuing to consider the application of a universal proxy mandate to some or all funds.350
Notice Requirements The final amendments would require that dissidents in all contested elections provide notice to registrants of their intention to solicit proxies in favor of other nominees, and the names of those nominees, no later than 60 calendar days prior to the anniversary of the 346 See
letter from Prof. Hirst.
letter from Sidley.
348 See Section IV.D.5.b of the Proposing Release.
349 See letters from CII Dec. 28, 2016; Colorado PERA.
350 See supra section II.J.
347 See
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previous years annual meeting date.351
A notice to the registrant is necessary for the registrant to be able to include the names on the universal proxy card it prepares and distributes to shareholders. Without providing such notice, a dissident would not be permitted to run a non-exempt solicitation in support of its director nominees. The final amendments would also require registrants to provide similar notice to dissidents no later than 50 days before the anniversary of the previous years annual meeting date, to allow dissidents sufficient time to include the names of registrant nominees on the universal proxy card that they prepare and disseminate to shareholders.
Because advance notice bylaws commonly require a similar amount of notice by dissidents seeking to nominate alternative candidates, the effect of the notice requirement for dissidents may be limited.352 As discussed above, we understand that advance notice bylaws generally have deadlines ranging from 90 to 120 days before the meeting anniversary date.353 However, it is possible that some registrants have advance notice bylaws with later deadlines. Also, some registrants do not currently have such bylaws and it is possible that boards may waive the applicability of such bylaws.354 Further, relatively smaller registrants are somewhat less likely to have advance notice provisions than larger registrants, and proxy contests are more common among these relatively smaller registrants.355 The final amendments would, in effect, replicate the primary effects of an advance notice bylaw applying to contested elections even at registrants that currently have no advance notice bylaws or bylaws with later deadlines, to the extent these exist.
Although we believe that only a small fraction of registrants do not already have a comparable or stricter notice requirement, because the bylaws at different registrants may have been designed to reflect their individual 351 If the registrant did not hold an annual meeting during the previous year, or if the date of the meeting has changed by more than 30 calendar days from the previous year, then the final amendments would require that notice must be provided no later than 60 calendar days prior to the date of the annual meeting or the tenth calendar day following the day on which public announcement of the date of the annual meeting is first made by the registrant, whichever is later.
352 It has been estimated that 99% of S&P 500
firms and 95% of Russell 3000 firms had an advance notice bylaw at the end of 2020. See supra Section IV.B.2.b.
353 See S&C 2015 Report.
354 See supra note 214.
355 See supra Section IV.B.2.b.

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