# Universal Proxy > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A2016-26349 ## Record - **Collection:** Federal Register - **Document type:** Proposed Rule - **Published:** November 10, 2016 - **Citation:** 81 FR 79122 ## Text SECURITIES AND EXCHANGE COMMISSION 17 CFR Part 240 [Release No. 34-79164; IC-32339; File No. S7-24-16 ] RIN 3235-AL84 Universal Proxy AGENCY: Securities and Exchange Commission. ACTION: Proposed rule. SUMMARY: We are proposing amendments to the federal proxy rules to require the use of universal proxies in all non-exempt solicitations in connection with contested elections of directors other than those involving registered investment companies and business development companies. Our proposal would require the use of universal proxies that include the names of both registrant and dissident nominees and thus allow shareholders to vote by proxy in a manner that more closely resembles how they can vote in person at a shareholder meeting. We further propose amendments to the form of proxy and proxy statement disclosure requirements to specify clearly the applicable voting options and voting standards in all director elections. DATES: Comments should be received on or before January 9, 2017. ADDRESSES: Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( http://www.sec.gov/rules/proposed.shtml ); • Send an email to rule-comments@sec.gov . Please include File Number S7-24-16 on the subject line; or • Use the Federal eRulemaking Portal ( http://www.regulations.gov ). Follow the instructions for submitting comments. Paper Comments • Send paper comments to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090. All submissions should refer to File Number S7-24-16. This file number should be included on the subject line if email is used. To help us process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site ( http://www.sec.gov/rules/proposed.shtml ). Comments are also available for Web site viewing and printing in the Commission's Public Reference Room, 100 F Street NE., Washington, DC 20549-1090 on official business days between the hours of 10:00 a.m. and 3:00 p.m. All comments received will be posted without change; we do not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. Studies, memoranda or other substantive items may be added by the Commission or staff to the comment file during this rulemaking. A notification of the inclusion in the comment file of any such materials will be made available on the SEC's Web site. To ensure direct electronic receipt of such notifications, sign up through the “Stay Connected” option at www.sec.gov to receive notifications by email. FOR FURTHER INFORMATION CONTACT: Tiffany Posil, Special Counsel, or Christina Chalk, Senior Special Counsel, in the Office of Mergers and Acquisitions, at (202) 551-3440, or Steven G. Hearne, Senior Special Counsel, in the Office of Rulemaking, at (202) 551-3430, Division of Corporation Finance, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549. SUPPLEMENTARY INFORMATION: We are proposing new Rule 14a-19 and amendments to Rules 14a-2, 1 14a-3, 2 14a-4, 3 14a-5, 4 14a-6, 5 14a-101 6 under the Securities Exchange Act of 1934 (“Exchange Act”). 7 1 17 CFR 240.14a-2. 2 17 CFR 240.14a-3. 3 17 CFR 240.14a-4. 4 17 CFR 240.14a-5. 5 17 CFR 240.14a-6. 6 17 CFR 240.14a-101. 7 15 U.S.C. 78a et seq. Table of Contents I. Introduction A. Background B. Current Proxy Voting Process in Contested Elections C. Recent Feedback on the Proxy Voting Process D. Need for Proposed Amendments II. Proposed Amendments A. Bona Fide Nominees and the Short Slate Rule 1. Revision to the Consent Required of a Bona Fide Nominee 2. Elimination of the Short Slate Rule 3. Solicitation Without a Competing Slate B. Use of Universal Proxies 1. Mandatory Use of Universal Proxies in Non-Exempt Solicitations in Contested Elections 2. Dissident's Notice of Intent To Solicit Proxies in Support of Nominees Other than the Registrant's Nominees 3. Registrant's Notice of Its Nominees 4. Minimum Solicitation Requirement for Dissidents 5. Dissemination of Proxy Materials 6. Form of the Universal Proxy 7. Timing of Universal Proxy Solicitation Process C. Additional Revisions 1. Director Election Voting Standards Disclosure and Voting Options D. Investment Companies III. General Request for Comment IV. Economic Analysis A. Background B. Baseline 1. Affected Parties 2. Contested Director Elections 3. Other Methods to Seek Change in Board Representation C. Broad Economic Considerations D. Discussion of Economic Effects 1. Effects on Shareholder Voting 2. Potential Effects on Costs of Contested Elections 3. Potential Effects on Outcomes of Contested Elections 4. Potential Effects on Incidence and Threat of Contested Elections 5. Specific Implementation Choices V. Paperwork Reduction Act A. Background B. Summary of Proposed Amendments' Impact on Collection of Information C. Estimate of Burdens D. Request for Comment VI. Small Business Regulatory Enforcement Fairness Act VII. Initial Regulatory Flexibility Act Analysis A. Reasons for, and Objectives of, the Proposed Action B. Legal Basis C. Small Entities Subject to the Proposed Rules D. Projected Reporting, Recordkeeping and Other Compliance Requirements E. Duplicative, Overlapping or Conflicting Federal Rules F. Significant Alternatives G. Solicitation of Comment VIII. Statutory Authority and Text of Proposed Rule Amendments I. Introduction A. Background A shareholder's ability to participate in the election of directors has been recognized as a fundamental part of state corporate law. 8 State statutes require corporations to hold an annual meeting of shareholders for the purpose of electing directors. 9 Today, few shareholders of companies with a class of securities registered under the Exchange Act attend a registrant's meeting to vote in person. Rather, the primary way for shareholders to learn about matters to be decided on at a meeting and to vote on the election of directors is through the proxy process. 8 See Preston v. Allison, 650 A.2d 646, 649 (Del. 1994); see also Blasius Indus., Inc. v. Atlas Corp., 564 A.2d 651, 659 (Del. Ch. 1988) (“The shareholder franchise is the ideological underpinning upon which the legitimacy of directorial power rests.”). 9 See, e.g., Model Bus. Corp. Act § 7.01 (2008); Cal. Corp. Code § 600(b) (2009); Del. Code. Ann. tit. 8, § 211(b) (2009); N.Y. Bus. Corp. Law § 602(b) (2009). While state law typically authorizes the use of proxies to permit shares to be voted without shareholders attending the meeting, 10 parties soliciting proxy authority to vote Exchange Act-registered securities must comply with the federal proxy rules pursuant to Section 14 of the Exchange Act. 11 Section 14 of the Exchange Act authorizes the Commission to establish rules and regulations governing the solicitation of any proxy or consent or authorization in respect of any security registered pursuant to Section 12 of the Exchange Act. Registrants with reporting obligations only under Exchange Act Section 15(d) and foreign private issuers are not subject to the federal proxy rules. The congressional report accompanying the Exchange Act stated that “[f]air corporate suffrage is an important right that should attach to every equity security bought on a public exchange.” 12 The congressional committees recommending passage of Section 14(a) proposed that “the solicitation and issuance of proxies be left to regulation by the Commission” 13 and explained that Section 14(a) would give the Commission the “power to control the conditions under which proxies may be solicited with a view to preventing the recurrence of abuses which have frustrated the free exercise of the voting rights of stockholders.” 14 Regulation of the proxy process has been a core function of the Commission since its inception. In discussing the regulation of the proxy process, Chairman Ganson Purcell explained to a committee of the House of Representatives in 1943: “The rights that we are endeavoring to assure to the stockholders are those rights that he has traditionally had under State law. . . .” 15 10 See, e.g., Del. Code Ann. tit. 8, § 212. 11 15 U.S.C. 78n(a). 12 H. R. Rep. No. 73-1383, 2d Sess., at 13 (1934). See also Mills v. Elec. Auto-Lite Co., 396 U.S. 375, 381 (1970); J. I. Case Co. v. Borak, 377 U.S. 426, 431 (1964). The congressional report accompanying the Exchange Act further indicated that “[i]nasmuch as only the exchanges make it possible for securities to be widely distributed among the investing public, it follows as a corollary that the use of the exchanges should involve a corresponding duty of according to shareholders fair suffrage.” H. R. Rep. No. 73-1383, 2d Sess., at 14 (1934). 13 S. Rep. No. 73-792, 2d Sess., at 12 (1934). 14 H.R. Rep. No. 73-1383, 2d Sess., at 14 (1934). Courts have found that the relevant legislative history also demonstrates an “intent to bolster the intelligent exercise of shareholder rights granted by state corporate law.” Roosevelt v. E.I. Du Pont de Nemours & Co., 958 F.2d 416, 421 (D.C. Cir. 1992); see also Borak, 377 U.S. at 431. 15 Securit[ies] and Exchange Commission Proxy Rules: Hearings on H.R. 1493, H.R. 1821, and H.R. 2019 before the House Comm. on Interstate and Foreign Commerce, 78th Cong., 1st Sess. 172 (1943) (statement of SEC Chairman Ganson Purcell). Enhancing the ability of shareholders to exercise their right to elect directors through the proxy process has been the focus of numerous rule proposals, staff reports and comment letters over the years. 16 In the 1990s, the Commission conducted an extensive examination of the effectiveness of the proxy voting process and its effect on corporate governance. This review resulted in amendments to the federal proxy rules that sought to reduce regulatory constraints on communication among shareholders and the effective exercise of shareholder voting rights. 17 In the 2000s, the Commission focused on the shareholder franchise by seeking public input through roundtables 18 and engaging in rulemaking relating to the inclusion of shareholder nominees for director in the registrant's proxy materials. 19 The current approach to shareholder proposals under Rule 14a-8 permits proposals relating to bylaw amendments that would allow shareholder director nominees to be included in a registrant's proxy materials alongside the registrant's slate of director nominees. 16 See, e.g., Reexamination of Rules Relating to Shareholder Communications, Shareholder Participation in the Corporate Electoral Process, and Corporate Governance Generally, Release No. 34-13482 (Apr. 28, 1977) [42 FR 23901 (May 11, 1977)]. See also Reexamination of Rules Relating to Shareholder Communications, Shareholder Participation in the Corporate Electoral Process, and Corporate Governance Generally, Release No. 34-13901 (Aug. 29, 1977) [42 FR 44860 (Sept. 7, 1977)]; Staff Report: Review of the Proxy Process Regarding the Nomination and Election of Directors, U.S. Securities and Exchange Commission (July 15, 2003), available at https://www.sec.gov/news/studies/proxyrpt.htm , Security Holder Director Nominations; Release No. 34-48626 (Oct. 14, 2003) [68 FR 60784 (Oct. 23, 2003)] (proposing rules to require companies to include shareholder nominees in their proxy materials in the event a director receives over 35 percent withhold votes or a shareholder proposal requesting access receives more than 50 percent of the votes); Shareholder Proposals, Release No. 34-56160 (July 27, 2007) [72 FR 43466 (Aug. 3, 2007)] (proposing rules relating to the inclusion of bylaw amendments regarding nomination procedures and the inclusion of shareholder nominees in the registrant's proxy materials); and Proxy Disclosure and Solicitation Enhancements, Release No. 34-60280 (July 10, 2009) [74 FR 35076 (July 17, 2009)] (proposing to modify the short slate rule to make it available to a non-management soliciting person seeking authority to vote for nominees named in the registrant's or in any other person's proxy statement). 17 See Regulation of Communications Among Shareholders, Release No. 34-30849 (June 23, 1992) [57 FR 29564 (July 2, 1992)] (“Short Slate Rule Revised Proposing Release”) and Regulation of Communications Among Shareholders, Release No. 34-31326 (Oct. 16, 1992) [57 FR 48276 (Oct. 22, 1992)] (“Short Slate Rule Adopting Release”). The amendments sought to address some of these concerns by establishing an exemption for persons not seeking proxy authority, establishing a safe harbor from the definition of solicitation for certain types of shareholder communications, and allowing dissident shareholders to seek proxy authority to vote for some of management's nominees when seeking minority representation on the board of directors. 18 See, e.g., Roundtable on the Federal Proxy Rules and State Corporation Law (May 7, 2007) and Roundtable on Proxy Voting Mechanics (May 24, 2007). Materials related to the 2007 roundtables, including an archived broadcast and a transcript of the roundtable, are available online at https://www.sec.gov/spotlight/proxyprocess.htm . 19 See, e.g., Facilitating Shareholder Director Nominations, Release No. 33-9046 (June 10, 2009) [74 FR 29024 (Jun. 18, 2009)] (proposing rules to require registrants to include shareholder nominees in a registrant's proxy materials); Facilitating Shareholder Director Nominations, Release. No. 33-9136 (Aug. 25, 2010) [75 FR 56668 (Sept. 16, 2010)] (adopting rules to require, under certain circumstances, a registrant's proxy materials to provide shareholders with information about, and the ability to vote for, shareholder nominees for director). In 2011, the U.S. Court of Appeals for the District of Columbia vacated the part of the 2010 rules that required, in certain circumstances, a registrant's proxy materials to provide shareholders with information about, and the ability to vote for, a shareholder's nominees for director. See Bus. Roundtable v. SEC, 647 F.3d 1144 (D.C. Cir. 2011) (vacating Exchange Act Rule 14a-11). Contemporaneous amendments to Exchange Act Rule 14a-8 (17 CFR 240.14a-8) that permit bylaw amendments allowing shareholder nominees to be included in registrant proxy materials were not challenged in the litigation and remain in effect. Despite these initiatives, under the current proxy rules, shareholders voting by proxy in a contested election 20 may not be able to replicate the vote they could cast if they voted in person at a shareholder meeting because the choices available to shareholders voting for directors through the proxy process are not the same as those available to shareholders voting in person at a shareholder meeting. Shareholders voting in person at a meeting may select among all of the duly nominated 21 director candidates proposed for election by any party and vote for any combination of those candidates. Shareholders voting by proxy, however, are limited to the selection of candidates provided by the party soliciting the shareholder's proxy. Although the current proxy rules allow a soliciting party to provide shareholders with the full selection of nominees if all such nominees have consented to being named on its proxy card, aspects of the current proxy rules 22 and the parties' strategic interests typically result in limiting shareholders' choice to the slates of nominees chosen by the soliciting parties. Thus, shareholders voting by proxy are unable to make selections based solely on their preferences for particular candidates. As discussed in Section I.C. below, some shareholders have recently highlighted this limitation and requested Commission action. 23 20 As used in this release, the term “contested election” refers to an election of directors where a registrant is soliciting proxies in support of nominees and a person or group of persons is soliciting proxies in support of director nominees other than the registrant's nominees. We recognize that a contested election can be defined in broader terms. 21 A duly nominated director candidate is a candidate whose nomination satisfies the requirements of any applicable state or foreign law provision or a registrant's governing documents as they relate to director nominations. 22 See infra Section I.B for a discussion of Rule 14a-4(d)(1), the bona fide nominee rule, and the definition of a bona fide nominee in Rule 14a-4(d)(4). 23 See Letter from the Council of Institutional Investors (Jan. 8, 2014), available at https://www.sec.gov/rules/petitions/2014/petn4-672.pdf (requesting that the Commission eliminate the requirement to obtain a nominee's consent to be named on a proxy card in a contested election and allow shareholders to vote for their preferred combination of nominees on a single proxy card). See also Letter from the California Public Employees' Retirement System (Apr. 6, 2015), available at https://www.sec.gov/comments/4-681/4681-10.pdf (“We strongly believe that shareowners should have the ability to vote for any combination of director candidates in contested elections. . . . We believe that achieving this ideal requires the Commission to adopt necessary technical fixes to the bona fide nominee rule and adopt a mandatory universal proxy card.”). The changes to the federal proxy rules we propose today would allow a shareholder voting by proxy to choose among director nominees in an election contest in a manner that reflects as closely as possible the choice that could be made by voting in person at a shareholder meeting. To this end, we are proposing to require the use of a “universal proxy,” or a proxy card that includes the names of all duly nominated director candidates for whom proxies are solicited, for all non-exempt solicitations in contested elections. 24 We believe that shareholders should be afforded the opportunity to fully exercise their vote for the director nominees they prefer. This concept—that the proxy voting process should mirror to the greatest extent possible the vote that a shareholder could achieve by attending the shareholders' meeting and voting in person—has guided our efforts in proposing these changes. 25 We have looked to this concept because we believe that replicating the vote that could be achieved at a shareholder meeting is the most appropriate means to ensure that shareholders using the proxy process are able to fully and consistently exercise the “fair corporate suffrage” available to them under state corporate law and that Congress intended our proxy rules to effectuate. 26 24 Although investment companies are subject to the federal proxy rules, the amendments that we are proposing today would not apply to investment companies registered under Section 8 of the Investment Company Act of 1940 or business development companies as defined by Section 2(a)(48) of the Investment Company Act of 1940. See infra Section II.D. 25 We recognize that the proxy process may not be able to perfectly replicate the vote in a director election that can be achieved by attending a meeting and voting in person. For example, the proposed mandatory universal proxy system would not enable shareholders to vote by proxy on a director nomination presented from the floor of the meeting and not included in a proxy statement. However, this is a rare occurrence due to the prevalence of advance notice bylaw provisions and the low chance for success of nominations from the floor without soliciting proxies. We further note that the proposed universal proxy system does not seek to replicate the voting choices a shareholder would have on non-election proposals if voting in person at a shareholder meeting. The current proxy rules do not limit shareholders' exercise of their voting rights on non-election proposals to the same extent they limit the exercise of shareholders' rights on election proposals because parties can include another party's non-election proposal on the proxy card without such party's consent. As a result, our rulemaking efforts have focused on director election proposals. 26 See supra notes 12 and 15. B. Current Proxy Voting Process in Contested Elections Shareholders that attend a meeting in person generally vote by casting a written ballot provided at the meeting that includes the names of all duly nominated candidates for the board of directors. 27 Thus, in a contested election, shareholders attending the meeting in person and casting a written ballot can vote for the nominees of their choice from each party's slate of nominees, up to the specified number of board seats up for election. In contrast, in the proxy solicitation process for an election contest, the registrant's director nominees 28 are typically presented as one slate in the registrant's proxy statement and proxy card, and the dissident's 29 full or partial slate 30 of nominees is presented in the dissident's proxy statement and proxy card. Unlike submitting ballots when a shareholder attends a meeting in person, a shareholder generally may not validly submit two separate proxy cards, even when the total number of nominees for which the two cards are marked does not exceed the number of directors being elected. In general, under state law, a later-dated proxy card revokes any earlier-dated one and invalidates the votes on the earlier-dated card. 31 Shareholders voting by proxy are therefore effectively required to submit their votes on either the registrant's or the dissident's proxy card and cannot pick and choose from nominees on both cards. 27 Based on the staff's conversations with parties frequently engaged in the tabulation of ballots for contested elections. 28 We recognize that a registrant's board of directors (or a nominating committee it creates) commonly nominates directors for election to the board. For ease of reference, we refer to those nominees as “registrant nominees” throughout this release. 29 The term “dissident” as used in this release refers to a soliciting person other than the registrant who is soliciting proxies in support of director nominees other than the registrant's nominees. 30 “Partial slate” as used in this release refers to the nomination of a number of director candidates that is less than the number of directors being elected at the meeting. “Full slate” as used in this release refers to the nomination of a number of director candidates that is equal to the number of directors being elected at the meeting. 31 See, e.g., Standard Power & Light Corp. v. Inv. Assocs., 51 A.2d 572, 608 (Del. 1947); Parshalle v. Roy, 567 A.2d 19, 23 (Del. Ch. 1989). See also R. Franklin Balotti, et al., Delaware Law of Corporations and Business Organizations, § 7.20 (3d ed. 2015) (“Except in the case of irrevocable proxies, a subsequent proxy revokes a former proxy. In determining whether a proxy is subsequent, the date of execution controls.”). Additionally, shareholders voting by proxy are generally limited in their choice of nominees by Exchange Act Rule 14a-4(d)(1), the “bona fide nominee rule,” 32 which provides that no proxy shall confer authority to vote for any person to any office for which a “bona fide nominee is not named in the proxy statement.” The term “bona fide nominee” is defined as a nominee who has “consented to being named in the proxy statement and to serve if elected.” 33 Thus, in an election contest, one party may not include the other party's nominees on its proxy card unless the other party's nominees consent. In the staff's experience, such consent is rarely provided. Because contested elections are usually contentious, the nominees may refuse to consent to being included on the opposing party's card because of a perceived advantage to forcing shareholders to choose between the competing slates of nominees. A party's nominees may also refuse to consent to being named on the opposing party's proxy card because the nominees do not want to appear to support the opposing party's position or director nominees. As a result, shareholders are limited in their ability to vote for directors from both the registrant's and the dissident's slate. 32 17 CFR 240.14a-4(d)(1). 33 17 CFR 240.14a-4(d)(4). Moreover, since neither party is required to include the other party's nominees, even if a nominee consents to being named on the other party's proxy card, that other party can determine whether to include the nominee for strategic or other reasons. In the staff's experience, a party will seek to have its nominees included on the opposing party's proxy card when the party believes its slate is at a disadvantage in the election contest. The party that appears to have an advantage in the contest then has no strategic incentive to include the other party's nominees on its proxy card. 34 Thus, even though a mechanism exists where shareholders could receive a proxy card listing all of the nominees in a contested election, because competing parties rarely have an incentive to include the other party's nominees on their card, shareholders today are almost always required to choose between competing proxy cards. 34 For example, when a proxy advisory firm recommends a vote for some, but not all, dissident nominees, in the absence of a universal proxy shareholders seeking to cast a vote for the recommended dissident nominees must use the dissident's proxy card. In that circumstance, a registrant may want to use a universal proxy to allow shareholders to vote for some registrant nominees while voting for some dissident nominees in accordance with the proxy advisory firm's recommendation. The dissident nominees, however, may have no incentive to consent to their inclusion on a universal proxy if they believe it is strategically advantageous to have shareholders choose between the two cards because it may result in shareholders voting on the dissident card and, as a result, more dissident nominees being elected. Currently, for shareholders to be assured that they can vote for the mix of registrant and dissident nominees that they choose ( i.e., to “split their vote”), they generally must attend the meeting in person and vote. Shareholders that hold their securities in street name are required to take the additional step of obtaining a legal proxy from their broker before they are permitted to vote at the meeting. We understand that in some close elections, proxy solicitors and parties to the contest have helped shareholders who hold a large stake in the registrant split their votes by arranging for an in-person representative to vote their shares at the meeting on the ballots used for in-person voting. Since the ballots provided at the meeting include the names of both registrant and dissident nominees, this arrangement allows those shareholders to choose from all duly nominated candidates. 35 However, these options for splitting votes are either not made available to or are impractical for most other shareholders who are, therefore, more limited in their ability to vote for their preferred combination of director nominees. 35 In those instances, the proxy solicitor creates a provisional ballot to reflect the split vote. We are also aware of instances where proxy solicitors have sought to facilitate vote splitting for some shareholders who hold a large stake in the registrant by instructing them to obtain a legal proxy and modify the registrant's proxy card to indicate their preferred combination of nominees by striking any registrant nominee they do not support and indicating the dissident nominee they wish to support. Parties to contested elections have questioned whether this approach is consistent with the current definition of a bona fide nominee in Rule 14a-4(d)(4). Rule 14a-4(d)(4), the “short slate rule,” was adopted in 1992 to permit a dissident seeking to elect a minority of the board to “round out its slate” by soliciting proxy authority to vote for some registrant nominees on the dissident's card. Prior to adopting this rule, shareholders voting using the proxy card of a dissident seeking to elect a partial slate were disenfranchised with respect to the remaining seats on the board, which served as a disincentive for shareholders to grant proxies to that dissident. 36 As the Commission noted in adopting the short slate rule, the bona fide nominee rule “has acted to prevent the form of proxy from being used to allow shareholders to exercise their state law right through the proxy process, and as a result, has both cut off shareholder rights and greatly disadvantaged shareholder nominees seeking minority representation on the board of directors.” The Commission adopted the short slate rule to mitigate the disadvantage that dissidents faced when putting forth a partial slate of nominees. 37 36 See Short Slate Rule Revised Proposing Release, at 29573 (noting that “shareholders may be unwilling to execute a proxy that does not contain authority to vote for all seats up for election, absent cumulative voting, since the shareholder would not be exercising its full voting power.”) 37 See Short Slate Rule Adopting Release. The short slate rule permits a dissident to indicate on its card that it intends to use its proxy authority to vote for the registrant nominees other than the nominees named on the card and thereby allows shareholders to vote for the registrant nominees other than those specified. The shareholder also is provided an opportunity to write in the names of any other registrant nominees with respect to which the shareholder withholds voting authority, although to do so, the shareholder must consult the registrant's soliciting materials in order to obtain the names of all registrant nominees. The short slate rule is available only in election contests in which the dissident is seeking to elect nominees that would constitute a minority of the board and it applies only to the dissident. 38 In addition, the short slate rule permits the dissident, not the shareholder, to select which, if any, of the registrant nominees to vote for using the short slate proxy card. 38 Registrants are not permitted to rely on the short slate rule to solicit authority to vote for some of the dissident's nominees. Theoretically, a registrant might wish to rely on the short slate rule if it was proposing a partial slate of nominees that would constitute a minority of the board. However, as a practical matter, such solicitations very rarely occur. As originally proposed, Rule 14a-4(d) would have permitted proponents to include the names of registrant nominees on the proponent proxy card. 39 Commenters from the registrant community opposed the amendment, suggesting that including registrant nominees on the dissident's card could imply that the registrant nominees supported the dissident's position, that it would confuse shareholders, and that minority representation on the board would cause the board to be less effective. The Commission responded by adopting the current version of the short slate rule that permits the dissident to name the registrant nominees for whom the dissident will not vote. The Commission also stated that commenters' concerns that the election of dissident nominees to the board could hinder the board's effectiveness are arguments best made to the shareholders and determined in an election. 40 In taking this measured step of adopting a modified short slate rule, the Commission noted the appeal of a universal proxy in permitting shareholders to exercise their vote in the same manner as at a shareholder meeting. 41 39 See Short Slate Rule Revised Proposing Release. 40 See Short Slate Rule Adopting Release, at 48288. 41 Id. While neither proposing nor adopting a universal proxy, the Commission acknowledged that requiring a registrant to include dissident nominees in the registrant's proxy statement “would represent a substantial change in the Commission's proxy rules.” While the short slate rule provides the opportunity, in a contested election where a dissident is seeking election of a minority of the board, for a shareholder to use a proxy card to vote for all seats up for election, it does not provide that shareholder the opportunity to choose among all registrant and dissident nominees. To address this limitation, in recent years, proxy solicitors for registrants and dissidents have facilitated vote splitting to allow a few large shareholders to choose among all registrant and dissident nominees in a contested election. In addition, some commentators have suggested the possibility of requiring both parties to include each other's nominees on their own proxy cards. 42 We believe it is appropriate to now consider a more direct route for shareholders to exercise the same vote as they could if voting in person at a shareholder meeting. Revising our rules to facilitate the full exercise of the shareholder franchise would reduce the costs for shareholders to vote for their choice of director nominees and provide all shareholders of the company the same voting opportunities currently available to only certain shareholders. 42 See, e.g., Richard J. Grossman & J. Russel Denton, Never Mind Equal Access: Just Let Shareholders “Split Their Ticket”, The M&A Lawyer (Jan. 2009) (discussing the issue of shareholders seeking to split their votes and recommending requiring the use of a universal proxy card in bona fide election contests); Tom Ball, The Quest for Universal Ballots: Might Boards Benefit Too?, Deal Lawyers (Nov.-Dec. 2014), available at http://www.morrowco.com/wp-content/uploads/2015/01/Deal-Lawyers-article-on-Universal-Ballots-Nov-Dec-20141.pdf (suggesting universal proxy could have strategic benefits for registrants in certain situations). C. Recent Feedback on the Proxy Voting Process In 2013, the Commission's Investor Advisory Committee (“IAC”) 43 recommended that we explore revising our proxy rules to provide proxy contestants with the option to use a universal proxy card in connection with short slate director nominations. 44 In early 2014, we received a rulemaking petition (“Rulemaking Petition”) requesting that we require the use of a universal proxy that would allow shareholders to vote for their preferred combination of registrant and dissident nominees in contested director elections. 45 In response to this feedback, the Commission staff undertook a review of the proxy rules and the Commission held a roundtable in February 2015 to explore ways to improve proxy voting, including through the adoption of universal proxies. 46 43 The IAC was established in April 2012 pursuant to Section 911 of the Wall Street Reform and Consumer Protection Act [Pub. L. 111-203, sec. 911, 124 Stat. 1376, 1822 (2010)] (“Dodd-Frank Act”) to advise the Commission on regulatory priorities, the regulation of securities products, trading strategies, fee structures, the effectiveness of disclosure, initiatives to protect investor interests and to promote investor confidence and the integrity of the securities marketplace. The Dodd-Frank Act authorizes the Investor Advisory Committee to submit findings and recommendations for review and consideration by the Commission. The IAC made its universal proxy card recommendation at its July 25, 2013 meeting. See Recommendations of the Investor Advisory Committee Regarding SEC Rulemaking to Explore Universal Proxy Ballots (Jul. 25, 2013), available at https://www.sec.gov/spotlight/investor-advisory-committee-2012/universal-proxy-recommendation-072613.pdf (“IAC Recommendation”). 44 A “short slate director nomination” occurs where dissident nominees, if elected, would constitute a minority of the board of directors. See Rule 14a-4(d). 45 See Letter from the Council of Institutional Investors (Jan. 8, 2014), available at http://www.sec.gov/rules/petitions/2014/petn4-672.pdf . The Rulemaking Petition requested that the Commission eliminate the requirement to obtain a nominee's consent to be named on a proxy card in a contested election and to allow shareholders to vote for their preferred combination of nominees on a single proxy card. 46 See Proxy Voting Roundtable, U.S. Securities and Exchange Commission (Feb. 19, 2015), available at http://www.sec.gov/spotlight/proxy-voting-roundtable.shtml . The IAC has observed that many retail and institutional investors do not have the practical ability to attend shareholder meetings in person and vote by ballot, which would permit them to choose among all of the candidates who are duly nominated. 47 The IAC recommended that the Commission explore revising the bona fide nominee rule to permit the use of universal proxies. In reaching this recommendation, the IAC noted that the effect of the bona fide nominee rule, in conjunction with state corporate law voting provisions, is that shareholders voting by proxy have no practical ability to vote for a combination of dissident nominees and registrant nominees, in contrast to shareholders' ability to pick among all of the duly nominated candidates when they vote in person at a meeting. 48 47 See IAC Recommendation, at 1. 48 See IAC Recommendation. In addition, the IAC recommended that the Commission explore whether all or only a portion of duly nominated candidates must or may appear on a universal proxy card. The Rulemaking Petition requested that the Commission amend the proxy rules to remove the requirement to obtain the consent of the opposition's nominees prior to including those nominees on a proxy card and require the use of a universal proxy that would allow shareholders to vote for their preferred combination of registrant and dissident nominees. The Rulemaking Petition contended that such amendments are necessary to fully enfranchise shareholders. It also noted that universal proxy cards would be less likely to confuse shareholders and less complex than proxy cards under the short slate rule, thus resulting in a less cumbersome voting process. At the February 2015 proxy voting roundtable, 49 one panel addressed the current state of contested elections and whether changes should be made to the federal proxy rules to facilitate the use of universal proxy cards. The discussion focused on, among other things, whether universal proxies would increase the frequency of election contests or provide an advantage to one party or the other in a contested election. Some panelists stated that universal proxies would result in more contests; 50 others stated that they could facilitate settlements or accommodations with dissidents before a contest arose resulting in fewer contests. 51 Several panelists asserted that adopting universal proxy would more closely replicate the vote that could be made by voting in person at a shareholder meeting, 52 while another asserted that such a change should not be made in a vacuum without more broadly addressing the proxy voting process. 53 While panelists differed on many aspects of the universal proxy card, the fundamental concept that the proxy system should allow shareholders to vote by proxy as closely as possible to how they could vote in person at a shareholder meeting was generally acknowledged. 54 49 See supra note 46. 50 See, e.g., Unofficial Transcript of the Proxy Voting Roundtable (Feb. 19, 2015) (“Roundtable Transcript”), comments of David A. Katz, Partner, Wachtell, Lipton, Rosen & Katz LLP, at 41, Anne Simpson, Senior Portfolio Manager and Director of Global Governance, CalPERS, at 43 and Steve Wolosky, Partner, Olshan Frome & Wolosky, LLP, at 48-49, available at http://www.sec.gov/spotlight/proxy-voting-roundtable/proxy-voting-roundtable-transcript.txt . 51 See, e.g., Roundtable Transcript, comments of Michelle Lowry, Professor, Drexel University, at 60 and Lisa M. Fairfax, Professor, George Washington University Law School, at 48. 52 See, e.g., Roundtable Transcript, comments of Lisa M. Fairfax, Professor, George Washington University Law School, at 30 and Anne Simpson, Senior Portfolio Manager and Director of Global Governance, CalPERS, at 35-36, 73. 53 See, e.g., Roundtable Transcript, comments of David A. Katz, Partner, Wachtell, Lipton, Rosen & Katz LLP, at 74. We note, however, that the panelist did not specify what other parts of the proxy system should be addressed. 54 In a comment letter following the roundtable, one commenter reiterated its recommendation that the Commission propose rules to facilitate the use of universal proxies for contested elections, contending that such a change would enfranchise shareholders by permitting them to vote for the combination of nominees that they believe best serves their economic interest, lessen shareholder confusion concerning the proxy and lower shareholders' costs to vote. See Letter from the Council of Institutional Investors (Mar. 5, 2015), available at http://www.sec.gov/comments/4-681/4681-7.pdf . In contrast, another commenter suggested that mandating universal proxies would facilitate election contests that are disruptive to public companies and instead encouraged more robust communications between management and shareholders. See Letter from the Center for Capital Markets Competitiveness (Feb. 18, 2015), available at http://www.sec.gov/comments/4-681/4681-6.pdf . D. Need for Proposed Amendments We believe the proxy system should allow shareholders to achieve by proxy the vote they could cast in person at a shareholder meeting. We believe that the right to vote is of particular importance when shareholders are deciding among candidates in a contested election. While the Commission has taken some steps in the past to facilitate shareholders' ability to choose among the nominees in competing slates, such as through the adoption of the short slate rule, we are concerned that the current proxy rules may not allow shareholders to fully exercise their voting rights. In particular, our rules may not permit shareholders to select their preferred combination of nominees through the proxy process, even though they could do so if they were to attend a shareholder meeting. In its review of proxy contests, the staff has become aware of parties engaging in practices to facilitate split voting for certain, typically large, shareholders. 55 The staff has also observed other “self-help” measures intended to facilitate split voting, such as attempting to allow shareholders to “write in” their candidate of choice on a proxy card, or in the case of registrants that are at risk of losing a majority of the seats on the board, nominating less than the total number of directors up for election to effectively assure the election of some dissident nominees. We believe a universal proxy card would better enable shareholders to have their shares voted by proxy for their preferred candidates and eliminate the need for special accommodations to be made for shareholders outside the federal proxy process in order to be able to make such selections. We further believe that a universal proxy system would help to ensure that all shareholders of the company are consistently and uniformly afforded the ability to select the director candidates of their choice in contested elections. 55 See supra note 35 and accompanying text. As a result, we are proposing to require the use of universal proxies in all non-exempt solicitations in connection with contested elections where a person or group of persons is soliciting proxies in support of director nominees other than the registrant's nominees. We are proposing this approach because our rationale for requiring the use of universal proxies—that the proxy voting process should allow as much as possible the voting choices that a shareholder would have when attending the meeting and voting in person—applies equally to all contested elections. We believe our rules should allow shareholders to select the combination of nominees that best aligns with their interests in any contested election. In proposing these changes, we are cognizant of concerns that have been raised that including one party's nominees on the other party's proxy card could cause shareholder confusion or imply that the soliciting party supports the other party's nominees. We believe that some of these concerns would be mitigated by the amendments we propose today, including the proposed requirement to clearly distinguish between the registrant and dissident nominees on the proxy card. 56 To the extent that the proposed amendments do not fully alleviate these concerns, we believe they can be addressed through disclosure in the proxy statement. 56 See proposed Rule 14a-19(e)(3). We are also mindful that some have expressed that dissident representation on a board could lead to a less effective board of directors due to dissension, loss of collegiality and fewer qualified persons being willing to serve. As explained in more detail in Section IV.D below, while the proposed amendments are expected to result in reduced costs for shareholders seeking to split their votes, it is unclear whether the amendments would affect the number of dissident nominees elected to the board. 57 Similarly, it is unclear whether registrants would necessarily face an increased incidence of changes in board dynamics. If the proposed amendments result in additional dissident representation, it is difficult to predict whether such additional dissident representation would enhance or detract from board effectiveness and shareholder value. 58 Similar concerns were expressed at the time the Commission adopted the short slate rule. 59 As the Commission stated in adopting the short slate rule, arguments that the election of dissident nominees will hinder the board's effectiveness are best made to the shareholders for their consideration when making voting decisions and “should not be a basis for imposing . . . regulatory barriers to the full exercise of the shareholder franchise.” 60 Nevertheless, we solicit comment on the possible positive or negative impact the amendments could have on board performance. In particular, we solicit data on the effect of the proposed amendments on both the number of proxy contests and the resulting effect, if any, on dissident or incumbent director representation on boards. For the reasons discussed throughout this release, we preliminarily believe that facilitating the full exercise of the shareholder franchise by a broader group of shareholders may justify mandating the use of universal proxies in contested elections. 57 See infra Section IV.D.3 (discussing potential economic effects on outcomes of contested elections). 58 See infra Section IV.C (discussing broad economic considerations). 59 See Short Slate Rule Adopting Release. 60 See Short Slate Rule Adopting Release, at 48288. II. Proposed Amendments Section 14 of the Exchange Act authorizes the Commission to establish rules and regulations governing the solicitation of any proxy or consent or authorization in respect of any security registered pursuant to the Exchange Act. In regulating the proxy process, we have sought to facilitate the rights shareholders have traditionally had under state law. We believe the current proxy rules could be improved to allow shareholders to more efficiently and fully exercise these rights in contested elections. To that end, we are proposing amendments to our proxy rules that would permit shareholders to vote by proxy for any combination of candidates for the board of directors, as they could if they attended the shareholder meeting in person and cast a written ballot. 61 61 As discussed in Section II.D, the amendments we are proposing today to implement a mandatory universal proxy system would not apply to investment companies registered under Section 8 of the Investment Company Act of 1940 or business development companies as defined by Section 2(a)(48) of the Investment Company Act of 1940. In order to provide for the use of universal proxy cards in contested elections, we are proposing to amend the proxy rules to establish new procedures for the solicitation of proxies, the preparation and use of proxy cards and the dissemination of information about all director nominees in contested elections. Specifically, we are proposing amendments that would: • Revise the consent required of a bona fide nominee; • Eliminate the short slate rule; • Require the use of universal proxy cards in all non-exempt solicitations in connection with contested elections; • Require dissidents to provide registrants with notice of intent to solicit proxies in support of nominees other than the registrant's nominees and the names of those nominees; • Require registrants to provide dissidents with notice of the names of the registrant's nominees; • Prescribe a filing deadline for dissidents' definitive proxy statement; • Require dissidents to solicit the holders of shares representing at least a majority of the voting power of shares entitled to vote on the election of directors; and • Prescribe requirements for universal proxy cards. We also are proposing additional improvements to the proxy voting process by making changes to the form of proxy. Consistent with our goal of facilitating shareholder voting in director elections, we are proposing additional amendments that would apply to all director elections. First, we are proposing to amend Rule 14a-4(b) to mandate that proxy cards include an “against” voting option when applicable state laws give effect to a vote against. We are similarly proposing amendments to require proxy cards to give shareholders the ability to “abstain” in an election where a majority voting standard is in effect. Finally, we are also proposing amendments to the proxy statement disclosure requirements to mandate disclosure about the effect of a “withhold” vote in an election. A. Bona Fide Nominees and the Short Slate Rule The current proxy rules limit the ability of parties in a contested election to include the names of all nominees on their proxy card. Exchange Act Rules 14a-4(d)(1) and 14a-4(d)(4) provide that no proxy may confer authority to vote for any nominee unless that nominee has consented to being named in the proxy statement and to serve if elected. As a result, a party in a contested election cannot include on its proxy card a nominee from the opposing party without the express authorization of that nominee, which is rarely provided. These proxy rules, along with state law rules regarding the effect of later-dated proxy cards, effectively create a system in which parties to a contested election distribute their own proxy cards that include only a subset of all director nominees. Ultimately, these limitations restrict the voting choices available to shareholders using the proxy process, as these shareholders are unable to use a proxy to vote for a combination of nominees of their choice. The Commission sought to address some of the concerns about shareholders' inability to split their vote between the registrant's and the dissident's proxy cards through the adoption of the short slate rule. 62 The short slate rule permits a dissident seeking to elect a minority of the board to solicit authority to vote for some of the registrant's nominees on its proxy card. However, to comply with Rule 14a-4(d)(4), the dissident is only permitted to include on its proxy card the names of the registrant's nominees for whom it will not vote. While this rule provides shareholders with some additional choices in the proxy voting process, shareholders wishing to vote for nominees for all of the board seats up for election are still limited to voting by proxy for the combination of nominees that either the dissident or registrant chooses. Moreover, the short slate rule does not contemplate a registrant proposing a partial slate of nominees (or nominating less than the total number of directors to be elected), a tactic that may be advantageous for some registrants. 63 62 See Short Slate Rule Adopting Release. 63 See Ronald Barusch, Dealpolitick: Management Takes Page from Activist Playbook with “Short Slates,” Wall St. J. (July 31, 2014), available at http://blogs.wsj.com/moneybeat/2014/07/31/dealpolitik-management-takes-page-from-activists-playbook-with-short-slates/ (referencing a new trend among registrants that are at risk of losing a majority of the seats on the board in which the registrant nominates less than the total number of directors up for election to effectively assure the election of some dissident nominees). 1. Revision to the Consent Required of a Bona Fide Nominee To allow for proxy cards that reflect the complete choice of candidates for election, we are proposing amendments to Rule 14a-4(d) to change the definition of “bona fide nominee” 64 for registrants other than investment companies registered under Section 8 of the Investment Company Act of 1940 (“funds”) and business development companies as defined by Section 2(a)(48) of the Investment Company Act of 1940 (“BDCs”). 65 Proposed Rule 14a-4(d)(1)(i) would define a bona fide nominee as a person who has consented to being named in a proxy statement relating to the registrant's next meeting of shareholders at which directors are to be elected. This would effectively expand the scope of a nominee's consent to include consent to being named in any proxy statement for the applicable meeting. By changing the requirement that a person consent to being named in “a” proxy statement instead of being named in “the” proxy statement, 66 parties in a contested election will be able to include all director nominees on their proxy cards, rather than only those nominees who have consented to being named on that particular party's proxy card. 67 This change would remove a current impediment to a registrant or a dissident including the other party's nominees on its proxy card. 64 See proposed Rule 14a-4(d)(1)(i). 65 As discussed in Section II.D, the amendments we are proposing today to implement a mandatory universal proxy system would not apply to funds or BDCs. For purposes of the rules that apply to funds and BDCs, the definition of a bona fide nominee and the short slate rule in current Rule 14a-4(d)(4) would be retained in proposed Rule 14a-4(d)(1)(ii). 66 We also are proposing a corresponding change from “the” proxy statement to “a” proxy statement in Rule 14a-4(c)(5). 67 We are proposing these amendments at the same time we propose Rule 14a-19 that would require the use of universal proxies in non-exempt solicitations in all contested elections, assuming certain conditions are met. See infra Section II.B. We note, however, that the proposed amendments to the bona fide nominee rule could operate independently from the proposed requirement to use universal proxies. The proposed amendments to the bona fide nominee rule, standing alone, essentially would allow parties the option of providing a universal proxy or alternatively providing a proxy with just some of the opposing party's nominees. We request comment below about this approach, including whether there are additional changes we should make to our rules to better enable the amendments to Rule 14a-4(d) to operate independently. We are cognizant of the concerns that have been raised about allowing the parties in an election contest to include the other party's nominees on their proxy card. These include concerns that listing registrant nominees on a dissident's proxy card could imply that registrant nominees support the dissident and would serve with dissident nominees, if elected, and objections about nominees being forced to lend their name, stature and reputation to the election campaign of a person with whom the nominee did not choose to run. 68 Similarly, there may be a question as to whether listing dissident nominees on a registrant's proxy card could lend credibility to the dissident nominees or imply that the registrant supports the dissident nominees. We believe, however, that these concerns would be mitigated by the proposed requirement to clearly distinguish between the registrant and dissident nominees on the proxy card 69 and through disclosure in each party's proxy statement. We also believe the proposed presentation and formatting requirements coupled with the fact that all nominees would be included on the card help to minimize these concerns. In contrast to the presentation of nominees on a dissident's proxy card under the short slate rule where the dissident's partial slate of nominees is presented together with certain registrant nominees (albeit in an indirect manner), the nominees of each party would be grouped together and presented on a universal proxy card as a separate slate of the nominating party. As a result, we believe it would be less likely under a universal proxy system that shareholders would reasonably conclude that the registrant's nominees support the dissident simply because the registrant's nominees are included on the dissident's proxy card. 68 The Commission noted these and other concerns when adopting the short slate rule in 1992. See Short Slate Rule Adopting Release, at 48288. We believe these concerns would be especially acute if we were to amend only Rule 14a-4(d) to change the consent required of a bona fide nominee, because such an amendment would allow the parties to choose which of the other party's nominees to include on their proxy card. We recognize that such concerns could be mitigated by the proposed requirement to clearly distinguish between each party's nominees, and registrants could further mitigate these concerns through disclosures in their soliciting materials. We request comment below regarding other ways to address them. 69 See proposed Rule 14a-19(e)(3). We also believe that some of these issues would be less acute with the implementation of a mandatory system for universal proxies in all contested elections. If mandatory use of universal proxies is implemented, we believe it would be increasingly unlikely that shareholders would conclude that the registrant's nominees support a dissident's campaign simply because the registrant's nominees are included on the dissident's proxy card. We also believe that these concerns can be addressed through disclosure in the proxy statement. Proposed Rule 14a-4(d)(1)(i) would retain the requirement that a nominee consent to serve, if elected. The consent requirement would continue to help ensure that a registrant or dissident does not nominate a person who has not consented to serve as a director of the registrant. 70 As the Commission indicated when adopting the short slate rule, a proxy statement should disclose if any nominee has determined to serve only if its nominating party's slate is elected or to resign if one or more of the opposing party's nominees were elected to the board of directors. 71 70 While the proposed amendments to Rule 14a-4(d)(1) to change the consent required of a bona fide nominee could operate independently from proposed Rule 14a-19, which would require the use of a universal proxy card, we are not proposing a change to the consent requirement without mandatory use of universal proxy cards in contested elections. See infra Section II.B for a discussion of mandatory use of universal proxies. 71 See Short Slate Rule Adopting Release, at 48289 n.78. Request for Comment 1. We are proposing to amend Rule 14a-4(d)(1) to change the requirement that a nominee consent to being named in “the” proxy statement to require that the nominee consent to being named in “a” proxy statement for the next meeting at which directors are to be elected. This change would enable parties in a contested election to include all director nominees on their proxy card, including nominees of an opposing party. Should we amend the requirement as proposed? Why or why not? Could there be potential concerns with opposing parties naming nominees of the other party on their proxy card? Please explain. How can we address or mitigate any such concerns? 2. Should the proposed amendments to Rule 14a-4(d)(1) be adopted without proposed Rule 14a-19, which would require the mandatory use of universal proxies? 72 Why or why not? If only the proposed amendments to Rule 14a-4(d)(1) were adopted and a party in a contested election had the option, but was not required, to include all director nominees on its proxy card, would proposed Rule 14a-4(d)(1) further the goal of effectively facilitating shareholders' ability to vote by proxy for director nominees as they could vote in person at a meeting? Why or why not? 72 See infra Section II.B for a discussion of proposed Rule 14a-19 and the proposed mandatory universal proxy system. 3. If we were to adopt the proposed amendments to Rule 14a-4(d)(1) to permit the parties in an election contest to include the other party's nominees on their proxy card without mandating the use of universal proxies for all parties, are there other amendments that would need to be adopted to facilitate the operation of proposed Rule 14a-4(d)(1)? For example, should we permit parties to decide whether to include some or all of the opposing party's nominees? Should we instead require a party seeking to include names of an opposing party's nominees on its proxy card to include the names of all of the opposing party's nominees? Should we consider rules that would require a party opting to use a universal proxy to provide notice of its intent to use a universal proxy and the names of its nominees or require the other party to provide a list of its nominees to the party seeking to use a universal proxy? Would other amendments be necessary, such as the proposed amendments concerning the form and format of the proxy card or additional disclosure requirements? 4. Do the proposed amendments allow the soliciting parties in a contested election to adequately address the concerns raised about possible voter confusion arising from nominees of one party being placed on the proxy card of an opposing party or creating an implication that a party's nominees support the opposing party and would serve with the opposing party's nominees, if elected? Are there other ways that the amendments could address these concerns? For example, should we require a statement that inclusion of an opposing party's nominees on the proxy card should not be construed as an endorsement of the opposing party's views or nominees? 5. When adopting the short slate rule, the Commission indicated that the possibility that nominees may not serve if elected with one or more of the opposing party's nominees is best addressed through disclosure. Should we adopt an amendment requiring disclosure about the possibility that nominees may refuse to serve if elected with any of the opposing party's nominees? Should we require disclosure describing how the resulting vacancy can be filled under the registrant's governing documents and applicable state law? 6. Are there any additional disclosures that we should require in the proxy materials or on the proxy card or other steps we should take to address concerns with the proposed amendments to Rule 14a-4(d)(1) to permit opposing parties to name each other's director nominees on their proxy cards? 2. Elimination of the Short Slate Rule We are proposing revisions to Rule 14a-4(d) to eliminate the short slate rule for registrants other than funds and BDCs. 73 The short slate rule was adopted to mitigate concerns about a dissident's inability to allow shareholders to vote on its proxy card for all board seats up for election when soliciting in support of a partial slate of nominees. 74 Proposed Rule 14a-4(d)(1)(i) would permit a proxy to confer authority to vote for a nominee named on a proxy card if that nominee consented to being named in any proxy statement for the applicable meeting. Additionally, each party in a contested election would be required to include on its proxy card all candidates that have consented to being named on a proxy card for the applicable meeting. 75 Thus, if a dissident solicits proxies in support of a partial slate of nominees, our proposed rules would permit shareholders to vote for any combination of registrant and dissident nominees in order to cast a vote for a full slate of directors. 73 See supra note 65. 74 See Short Slate Rule Adopting Release, at 48288. 75 See infra Section II.B for a discussion of proposed Rule 14a-19. As a result, the short slate rule would no longer be necessary to accomplish its intended purpose. While the elimination of the short slate rule would take away the ability of a dissident to select the registrant nominees it prefers to round out its slate of nominees, the dissident still would have the ability to include recommendations for its preferred registrant nominees in its proxy materials. If the short slate rule is eliminated and mandatory universal proxy is adopted, shareholders would be able to select their preferred combination of nominees, including the registrant nominees, if any, when voting for directors using the dissident's proxy card. Request for Comment 7. If we change the consent required of a bona fide nominee, as proposed, is there any reason the short slate rule, or a modified version of the rule, should be retained? If so, what circumstances would warrant the continued use of the short slate rule and should it be modified to enhance its utility? 8. While the short slate rule permits a dissident seeking to elect a minority of the board to solicit authority to vote for some of the registrant's nominees on its proxy card, the dissident is only permitted to include on its proxy card the names of the registrant's nominees for whom it will not vote. Should we consider modifying the short slate rule to enable a dissident soliciting in support of a slate that would constitute a minority of the board to round out its slate by soliciting authority to vote for the dissident's choice of registrant nominees whose names are included on the dissident's card instead of the current system of soliciting authority to vote for registrant nominees who are not named? 9. Should we retain the short slate rule but modify it to make it available to dissidents soliciting authority to vote for a slate of nominees that, if elected, would constitute a majority of the board of directors? 10. Should we retain the short slate rule but modify it to make it available to registrants as well as dissidents? A registrant can nominate less than the total number of directors up for election to ensure that some dissident nominees are elected. Should we make a modified short slate rule available to the registrant in that scenario? 11. Should we consider any modified version of the short slate rule instead of a universal proxy system? Would a modified version of the short slate rule further the goal of effectively facilitating shareholders' ability to vote by proxy for director nominees as they could vote in person at a meeting? Please explain. 3. Solicitation Without a Competing Slate While the impetus for proposing amendments to Rule 14a-4(d), as described above, is to address situations in which there are competing slates for the board of directors, we note that the proposed amendments would affect the conduct of proxy contests even when a proponent is not nominating its own candidates for the board of directors. A proponent might, for example, seek authority to vote “against” one or more (but fewer than all) of the registrant nominees. In that situation, the bona fide nominee rule currently would prevent the proponent from naming, and soliciting votes “for,” any of the other registrant nominees because they have not consented to being named in the proponent's proxy statement. Furthermore, the short slate rule is not available for a proponent's solicitation of authority to vote “against” one or more of the registrant nominees. 76 76 While the short slate rule currently permits a proponent to seek authority to vote for registrant nominees when the proponent is nominating at least one candidate (so long as the proponent's candidate or candidates would constitute a minority of the board of directors), the rule does not address a situation where a proponent is seeking votes solely with respect to registrant nominees. See Rule 14a-4(d)(4). Another situation in which a proponent might seek to solicit proxies without nominating its own candidates would be where a proponent wants to solicit votes for its own proposal that is unrelated to director elections ( e.g., a corporate governance proposal). While a proponent in that case might want to include the registrant nominees on its proxy card so that shareholders supporting its proposal would be able to use the proponent's proxy card also to vote in the election of directors, the bona fide nominee rule currently would not permit the proponent to include the names of registrant nominees and solicit votes “for” those individuals. 77 77 While the proponent currently could include a proposal for the election of all of the registrant's nominees as a group without naming such nominees, the proponent still would have limited options in the way it could present this group on its proxy card without running afoul of the bona fide nominee rule ( e.g., the proponent would not have the ability to present individual voting boxes for each of the registrant's nominees). In cases such as those described above, the proposed amendments to Rule 14a-4(d) would permit a proponent to solicit authority to vote on some or all of the named registrant nominees by providing that a person is a bona fide nominee as long as he or she consents to being named in “a” proxy statement for the next meeting at which directors are to be elected. We are not proposing to require proponents conducting a solicitation without a competing slate to include the names of all registrant nominees on their proxy cards. These campaigns do not implicate our rationale for requiring the use of universal proxy cards in contested elections since shareholders can fully exercise their vote for the director nominees they prefer by using the registrant's proxy card. In addition, we believe that permitting proponents to solicit authority to vote on some, but not all, of the registrant nominees is appropriate because such campaigns do not implicate concerns that have been raised about allowing the parties in an election contest to include the other party's nominees on their proxy card. Commenters on the short slate rule proposed in 1992 raised concerns that modification of the bona fide nominee rule to permit inclusion of registrant nominees on a dissident's proxy card would force a registrant nominee to lend his or her name, stature, or reputation to the election campaign of a person with whom he or she does not choose to run; create an implication that the registrant nominees support a proponent's solicitation and would serve alongside proponent nominees if elected; and potentially confuse shareholders. 78 These concerns do not arise in the context of solicitations without a competing slate. 79 In this situation, there is no solicitation that will result in a registrant nominee serving alongside proponent nominees and shareholders can fully exercise their vote for the director nominees that they prefer by using the registrant's proxy card. We also do not believe that there is a potential for shareholder confusion in this situation because there is only one set of names for persons nominated to the board of directors; however, we solicit comment on this point below. 80 78 See Short Slate Rule Adopting Release, at 48288. 79 But see supra Section II.A.1 and infra Section II.B.6 for a discussion of these concerns in the context of contested elections that would trigger proposed Rule 14a-19 and mandatory universal proxies. 80 We also believe that these concerns could be less acute with the implementation of our proposed rules for mandatory use of universal proxies in all contested elections. If mandatory use of universal proxies is implemented, we believe it would be increasingly unlikely that shareholders could reasonably draw any implication that a registrant nominee supports a proponent's campaign with respect to the proponent's non-election proposal simply because the names of registrant nominees appear on the proponent's proxy card. Request for Comment 12. The proposed amendments to the bona fide nominee definition would permit proponents to include the names of some or all of the registrant's nominees on its proxy card even when the proponent is not nominating its own candidates. Should this be permitted? Why or why not? Are there additional or different changes that we should make to our rules that apply to a situation in which the proponent is not nominating its own candidates? For example, should we instead require those proponents to include the names of all registrant nominees? Why or why not? 13. Would the inclusion of registrant nominees on a proponent's proxy card when the proponent is not nominating its own candidates imply that the registrant nominees support the proponent's proposal? Would the inclusion cause shareholder confusion? If so, does the ability to provide disclosure in a party's soliciting materials sufficiently address this implication or possible confusion? Are there additional disclosures or are there other changes that would avoid or mitigate this implication or confusion? Please provide specific suggestions. B. Use of Universal Proxies To update our proxy system to better facilitate shareholders' ability to vote for their choice of nominees, we also are proposing amendments to the federal proxy rules that would require each soliciting party in a contested election to distribute a universal proxy that includes the names of all candidates for election to the board of directors. The dissident in a contested election would be required to provide notice to the registrant of its intent to solicit proxies in support of director nominees, other than the registrant's nominees, and the names of those nominees, no later than 60 calendar days prior to the anniversary of the previous year's annual meeting date. 81 Similarly, the registrant in a contested election would be required to notify the dissident of the names of the registrant's nominees no later than 50 calendar days prior to the anniversary of the previous year's annual meeting date. 82 81 See proposed Rule 14a-19(a) and (b); infra Section II.B.2. In order to make shareholders aware of the notice deadline, we also are proposing to require registrants to disclose in their proxy statement the deadline for providing such notice for the registrant's next annual meeting. See proposed Rule 14a-5(e)(4). 82 See proposed Rule 14a-19(d); infra Section II.B.3. In a contested election, after the dissident provides the above notice, it would be required to solicit the holders of shares representing at least a majority of the voting power of shares entitled to vote on the election of directors. 83 We are additionally proposing that the dissident be required to file its definitive proxy statement with the Commission by the later of 25 calendar days prior to the meeting date or five calendar days after the date the registrant files its definitive proxy statement. 84 To ensure that each party's nominees are presented in a clear and impartial manner, the proposed rules also would impose specific presentation and formatting requirements for all director election proposals on universal proxy cards. 85 83 See proposed Rule 14a-19(a)(3); infra Section II.B.4. 84 See proposed Rule 14a-19(a)(2); infra Section II.B.5. 85 See proposed Rule 14a-19(e); infra Section II.B.6. 1. Mandatory Use of Universal Proxies in Non-Exempt Solicitations in Contested Elections We are proposing new Rule 14a-19(e) to require that proxy cards used in a non-exempt solicitation in connection with a contested election include the names of all duly nominated candidates for election to the board. 86 Rule 14a-4(b)(2) currently requires that a form of proxy providing for the election of directors shall set forth the names of the persons nominated for election as directors, including certain shareholder nominees. Proposed Rule 14a-19(e), in conjunction with the proposed change to the consent required of a bona fide nominee discussed above, would require proxy cards used in contested elections to include the names of all nominees of the registrant, certain shareholders, and any dissident that has complied with proposed Rule 14a-19. We believe this change would better enable shareholders to vote for their preferred combination of nominees in a contested election of directors and would allow the proxy process to more closely replicate the voting choices available at a shareholder meeting. 86 Proposed Rule 14a-19(e) would require that the proxy card include the names of all persons nominated for election by the registrant, any person or group of persons that has complied with Rule 14a-19, and any person whose nomination by a shareholder or shareholder group satisfies the requirements of an applicable state or foreign law provision or a registrant's governing documents as they relate to the inclusion of shareholder director nominees in the registrant's proxy materials. a. Mandatory Use of Universal Proxies We considered whether to propose the mandatory use of universal proxies or to allow each party to decide whether to use a universal proxy. We have received divergent recommendations on this issue and, as discussed below, in order to more effectively address the problem of shareholders' inability to vote by proxy for the combination of nominees of their choice, we have decided to propose a mandatory rule. The Rulemaking Petition recommended that the Commission require all duly nominated candidates be named in the universal proxy, noting that such requirement would ensure shareholders' ability to use either party's proxy card to vote for the combination of board candidates they prefer. The Rulemaking Petition also contended that simply repealing the consent required of a bona fide nominee might encourage parties to circulate semi-universal proxy cards featuring more, but not all, candidates. 87 87 See Rulemaking Petition. In contrast, the IAC recommended a rule in which proxy contestants would have the option (but not the obligation) to use a universal proxy, 88 allowing one or both parties in an election contest to choose whether to use a universal proxy card that includes the names of the other party's nominees. The IAC noted that such a rule could allow a party to decide which bona fide nominees to include on its proxy card to accompany its own nominees, particularly when parties found all or certain individuals on a competing slate to be particularly objectionable. The approach recommended by the IAC could also give the parties in an election contest latitude to use a universal proxy card if and when it suits their strategic needs. 89 88 See IAC Recommendation. 89 For example, if the registrant is concerned about a possible split recommendation from a proxy advisory firm, the registrant may opt to use a universal proxy to avoid the unintended consequences of a split vote recommendation. If a dissident is soliciting proxies in support of a full slate of nominees, a proxy advisory firm may decide that change is necessary on the board of directors, but not a change in the majority of directors, and recommend a split vote on the dissident's proxy card ( e.g., vote “for” three of the dissident nominees and “withhold” on six). Since shareholders following this recommendation would use the dissident proxy card to cast their votes on the election of directors, this could result in more dissident nominees being elected, a consequence the registrant might seek to avoid by opting to use a universal proxy. Additionally, if a registrant is at risk of losing a majority of the seats on the board of directors, the registrant might opt to use a universal proxy to garner more votes for the registrant's nominees than would have been achieved if the shareholders were forced to choose between voting for the dissident's slate on the dissident's proxy card or the registrant's slate on the registrant's proxy card. We are proposing a mandatory system for universal proxies in contested elections because it best replicates how a shareholder could vote by attending a shareholder meeting in person and leaves all discretion in the voting decision to the shareholder. Requiring universal proxies in contested elections would permit shareholders to select the combination of nominees that best aligns with their interests instead of limiting shareholders' choice to a slate of candidates chosen by a party in the contest. A mandatory system for universal proxies also would mitigate potential shareholder confusion and logistical issues that may result from allowing the parties in a contested election to choose whether to use a universal proxy. For example, under the proposed mandatory system, shareholders would receive proxy cards that include the names of all nominees rather than proxy cards with only some of the nominees from which to choose. The inclusion of all nominees on all proxy cards should reduce the confusion of competing and differing cards and mitigate concerns that including one party's nominees on an opposing party's card could imply that those nominees support the opposing party. Further, a mandatory system would reduce the likelihood that the proxy card would be used as a tactical tool in the proxy contest. In contrast, under an optional system, if a soliciting person believed that it could receive more support for its slate by adding just one or two nominees from the other slate, it might solicit with a proxy card that only included those nominees. Similarly, a soliciting person under an optional system might decide not to use a universal card if it perceived an advantage in forcing a choice between the two competing slates. Both of these situations would limit shareholder voting options, which would be counter to the intended purpose of this rulemaking to facilitate shareholders' ability to vote for their preferred combination of director nominees as they could in person at a meeting. The mandatory system we are proposing would apply uniformly to all soliciting parties and to all election contests 90 to prevent soliciting parties from selectively using universal proxies for tactical purposes. 90 As discussed in Section II.D infra, the amendments we are proposing today to implement a mandatory universal proxy system would not apply to funds or BDCs. Shareholders seeking to have director nominees included in a registrant's proxy materials pursuant to state or foreign law provisions or a registrant's governing documents, such as the “proxy access” bylaws that some registrants have recently adopted, 91 must comply with those requirements. Nominees included in a registrant's proxy materials in this way are commonly referred to as “proxy access nominees.” Because a mandatory universal proxy system may provide a less costly means for shareholders or their nominees to gain a form of access to a registrant's proxy card, some may view a universal proxy system as a substitute for proxy access bylaw provisions. However, we believe that the proposed mandatory universal proxy system differs in significant respects from proxy access because it would not provide shareholders or their nominees with access to a registrant's proxy materials in the same manner and extent provided by proxy access bylaws. 91 See Sullivan & Cromwell LLP, Proxy Access: Developments in Market Practice, at 2 (Apr. 8, 2016), available at https://www.sullcrom.com/siteFiles/Publications/SC_Publication_Proxy_Access__Developments_in_Market_Practice.pdf (“S&C April Report”) (stating that 200 public companies had adopted some form of proxy access since the 2015 proxy season, compared to 15 companies prior to 2015). Proxy access bylaws commonly require the registrant to include in its proxy statement the names of the nominating shareholder's nominees, disclosure required by Schedule 14A about the nominating shareholder and its nominees, and a statement provided by the nominating shareholder in support of its nominees' election to the board. 92 Nominating shareholders complying with proxy access bylaws are not required to prepare and file their own preliminary and definitive proxy statements, disseminate any proxy material or solicit any shareholders, while information about their nominees, including in many cases the nominating shareholder's own statement about its nominees, is included in the registrant's proxy materials and provided to shareholders along with the registrant's proxy card listing the names of the nominating shareholder's nominees. 92 See, e.g., S&C April Report, at A-1 to A-8 (including a sample form of proxy access bylaw that reflects recent developments in market practice). If a registrant is required to include a proxy access nominee in its proxy materials pursuant to a proxy access bylaw, Item 7(f) of Schedule 14A would require the registrant to include in its proxy statement the disclosure required from the nominating shareholder under Item 6 of Schedule 14N about the nominating shareholder and the proxy access nominee. Nominating shareholders complying with proxy access bylaws must provide notice to the registrant on a Schedule 14N of their intent to have a nominee included in the registrant's proxy materials pursuant to the registrant's proxy access bylaw by the deadline set forth in Rule 14a-18 and file that notice with the Commission on the date first transmitted to the registrant. 17 CFR 240.14a-18. In contrast, the proposed mandatory universal proxy system would require only that the registrant include the names of the dissident nominees on its proxy card. 93 The registrant's proxy card would clearly distinguish those nominees from the registrant's nominees. 94 No other disclosure about the dissident's nominees would be required by the registrant. For example, the registrant's proxy materials would not be required to include detailed information about the dissident or its nominees. Nor would the registrant be required to include any statements by the dissident in support of its nominees' election. Rather, the registrant would only be required to include a statement in its proxy statement directing shareholders to refer to the dissident's proxy statement for information required by Schedule 14A about the dissident's nominees. 95 The dissident would be wholly responsible for disseminating information about its nominees to shareholders and soliciting proxies in support of its nominees. As a result, the dissident would need to undertake the time, effort and cost of preparing and filing a preliminary proxy statement, completing the staff review process, preparing and filing a definitive proxy statement by the deadline imposed by proposed Rule 14a-19, 96 and soliciting the holders of shares representing at least a majority of the voting power of shares entitled to vote on the election of directors. 97 Thus, the dissident's “access” in the proposed mandatory universal proxy system would be limited to the listing of nominee names on the proxy card and would be accompanied by the obligation to solicit on behalf of its own nominees. 93 See proposed Rule 14a-19(e)(1); infra Section II.B.6. 94 See proposed Rule 14a-19(e)(3); infra Section II.B.6. 95 See proposed Item 7(h) of Regulation 14A. As discussed in more detail in Section II.B.5.b infra, to provide shareholders with access to information about all nominees when they receive a universal proxy card, we are proposing a requirement that each party in a contested election refer shareholders to the other party's proxy statement for information about the other party's nominees and explain that shareholders can access the other party's proxy statement for free on the Commission's Web site. Registrants subject to election contests today routinely refer to the dissident, the dissident's nominees and the dissident's proxy materials in their proxy statements likely on the basis that the existence of alternative nominees is a material fact. See 17 CFR 240.14a-9. For example, based on a review of 72 proxy contests that the staff identified as involving competing slates of director nominees in calendar years 2014 and 2015, see infra note 115, the staff found that in 68 contests (or 94 percent of the contests), registrants identified the dissident in their proxy statements. As for the four contests where the registrants did not identify the dissidents, either the parties reached a settlement before the annual meeting or the registrant did not file a proxy statement for the annual meeting because it was acquired in an intervening transaction. As a result, we do not expect the proposed requirement to result in meaningfully new disclosure for registrants. 96 See proposed Rule 14a-19(a)(2); infra Section II.B.5.a. 97 See proposed Rule 14a-19(a)(3); infra Section II.B.4. Request for Comment 14. Should we mandate the use of universal proxies in contested elections, as proposed? Does such a requirement more effectively replicate in-person attendance at a shareholder meeting than the current proxy system? Are there additional changes we should make to our proxy rules to facilitate shareholders' ability to vote by proxy in the same manner they could vote in person at a meeting? 15. Our proposal applies to all companies with a class of securities registered under Section 12 of the Exchange Act but would not apply to funds and BDCs. Should we exclude any other types of registrants, such as smaller reporting companies and/or emerging growth companies? Why or why not? 16. Would mandatory use of universal proxies impose additional costs on dissidents and/or registrants? If yes, please identify the costs and quantify them to the extent practicable. Would some of these costs be avoided under an optional system? If so, which ones and why? Would some of the benefits attributable to a mandatory system be reduced or eliminated under an optional system? If so, which ones and why? 17. Would a mandatory universal proxy system result in investor confusion, such as confusion regarding which party a nominee supports? Would the proposed requirement to clearly distinguish between registrant and dissident nominees on the proxy card avoid or mitigate that confusion? Are there additional rule changes that we should make in this regard? 18. Should we make the use of universal proxies optional rather than mandatory? Why or why not? Would an optional system further the goal of effectively facilitating shareholders' ability to vote by proxy for director nominees as they could vote in person at a meeting? If universal proxies were optional, we are interested in the views of both registrants and dissidents as to how frequently they would choose to use a universal proxy and why. Under what circumstances would one party choose to include the names of an opponent's nominees? Under an optional system, if one party opts to use a universal proxy, is the other party likely to follow suit? Would allowing for optional use of universal proxies result in confusion? 19. If we were to adopt an optional system, should we require a party opting to use a universal proxy to include all of the other party's nominees on its card or should we allow each party to select which nominees to include? If we do not require all nominees to be listed, would shareholders be confused by the contrasting proxy cards? Would such a system lead to the parties utilizing universal proxies only when it offers them a strategic advantage? 20. If we were to adopt an optional system, should both parties be permitted to decide whether to use a universal proxy card? If so, should this decision be made at the beginning of the contest before any proxy cards are distributed, or should a party be able to opt to use a universal proxy in the midst of a contest after it or the other party has distributed a conventional (non-universal) card? What, if any, of the other proposed amendments should we maintain in an optional system? For example, should we retain the proposed notice requirements and the dissident's definitive proxy statement filing deadline for universal proxy or some other variation of these proposed requirements? Should we retain the proposed amendments to the form of the universal proxy card? 21. Should we instead adopt a hybrid system in which the use of universal proxies in contested elections is mandatory for one party but optional for the other? Would such a system effectively facilitate shareholders' ability to vote by proxy for director nominees as they could vote in person at a meeting? Under a hybrid system, which party should be required to use the universal proxy? For example, should we require the use of a universal proxy by dissidents but make it optional for registrants? This type of hybrid system would permit shareholders to select their preferred combination of dissident and registrant nominees on the dissident's proxy card while still requiring a dissident to conduct an independent solicitation. However, only those shareholders that a dissident elects to solicit would receive a universal proxy unless the registrant opted to use a universal proxy. Should we require the party using the universal proxy in a hybrid system to furnish a proxy statement to all shareholders to ensure that every shareholder receives a universal proxy and can vote for their preferred combination of nominees as they could if attending the shareholder meeting in person? In a hybrid system, would it be necessary or helpful to require dissidents to provide notice of the names of their nominees to registrants as we have proposed for the mandatory universal proxy system? What other requirements would be needed in a hybrid system? Under a hybrid system in which one party is required to use a universal proxy, is the other party likely to follow suit and elect to provide a universal proxy as well? Would a hybrid system provide advantages to one party or the other in an election contest? If so, which party would it benefit and why? 22. If we do not adopt a mandatory system for universal proxies, how else could we enable shareholders to vote by proxy for their choice of nominees in a contested election? 23. Would mandatory use of universal proxies increase the frequency of contested elections? Why or why not? Would the optional use of universal proxies have a similar impact? Why or why not? 24. Would shareholders use mandatory universal proxy instead of a registrant's proxy access bylaw? Why or why not? What would be the implications of such use and should any additional rule changes be made in this regard? b. Use in Contested Elections We are proposing to apply the requirement to use universal proxies to all non-exempt solicitations in connection with contested elections where a person or group of persons is soliciting proxies in support of director nominees other than the registrant's nominees. 98 We are proposing this approach because our rationale for requiring the use of universal proxies—that the proxy voting process should mirror as much as possible the vote that a shareholder could make by attending the meeting and voting in person—applies equally to all types of contested elections. We believe our rules should permit shareholders to select the combination of nominees that best aligns with their interests in any contested election, whether a dissident is soliciting proxies in support of a number of nominees that would constitute a minority or a majority of the board of directors. 98 As discussed in Section II.D infra, the amendments we are proposing today to implement a mandatory universal proxy system would not apply to funds or BDCs. We recognize that there are differing views on the types of contests that warrant the use of universal proxies. For example, the IAC recommended the use of universal proxies only in connection with short slate director nominations, while the Rulemaking Petition recommended the use of universal proxies in all contested elections. 99 We considered limiting the requirement to use universal proxies to contests where the election could not result in a change in a majority of the board of directors. We are aware that where a contest results in a change in a majority or all of the directors, there may be consequences beyond the resulting change in the board of directors. These may include triggering provisions in debt covenants and other material contracts and agreements. We also recognize that those who believe the use of universal proxies would increase the success of dissidents may contend that requiring universal proxies in all contests (including contests in which the election of a dissident's nominees would result in a change in a majority of the directors) would likely increase the occurrence of these change-in-control consequences. However, we believe these change-in-control implications and any associated risks are better addressed through disclosure in the proxy statement (as is currently the case) rather than through federal proxy rules applicable to the solicitation process. 100 99 See IAC Recommendation; Rulemaking Petition. 100 We are unaware of any empirical studies providing direct evidence that requiring universal proxy cards would increase the incidence of the change-in-control consequences discussed here. The mandatory universal proxy system, as proposed, would not apply to an election of directors involving only registrant and proxy access nominees. Where proxy access nominees are included on the registrant's proxy card and there is no competing slate of dissident nominees, shareholders will already have access to a proxy that reflects all of their voting options for the election of directors. Therefore, we are not proposing that the requirements of the proposed universal proxy system would apply to such nominating shareholders. 101 101 We are, however, proposing to require that the form of universal proxy to be used by registrants and dissidents also include any proxy access nominees. See proposed Rule 14a-19(e); infra Section II.B.6. We are proposing to apply the requirement to use a universal proxy only to solicitations that involve a contested election. In solicitations that do not involve a contested election, such as a “vote no” campaign ( i.e., where a soliciting person is only soliciting “withhold” or “against” votes with respect to one or more of the registrant's nominees) or where a shareholder is only soliciting proxies in support of a shareholder proposal, there are no alternative director nominees. Those solicitations would not raise the same concerns that mandatory universal proxy is intended to address because the registrant's proxy card already provides shareholders with the ability to select their choice of nominees from all director candidates. Where the solicitation does not involve a contested election, a proponent's form of proxy would be governed by Rule 14a-4(b)(2), as it is today. We note, however, that Rule 14a-4(b)(2), in conjunction with the proposed change to the consent required of a bona fide nominee discussed above, 102 would allow a proponent to include the names of some or all registrant nominees on the proponent's proxy card, which is not explicitly contemplated by the current proxy rules. 102 See proposed Rule 14a-4(d)(1)(i). Similarly, the mandatory universal proxy system, as proposed, would not apply to a dissident's consent solicitation 103 to remove existing registrant directors and replace them with dissident nominees. 104 We do not believe that universal proxy is needed for consent solicitations because a registrant contesting such a solicitation typically does so by soliciting revocations of the consents and not by presenting a competing slate. 105 These solicitations, although related to the election of directors, do not raise the same concerns that mandatory universal proxy is intended to address because shareholders would have access to a consent card that reflects all of their voting options for the removal and appointment of directors to fill the vacancies, if any, created by the removal of directors. 103 A consent solicitation involves the solicitation of written consents from shareholders to take action without a meeting. 104 See proposed Rule 14a-19(g). 105 We acknowledge that a registrant could solicit consents for a competing slate of nominees ( e.g., the incumbent directors) when soliciting for revocations of consents in the event the dissident's removal proposal is successful. Based on the staff's observations, registrants rarely, if ever, do so. Request for Comment 25. Should we require the use of universal proxies in all contested elections, as proposed? Should we instead limit the use of universal proxies to contested elections in which a dissident is soliciting proxies in support of a slate that, if elected, would constitute a minority of the board of directors? If so, why should we differentiate between such contests? Should we instead limit the use of universal proxies in a different way? 26. As proposed, a universal proxy would be permitted, but not required, for other types of solicitations. Should we instead require the use of a universal proxy in solicitations that do not involve a contested election, such as a “vote no” campaign or where a shareholder is only soliciting proxies in support of a shareholder proposal? Why or why not? 27. Should we expressly exclude consent solicitations from the application of Rule 14a-19, as proposed? Are there any reasons why a universal proxy requirement should apply to consent solicitations? If so, please describe. c. Exempt Solicitations We are proposing that universal proxies be required only in non-exempt solicitations. Current Rule 14a-2(b) provides that certain provisions of Regulation 14A, including Rules 14a-3, 14a-4, 14a-5 and 14a-6, 106 do not apply to the exempt solicitations described in Rule 14a-2(b). 107 Our proposed amendments would revise Rule 14a-2(b) to specify that the requirements of proposed Rule 14a-19 similarly do not apply to exempt solicitations under Rule 14a-2(b). 106 Rules 14a-3 through 14a-6 set forth the filing, delivery, information and presentation requirements for the proxy statement and form of proxy for solicitations subject to Regulation 14A. 17 CFR 240.14a-3—14a-6. 107 Rule 14a-2(b) exempts certain solicitations from most of the proxy rules other than the antifraud provisions. 17 CFR 240.14a-2(b). For example, Rule 14a-2(b)(1) exempts solicitations by any person who does not directly or indirectly seek authority to act as proxy and does not furnish or request a form of revocation, abstention, consent or revocation. Rule 14a-2(b)(2) exempts solicitations, other than on behalf of the registrant, where the aggregate number of persons solicited is not more than ten. These solicitations are exempted from the proxy rules because “the best protection for shareholders and the marketplace is to identify those classes of solicitations that warrant application of the proxy statement disclosure requirement, and to foster the free and unrestrained expression of views by all other parties.” See Short Slate Rule Adopting Release, at 48280. We propose that universal proxies be required only in contested elections where the dissident conducts a non-exempt solicitation that is subject to Rule 14a-12(c) 108 through the use of a proxy statement and proxy card pursuant to Regulation 14A. Thus, the proposed amendments would not apply to solicitations in which a person does not seek authority to act as proxy and does not furnish or request a form of revocation, abstention, consent or revocation, which are exempt under Rule 14a-2(b)(1). Similarly, the proposed amendments would not apply to solicitations in which the person is not acting on behalf of the registrant and the aggregate number of persons solicited is not more than ten, which are exempt under Rule 14a-2(b)(2). 108 Rule 14a-12(c) applies to “[s]olicitations by any person or group of persons for the purpose of opposing a solicitation subject to this regulation by any other person or group of persons with respect to the election or removal of directors at any annual or special meeting of security holders.” We are not proposing to require universal proxies in exempt solicitations because we do not believe exempt solicitations are an appropriate context for the universal proxy process. In a non-exempt solicitation in connection with a contested election, the parties may expend considerable time and effort and incur significant costs. This includes filing a proxy statement with the Commission that contains all required information about the director nominees and obtaining consent of the nominees to be named in the proxy statement and to serve if elected. In contrast, soliciting persons conducting exempt solicitations are not required to file their proxy materials with the Commission and may expend little time and effort and incur limited costs. Accordingly, if we were to mandate the use of universal proxies when a dissident is conducting an exempt solicitation, the dissident could potentially capitalize on the registrant's solicitation while expending very little time and effort and incurring no costs itself. Moreover, shareholders would not be assured of having the benefit of the robust disclosure required under Regulation 14A, including disclosure about the dissident's nominees, when casting their vote using a universal proxy. Request for Comment 28. Should we limit the requirement to use universal proxies to non-exempt solicitations, as proposed? Should we instead require that universal proxies also be used in some or all exempt solicitations? For example, should universal proxies be required in contested elections where a dissident is conducting an exempt solicitation under Rule 14a-2(b)(2)? If so, should the proposed rules be applied differently in the context of an exempt solicitation, such as requiring the dissident to use a universal proxy in its exempt solicitation while giving the registrant the option to use a universal proxy in its non-exempt solicitation? 2. Dissident's Notice of Intent To Solicit Proxies in Support of Nominees Other Than the Registrant's Nominees We are proposing to require the dissident to provide notice to the registrant of its intent to solicit proxies in support of director nominees other than the registrant's nominees. 109 We believe that establishing a notice requirement is necessary to provide a definitive date by which the parties in a contested election will know that use of universal proxies has been triggered. For that reason, we are proposing a new notice requirement that would apply to any dissident who intends to conduct a non-exempt solicitation and solicit proxies in support of director nominees other than the registrant's nominees using its own proxy card. 109 See proposed Rule 14a-19(a) and (b). Proposed Rule 14a-19 would require a dissident to provide the registrant with the names of the nominees for whom it intends to solicit proxies no later than 60 calendar days prior to the anniversary of the previous year's annual meeting date. 110 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, proposed Rule 14a-19 would require that the dissident provide notice by the later of 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. Proposed Rule 14a-19 would also require a dissident to indicate its intent to comply with the minimum solicitation threshold in proposed Rule 14a-19 111 by including in this notice a statement that it intends to solicit the holders of shares representing at least a majority of the voting power of shares entitled to vote on the election of directors. 112 This statement would also serve to distinguish the notice under Rule 14a-19 from advance notice provided pursuant to the registrant's governing documents and to put the registrant on notice that the dissident intends to comply with the requirements of Rule 14a-19. Proposed Rule 14a-19 would not require a dissident to provide this notice to the registrant if the information required in the notice has been provided in a preliminary or definitive proxy statement filed by the dissident by the deadline imposed by proposed Rule 14a-19. Proposed Rule 14a-19 also would not require a dissident to file the notice with the Commission. 110 The proposed rule also would require that a dissident promptly notify the registrant if any change occurs with respect to its intent to solicit proxies in support of its director nominees. See proposed Rule 14a-19(c). 111 See infra Section II.B.4 for a discussion of the minimum solicitation requirement in proposed Rule 14a-19. 112 We are also proposing to require similar disclosure in a dissident's proxy statement, which would be subject to the antifraud provisions in Rule 14a-9. See infra Section II.B.4. We are proposing 60 calendar days prior to the anniversary of the previous year's annual meeting date as the notice deadline because we believe it provides a definitive date far enough in advance of the meeting to give the parties sufficient time after the notice is provided to prepare a proxy statement and form of proxy in accordance with the universal proxy requirements. 113 In addition, we believe 60 calendar days prior to the anniversary of the previous year's annual meeting date is not too far in advance of the meeting so as to impose a significant additional burden for most dissidents. Our proposed deadline for the notice is 30 calendar days later than the deadline found in most advance notice bylaws, which typically require notice to be delivered no earlier than 120 days and no later than 90 days prior to the first anniversary of the prior year's annual meeting. 114 In fact, based on a review of the filings for the 72 contested elections initiated in 2014 and 2015, we estimate that dissidents provided some form of notice of their intent to nominate candidates for election to the board of directors 60 or more calendar days prior to the shareholder meeting date in 89 percent of the contests. 115 113 For many registrants, the record date for determining shareholders entitled to notice of the meeting cannot be more than 60 days before the date of such meeting. See, e.g., Del. Code Ann. tit. 8, § 213. Thus, as a practical matter, registrants very rarely file their definitive proxy statement prior to such date. 114 See Sullivan & Cromwell LLP, Proxy Access Bylaw Developments and Trends, at 4 (Aug. 18, 2015), available at https://www.sullcrom.com/siteFiles/Publications/SC_Publication_Proxy_Access_Bylaw_Developments_and_Trends.pdf (“S&C August Report”); Wachtell, Lipton, Rosen & Katz, Nominating and Corporate Governance Committee Guide, at 22 (2015), available at http://www.wlrk.com/files/2015/NominatingandCorporateGovernanceCommitteeGuide2015.pdf. 115 The sample (“contested elections sample”) is based on staff analysis of EDGAR filings for election contests with preliminary proxy statements filed in calendar years 2014 and 2015 other than election contests involving funds or BDCs. Staff has identified 72 proxy contests involving competing slates of director nominees during this time period. For calculations in relation to the meeting date, the data is based on 70 out of 72 identified proxy contests since the registrant did not hold an annual meeting for the election of directors in two cases. For purposes of determining the earliest date the dissident provided some form of notice of its intent to nominate candidates for election to the board, staff considered disclosure in the dissident's definitive additional soliciting materials filed under Rule 14a-12, disclosure in amendments to the dissident's Schedule 13D and disclosure in both the registrant's and dissident's proxy statements. A dissident's obligation to comply with the notice requirement under proposed Rule 14a-19 would be in addition to its obligation to comply with any applicable advance notice provision in the registrant's governing documents. In most cases, we do not anticipate that proposed Rule 14a-19 would impose a meaningful additional burden on a dissident since a dissident would generally have provided the names of its nominees by the proposed deadline to comply with a typical advance notice provision in a registrant's governing documents. 116 While we acknowledge that proposed Rule 14a-19 would impose a notice requirement even in the case of registrants that do not have an advance notice provision in their governing documents, we believe the requirement is necessary so those registrants receive notice of the names of a dissident's nominees in time to prepare a universal proxy card and file it with their preliminary proxy statement. 116 According to a law firm report, 95 percent of the S&P 500 and 90 percent of the Russell 3000 had advance notice provisions at 2014 year-end. See WilmerHale, 2015 M&A Report, at 5 (2015), available at https://www.wilmerhale.com/uploadedFiles/Shared_Content/Editorial/Publications/Documents/2015-WilmerHale-MA-Report.pdf ( citing www.SharkRepellent.net ). In most instances, 117 Rule 14a-19 would effectively preclude a dissident from launching an election contest less than 60 calendar days prior to the annual meeting even if the registrant's governing documents do not require advance notice by that date. 118 We believe such late-breaking contests are infrequent 119 and usually precluded by the prevalence of advance notice requirements in registrants' governing documents. Proposed Rule 14a-19 would not, however, preclude dissidents who are unable to meet the notice deadline from taking other actions to attempt to effectuate changes to the board, such as initiating a “vote no” campaign, conducting an exempt solicitation, or calling a special meeting (to the extent permitted under the registrant's bylaws) to remove existing directors and appoint their own nominees to fill the vacancies. 117 Proposed Rule 14a-19 would not operate to preclude a dissident from launching an election contest less than 60 calendar days prior to the annual meeting date if the registrant did not hold an annual meeting during the previous year and announced the date of the upcoming annual meeting fewer than 70 calendar days prior to the meeting date. In that instance, a dissident could launch an election contest at any time prior to the tenth calendar day following the registrant's public announcement of the meeting date ( e.g., if the registrant announced the date of the upcoming annual meeting 65 calendar days prior to the meeting date, the dissident could launch an election contest as late as the 55th calendar day prior to the meeting date). See proposed Rule 14a-19(b)(1). 118 Proposed Rule 14a-19 would also effectively preclude a dissident from launching an election contest less than 60 calendar days prior to the annual meeting even if the registrant's board of directors has waived the advance notice deadline in the registrant's governing documents. 119 Based on a review of the contested elections sample, see supra note 115, the staff found that dissidents provided notice of their intent to nominate director candidates fewer than 60 calendar days prior to the shareholder meeting date in 11 percent of the contests. It is possible that a dissident will provide notice of the names of its nominees under proposed Rule 14a-19 and later change its nominees. It is also possible that a dissident will provide the notice required under proposed Rule 14a-19 but take no further steps in the solicitation of proxies in support of director nominees, or take some additional steps but later change or abandon its solicitation efforts. As proposed, Rule 14a-19 would require a dissident to promptly notify the registrant of any change to the dissident's intent to comply with the minimum solicitation threshold in proposed Rule 14a-19 or with respect to the names of the dissident's nominees. 120 Because a registrant may have disseminated a universal proxy card before discovering that the dissident has abandoned its solicitation, 121 we are proposing to require the registrant to include disclosure in its proxy statement advising shareholders how it intends to treat proxy authority granted in favor of a dissident's nominees in the event the dissident abandons its solicitation or fails to comply with proposed Rule 14a-19. 122 In those instances, the registrant could elect to disseminate a new, non-universal proxy card including only the names of the registrant's nominees. If there is a change in the dissident's nominees after the registrant has disseminated a universal proxy card, the registrant could elect, but would not be required, to disseminate a new universal proxy card reflecting the change in dissident nominees. 120 See proposed Rule 14a-19(c). 121 This could occur because a dissident is required to provide notice of its intent to solicit proxies to the registrant 60 days prior to the anniversary date of the previous year's annual meeting. If a registrant disseminates its proxy statement during the period of time between receiving the dissident's Rule 14a-19 notice and the dissident filing a preliminary proxy statement, a registrant would be required to include the names of the dissident's nominees on a universal proxy card. 122 See proposed Item 21(c) to Schedule 14A. Request for Comment 29. Should we require a dissident to provide notice of its intent to solicit in advance of a shareholder meeting, as proposed? Would this requirement significantly hinder a dissident's ability to initiate a proxy contest? Why or why not? Does proposed Rule 14a-19 create logistical or timing issues not addressed in this release? 30. What percentage of companies with Section 12 registered securities have an advance notice provision in their governing documents today? What percentage of those companies that have an advance notice provision have a deadline of, or a submission window that ends, 90 days, 60 days, or another specified number of days prior to the upcoming annual meeting date or the first anniversary of the prior year's annual meeting? 31. Does the proposed requirement to identify a dissident's nominees 60 days in advance of a meeting sufficiently accommodate the interests of both dissidents and registrants? Should the notice be required more or fewer days in advance? Alternatively, would some other triggering event for filing the notice, such as within five days of the registrant filing its preliminary proxy statement, better provide appropriate notice? Would some other period of time be more appropriate? 32. If a 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, should we require a dissident to provide notice by the later of 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 such meeting is first made by the registrant, as proposed? Should we instead require regi [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2016-26349. Public record. Not legal advice.