As discussed in Section II.B.3 above, the final amendments have
been revised to streamline the requirements and provide proxy voting
advice businesses the flexibility to determine which situations merit
disclosure and the specific details to provide to their clients about
any conflicts of interest identified. This less prescriptive approach
should help alleviate concerns that the new requirement will compel
disclosure of information that may compromise existing safeguards,
result in unduly lengthy disclosures, or harm proxy advice voting
businesses' reputations. In addition, the revised approach may make it
easier for businesses to leverage their existing disclosures to satisfy
the final rule and mitigate concerns that the rule will result in
unnecessary paperwork burdens, while still providing more consistent
information about conflicts of interest.
b. Notice of Proxy Voting Advice and Registrant Response--New Rule 14a-
2(b)(9)(ii)
i. Benefits
    In contrast to the Proposing Release, the final amendments to Rule
14a-2(b)(9) set forth a principles-based approach designed to ensure
that proxy voting advice businesses' clients have access to more
transparent and complete information and benefit from a robust
discussion of views when making voting decisions.\603\ The final
amendments also provide non-exclusive safe harbors that the proxy
voting advice businesses may use to satisfy the principles-based
requirements in Rule 14a-2(b)(9)(ii).
---------------------------------------------------------------------------

    \603\ See supra Section II.C.3.
---------------------------------------------------------------------------

    We believe the final amendments will benefit clients of proxy
voting advice businesses--and thereby ultimately benefit the investors
they serve--by enhancing the overall mix of information available to
those clients as they assess proxy voting advice and make
determinations about how to cast votes. Providing timely notice to
registrants of voting advice will allow registrants to more effectively
determine

whether they wish to respond to the recommendation by publishing
additional soliciting materials and to do so in a timely manner prior
to shareholders casting their votes. Registrants may wish to do so for
a variety of reasons, including, for example, because they have
identified what they perceive to be factual errors or methodological
weaknesses in the proxy voting advice businesses' analysis or because
they have a different or additional perspective with respect to the
recommendation. In either case, clients of proxy voting advice
businesses may benefit from the availability of additional information
upon which to base their voting decision. Registrants may also wish to
respond because they agree with some or all aspects of the analysis. In
that case, that fact also would likely be relevant to and enhance a
client's decision-making. Further, to the extent that proxy voting
advice businesses choose to adopt policies and procedures that permit
them to refine their advice based on any feedback they might receive
from registrants, users of the advice and the investors they serve (if
applicable) could benefit from more reliable and complete voting
advice.
    Ensuring that a proxy voting advice business provides clients with
a mechanism by which they can reasonably be expected to become aware of
any written response by a registrant to the proxy voting advice (i.e.,
additional soliciting materials) will benefit users of the advice--
including any underlying investors--by ensuring that they have ready
and timely access to the registrant's perspective on such advice when
considering how to vote. Clients of proxy voting advice businesses
often must make voting decisions in a compressed time period. Timely
access to registrant responses to the advice would facilitate clients'
evaluation of the voting advice by highlighting disagreement on facts
and data, differences of opinion, or additional perspectives before the
client casts its votes.
    One commenter questioned the benefits to clients of proxy voting
advice businesses from the registrants' ability to review the proxy
voting advice.\604\ According to that commenter, accurate and complete
advice is already being provided by proxy voting advice businesses to
their clients. As we discuss in Section II.B.2 above, and as noted by
several commenters,\605\ some proxy voting advice businesses currently
have internal policies and procedures aimed at enabling feedback from
certain registrants before they issue voting advice. This suggests that
proxy voting advice businesses themselves recognize the potential
benefit of such feedback, which could serve as a bonding mechanism for
these businesses by demonstrating to clients that the proxy voting
advice business believes the advice it provides is based on accurate
information. Even where proxy voting advice businesses currently
provide opportunities for review and feedback, however, these existing
practices may be inadequate to appropriately mitigate the agency costs
associated with use of proxy voting advice. Specifically, it does not
appear that all proxy voting advice businesses currently provide all
registrants with an opportunity to review proxy voting advice.\606\
Under Rule 14a-2(b)(9)(ii), proxy voting advice businesses' policies
and procedures must be reasonably designed to ensure that proxy voting
advice is made available to registrants that are the subject of such
advice in a timely manner prior to or at the same time when such advice
is disseminated to the proxy voting advice businesses' clients and thus
will provide additional registrants with the ability to respond to that
advice (if they so choose) in a timely manner, thereby enhancing the
total mix of information available to proxy voting advice business
clients.
---------------------------------------------------------------------------

    \604\ See letter from ISS.
    \605\ See, e.g., letters from Glass Lewis II; ISS.
    \606\ See supra Section IV.A.
---------------------------------------------------------------------------

    Rule 14a-2(b)(9)(iii) could also yield benefits to the extent that
proxy voting advice businesses' policies and procedures encourage
registrants to file their definitive proxy statements earlier than they
otherwise would. Earlier filing of definitive proxy statements could
benefit investors generally, as they will have more time to review the
materials. As discussed below, earlier filing of these materials also
could help mitigate potential costs for proxy voting advice businesses
stemming from Rule 14a-2(b)(9)(iii). Under the safe harbor provided by
the final amendments, proxy voting advice businesses may condition
dissemination of proxy voting advice to a registrant on the registrant
filing its definitive proxy statement at least 40 calendar days before
the annual meeting. One commenter submitted data analysis showing that,
for 2018, more than 87.8 percent of registrants filed proxy materials
at least 40 calendar days before an annual meeting.\607\ Based on these
estimates, proxy voting advice businesses that choose to avail
themselves of the safe harbor by implementing its terms without
modification might affect the timing of up to 12.2 percent of
filings.\608\ We note, however, that proxy voting advice businesses may
structure their policies to accommodate registrants that may file less
than 40 calendar days before the shareholder meeting and remain within
the safe harbor.
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    \607\ See letter from CII VIII. Calculated as (2,900 + 460)/
3,828 = 0.878. The commenter stated that of 3,828 companies, 2,900
filed proxy materials between 40 and 48 calendar days in advance of
annual meetings and 460 filed proxy materials 50 or more days in
advance of annual meetings.
    \608\ Under the safe harbor, a registrant may opt to forgo the
benefits of receiving notice of proxy voting advice at the same time
as clients if it deems accelerating the filing of its proxy
materials to meet the 40-day threshold sufficiently costly.
---------------------------------------------------------------------------

ii. Costs
    With respect to the requirement that proxy voting advice businesses
adopt and publicly disclose policies and procedures reasonably designed
to ensure that (i) registrants receive in a timely manner the proxy
voting advice report, and (ii) proxy voting advice businesses provide
clients with a mechanism by which they can reasonably be expected to
become aware of a registrant's additional soliciting material in
response to the advice in a timely manner, proxy voting advice
businesses will bear direct costs. There will also be indirect costs to
other parties.
(a) Direct Costs
    For the principle set forth in Rule 14a-2(b)(9)(ii)(A), proxy
voting advice businesses will bear direct costs associated with
modifying current systems and methods, or developing and maintaining
new systems and methods, to ensure the conditions of the exemption are
met and with delivering the report to registrants. While some proxy
voting advice businesses may already have systems in place to address
some or all of these requirements,\609\ we do not have data that would
allow us to estimate the costs associated with modifying or developing
these systems and methods to encompass all registrants. To the extent
proxy voting advice businesses already have similar systems in place,
any additional direct cost may be limited. In addition, as we

discuss in more detail below, depending on how proxy voting advice
businesses choose to meet the principle, they may incur direct costs
associated with executing, obtaining, or modifying acknowledgments or
agreements with respect to the use of any information shared with the
registrant in the process of delivering the report to the registrant.
---------------------------------------------------------------------------

    \609\ See, e.g., letter in response to the SEC Staff Roundtable
on the Proxy Process from Glass Lewis (Nov. 14, 2018) (``Glass Lewis
has a resource center on its website designed specifically for the
issuer community via which public companies, their directors and
advisors can, among other things: (i) Submit company filings or
supplementary publicly available information; (ii) participate in
Glass Lewis' Issuer Data Report (`IDR') program, prior to Glass
Lewis completing and publishing its analysis to its investor
clients; and (iii) report a purported factual error or omission in a
research report, the receipt of which is acknowledged immediately by
Glass Lewis, then reviewed, tracked and dealt with internally prior
to responding to the company in a timely manner.'').
---------------------------------------------------------------------------

    A proxy voting advice business may also incur direct costs in
satisfying the requirement of Rule 14a-2(b)(9)(ii)(B) that it adopt and
publicly disclose written policies and procedures reasonably designed
to ensure that the proxy voting advice business provides clients with a
mechanism by which they can reasonably be expected to become aware of a
registrant's written statements about the proxy voting advice in a
timely manner before the shareholder meeting. For example, to be
eligible for the safe harbor in the new Rule 14a-2(b)(9)(iv), a proxy
voting advice business could provide: (i) Notice on its electronic
client platform that the registrant has filed, or has informed the
proxy voting advice business that it intends to file, additional
soliciting materials (and include an active hyperlink to those
materials on EDGAR when available); or (ii) notice through email or
other electronic means that the registrant has filed, or has informed
the proxy voting advice business that it intends to file, additional
soliciting materials (and include an active hyperlink to those
materials on EDGAR when available). Both mechanisms for informing
clients could involve initial set-up costs as well as ongoing costs.
    Since they are not required to rely on the safe harbor, proxy
voting advice businesses may also put in place other mechanisms by
which their clients may reasonably be expected to become aware of a
registrant's written statements about the proxy voting advice in a
timely manner, which could be more or less costly than relying on the
safe harbor. Under the final amendments, those mechanisms also must
ensure that clients obtain the notification in a timely manner. Because
the final amendments permit proxy voting advice businesses substantial
flexibility in satisfying this condition, we expect proxy voting advice
businesses to implement mechanisms differently depending on, among
other things, their own facts and circumstances and the nature of their
client bases. Thus, the overall costs of satisfying this condition are
difficult to quantify. We believe, however, that the costs of
implementing a mechanism by which clients may reasonably be expected to
become aware of registrants' views could involve (i) developing systems
to gather information about the filing of additional soliciting
materials by registrants; and (ii) modifying existing systems so that
clients may reasonably be expected to become aware that registrants
have filed such additional soliciting materials. To the extent proxy
voting advice businesses already have similar systems in place, any
additional direct cost may be limited.
    Many commenters asserted that allowing registrants to review the
proxy voting advice that proxy voting advice businesses have prepared
for clients, as would have been required under the proposed rules,
would generate significant costs for proxy voting advice businesses and
their clients.\610\ Some commenters stated that the sheer volume of
reports that proxy voting advice businesses would have to send to
registrants would generate large compliance costs. For example, one
commenter noted that the number of reports it alone would need to send
to registrants for review would increase from 450 in 2019 to
approximately 6,500 to 25,000 post-adoption, and that it would incur
costs of drafting at least 6,000 confidentiality agreements.\611\
Another commenter asserted that the compliance costs stemming from this
amendment would be disproportionately higher for smaller proxy voting
advice businesses.\612\ Some commenters indicated that, under the
proposed rules, proxy voting advice businesses would have to negotiate
and enter into confidentiality agreements with each applicable
registrant to avoid the dissemination of sensitive information, and the
commenters provided estimates of those burdens.\613\
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    \610\ See, e.g., letters from CalPERS; CFA Institute I; CII IV;
IAA; ICI; ISS; New York Comptroller II; Olshan LLP; Ohio Public
Retirement; Prof. Bebchuk; ProxyVote II.
    \611\ See letter from ISS.
    \612\ See letter from CII IV.
    \613\ See letters from CalPERS (indicating that proxy voting
advice businesses would need to enter into hundreds or possibly
thousands of different agreements which would be costly); ISS
(stating that it would incur costs of drafting at least 6,000
confidentiality agreements); Glass Lewis I (estimating that it will
incur a compliance burden of four hours per registrant to negotiate
or secure confidentiality agreements with 4,912 issuers for a total
of 19,648 hours); Olshan LLP (suggesting that negotiating such
agreements would result in the allocation of significant time and
cost by proxy voting advice businesses). Also, one commenter argued
that confidentiality agreements would be ineffective at preventing
leaks of proxy voting advice due to the large number of registrant
employees that would have access to the information. See letter from
Olshan LLP.
---------------------------------------------------------------------------

    We recognize the concerns raised by these commenters regarding
compliance costs associated with the proposed registrant review and
response process. In response, as suggested by several commenters, we
are adopting a more principles-based approach intended to achieve many
of the same objectives of the proposal without unduly encumbering the
ability of proxy voting advice businesses to provide their clients with
timely and reliable voting advice. The final amendments will require
proxy voting advice businesses to have policies and procedures
reasonably designed to ensure that proxy voting advice is made
available to registrants at or prior to or at the same time it is
disseminated to the proxy voting advice businesses' clients rather than
within a specified period of time. Additionally, the final amendments
impose only a one-time obligation with respect to notifying registrants
of a given proxy voting advice. We are also adopting new Rule 14a-
2(b)(9)(v), which will exclude from the scope of Rule 14a-2(b)(9)(ii)
proxy voting advice to the extent that such advice is based on custom
policies, and new Rule 14a-2(b)(9)(vi), which will exclude from the
scope of Rule 14a-2(b)(9)(ii) proxy voting advice as to non-exempt
solicitations regarding certain mergers and acquisitions or contested
matters.
    We believe the significant additional flexibility in the final
amendments will enable proxy voting advice businesses to design
policies and procedures that satisfy the new conditions of the
exemptions but are nonetheless efficiently tailored to their specific
business models and practices. This more flexible approach also may
permit proxy voting advice businesses to leverage their existing
systems and methods to satisfy the conditions. We thus believe, when
measured against the baseline, the final amendments will impose lower
compliance costs and result in fewer disruptions for proxy voting
advice businesses and their clients, than the more prescriptive
approach set forth in the proposal.
    While a more principles-based approach to regulation provides
additional flexibility for affected parties, it also may impose certain
costs if the parties are unsure of what measures are needed to satisfy
the legal requirement. For example, such an approach can entail
additional judgment on the part of management or result in parties
doing more than what is required in order to ensure they satisfy the
applicable standard. The non-exclusive safe harbors built into the
final amendments will provide legal certainty to proxy voting advice
businesses that they can rely on the solicitation exemptions in Rules
14a-2(b)(1) and (b)(3) and therefore could further mitigate the
compliance burdens associated with the

new conditions. They also may provide some guidance to proxy voting
advice businesses about how they can design their own policies and
procedures to satisfy the conditions.
    As noted in Section V.C.1.a below, we believe that much of the
burden of the final amendments would be for the proxy voting advice
business to develop policies that satisfy the principles and
accordingly modify or develop systems and practices to implement such
policies. The principles-based approach we implement should help reduce
such compliance costs significantly, which would likely result in a
lower PRA burden than the commenter estimates based on the proposal.
Also, our revised PRA estimates take into consideration our
understanding that some proxy voting advice businesses have systems and
practices in place that may complement or overlap with the new
requirements, which could substantially reduce compliance costs. For
PRA purposes, we estimate that each proxy voting advice business would
incur 2,845 burden hours for the notice to registrants under Rule 14a-
2(b)(9)(ii)(A) and 2,845 burden hours for the notice to clients under
Rule 14a-2(b)(9)(ii)(B).\614\
---------------------------------------------------------------------------

    \614\ See discussion in infra Section V.B.1 for the assumptions
we make when estimating hours and costs associated with maintaining,
disclosing, or providing the information required by the amendments
that constitute paperwork burdens imposed by a collection of
information.
---------------------------------------------------------------------------

    In addition to these system-related costs, we expect that proxy
voting advice businesses would, as a general matter, obtain
acknowledgments or agreements with respect to the use of any
information shared with a registrant, as we expect that the business
would seek to limit disclosure of its report. Several of the changes to
the final rule amendments should allow proxy voting advice businesses
to take measures to reduce these compliance costs compared with the
cost of the confidentiality agreements contemplated under the proposal.
For example, under the principles-based approach that we are adopting,
in instances where a proxy voting advice business judges the potential
impact of the disclosure of information contained in the report to be
high it could provide the advice to registrants at the time it is
provided to their clients or it may choose to provide draft reports to
registrants before making them available to clients while imposing more
stringent confidentiality requirements or terms of use on registrants
to prevent release of commercially sensitive information. This should
reduce the risk that commercially sensitive information about proxy
voting advice may be disseminated more broadly.
    Moreover, as adopted, the principles-based approach does not
dictate the manner in which proxy voting advice businesses provide the
report to registrants, and instead gives the proxy voting advice
business discretion to choose how best to implement the principle of
the rule and incorporate it into the business's policies and
procedures, including by leveraging existing practices. In this regard,
we note that some proxy voting advice businesses currently provide
reports to registrants without requiring formal confidentiality
agreements, instead requiring only an electronic acknowledgement of
terms of use.\615\ Such an approach is likely to involve less
negotiation between proxy voting advice business and registrants than
formal confidentiality agreements, and thus lower compliance
costs.\616\ Further, an acknowledgment of terms of use could be
designed to apply prospectively, including for future proxy seasons,
making this a one-time cost when a proxy voting advice business
initiates coverage of a registrant. Overall, for purposes of our PRA,
we estimate that each proxy voting advice business will incur a burden
of between 50 and 5,690 hours per year associated with securing an
acknowledgment or other assurance that the proxy advice will not be
disclosed.\617\ Another potential cost for proxy voting advice
businesses could result from new Rule 14a-2(b)(9)(vi). When additional
matters are presented for shareholder approval at meetings with
applicable M&A transaction or contested matters, then the portion of
the proxy voting advice provided with respect to the applicable M&A
transaction or contested matters will be excluded from the scope of
Rule 14a-2(b)(9)(ii). This means that in those situations, proxy voting
advice businesses may choose to redact the report that they have to
deliver to registrants, which will generate costs for them. It is also
possible, however, that proxy voting advice businesses would choose
instead to deliver an un-redacted report, in which case they will not
incur the costs of redaction.\618\
---------------------------------------------------------------------------

    \615\ For example, Glass Lewis requires a registrant to click
and agree to certain ``terms of use'' before being able to access
the notice and recommendations.
    \616\ We recognize that some proxy voting advice businesses,
irrespective of their current practices or what the final amendments
envision, may nevertheless choose to enter into formal
confidentiality agreements with some registrants. For such proxy
voting advice businesses, the compliance costs may be closer to
those estimated by the commenters.
    \617\ See discussion in infra Section V.B.1 for the assumptions
we make when estimating hours and costs associated with maintaining,
disclosing, or providing the information required by the amendments
that constitute paperwork burdens imposed by a collection of
information.
    \618\ In choosing not to redact, proxy voting advice businesses
potentially increase their exposure to the risk that their
recommendations will be revealed to market participants. As a
result, we anticipate that proxy voting advice businesses will be
less likely to offer pre-publication review to registrants of
reports that contain recommendations related to contested matters or
M&A transactions.
---------------------------------------------------------------------------

    A number of commenters raised concerns about the costs associated
with the provisions in the proposed rules that would have established a
formal process by which the registrant would be given the opportunity
to review and provide feedback on draft voting advice.\619\ The
principles-based approach in the final rules obviates the need for a
prescribed process for engagement with the registrant and instead
allows proxy voting advice businesses to decide when and how to provide
notice of the proxy voting advice businesses' voting advice to
registrants. Under this approach, proxy voting advice businesses are
not required to, although they may, share pre-publication drafts with
registrants for their feedback. Rather, they must provide the
registrant with a copy of their advice, which could be at the same time
as the advice is shared with clients. Moreover, as with the proposal,
nothing in the final amendments will require proxy voting advice
businesses to alter their advice in response to registrant feedback.
Thus, we believe the final amendments will substantially address, if
not eliminate altogether, the concerns raised by commenters related to

objectivity and timing pressure associated with the proposed engagement
process.
---------------------------------------------------------------------------

    \619\ See, e.g., letters from Prof. Bebchuk; ISS; Kerrie Waring,
Chief Executive Officer, International Corporate Governance Network
(Nov. 21, 2019) (``ICGN''); Segal Marco II; TIAA; Daniel P. Hanson,
Chief Investment Officer, Ivy Investment Management Company (Feb. 3,
2020) (``Ivy Investment''); Olshan LLP; First Affirmative. See also
IAC Recommendation. Some commenters expressed a concern that
allowing a registrant or other soliciting person to review and
provide feedback on the voting advice before the proxy voting advice
business provides it to its clients could reduce the diversity of
thought in the marketplace for proxy voting advice. See, e.g.,
letters from Prof. Bebchuk; CalPERS; CFA Institute I. See also,
e.g., letter in response to the SEC Staff Roundtable on the Proxy
Process from Glass Lewis (``We believe that allowing an issuer to
engage with us during the solicitation period may lead to
discussions about the registrant's proxy, thereby providing
registrants with an opportunity to lobby Glass Lewis for a change in
policy or a specific recommendation against management. To ensure
our research is always objective, Glass Lewis takes this added
precaution and postpones any engagements until after the
solicitation period has ended . . . .''). Some commenters noted
conflicts between SRO rules that seek to limit issuers' pre-
publication review of security analyst research reports and the
proposed approach to pre-publication review of proxy voting advice.
See, e.g., letter from CII IV.
---------------------------------------------------------------------------

(b) Indirect Costs
    The final rule may also impose indirect costs on other parties.
Proxy voting advice businesses may pass through a portion of the costs
of modifying or developing systems to meet the requirements to their
clients through higher fees for proxy advice. Moreover, the policies
and procedures proxy voting advice businesses develop under the final
rule could cause registrants to incur costs. For example, a proxy
voting advice business that chooses to rely on the safe harbor in Rule
14a-2(b)(9)(iii) would adopt policies and procedures that provide a
registrant with a copy of the proxy voting advice business's proxy
voting advice, at no charge, no later than the time it is disseminated
to the business's clients if the registrant has filed its definitive
proxy statement at least 40 calendar days before the meeting date. A
registrant that wishes to review proxy advice prior to the meeting date
may incur costs to accelerate the filing of its definitive proxy
statement to meet the 40-day threshold. However, we expect a registrant
would incur these costs only if it expected the benefits of review to
be sufficiently large.\620\
---------------------------------------------------------------------------

    \620\ See supra note 608.
---------------------------------------------------------------------------

    Proxy voting advice business may also bear indirect costs in the
form of lost revenues. While all three major proxy voting advice
business currently offer registrants access to proxy voting reports, in
some circumstances they may charge a fee to registrants for such
access,\621\ or make such access available only in connection with the
purchase of consulting services from an affiliate of the proxy voting
advice businesses. The requirement to share full reports with
registrants under Rule 14a-2(b)(9)(ii) may result in a proxy voting
advice business providing access to proxy voting reports at no charge
to registrants.\622\ This would cause such proxy voting advice business
to lose fees they otherwise would have earned from selling proxy voting
reports to registrants. Without more detailed information about proxy
voting advice businesses' fee schedules and information about the
revenues they currently generate from selling proxy voting reports to
registrants, we are unable to quantify the magnitude of these revenue
losses.
---------------------------------------------------------------------------

    \621\ See Section IV.B.1.a.ii.
    \622\ To rely on the safe harbor in Rule 14a-2(b)(9)(iii), a
proxy voting advice business must provide registrants with a copy of
the proxy voting advice at no charge.
---------------------------------------------------------------------------

    Several commenters expressed concern that the economic analysis in
the Proposing Release understated or failed to consider the costs of
the proposals on consumers of proxy voting advice.\623\ One commenter
asserted that costs for customers of proxy voting advice will increase
due to both the costs of reduced time to review proxy research reports
and a potential increase in fees, as proxy voting advice businesses
pass their increased costs on to institutional investor clients, who,
in turn, would pass these costs on to their individual investor
participants and beneficiaries.\624\ Another commenter argued that such
costs may lead some institutional investors to forgo the benefits of
using a proxy voting advice business, which could ultimately be
detrimental to the effectiveness of shareholder voting and
oversight.\625\ Similarly, one commenter suggested that the proposed
rules, by increasing the costs of the proxy advice that opposes
management, would impede investors' ability to monitor company
management.\626\ Another commenter, a proxy voting advice business,
stated that the proposed changes could diminish proxy voting advice
businesses' willingness to recommend votes against management and that
this ``would substantially diminish the independent information
available to investors and their ability to hold management accountable
for their actions.'' \627\ Additionally, several commenters supplied
empirical evidence suggesting that the quality of proxy voting advice
depends on the time available for proxy voting advice businesses to
conduct research.\628\ One commenter concluded from this research that
the proposed requirements would reduce the quality of voting
advice.\629\
---------------------------------------------------------------------------

    \623\ See, e.g., letters from CII IV; ICI; ISS; New York
Comptroller II; PRI II; ProxyVote II; Segal Marco II; Ohio Public
Retirement; Prof. Bebchuk.
    \624\ See letter from CII IV.
    \625\ See letter from Prof. Bebchuk.
    \626\ See letter from PRI II.
    \627\ See letter from ISS.
    \628\ See letter from Ana Albuquerque, Boston University, et al.
(Feb 3. 2020) (``Prof. Albuquerque et al.'').
    \629\ See letter from CII IV.
---------------------------------------------------------------------------

    The principles-based approach we are adopting should mitigate many
of these concerns because it will impose compliance costs on proxy
voting advice businesses that are lower than the compliance costs
associated with the approach in the Proposing Release, and hence will
limit the potential increase in the price of proxy advice services for
proxy voting advice businesses' clients. Further, because the
principles-based approach does not include a registrant review and
feedback process that requires pre-publication review, it should reduce
concerns that registrants will lobby proxy voting advice business for
changes to recommendations, and thus should not discourage proxy voting
advice business from making recommendations that oppose management or
impose additional timing constraints on proxy voting advice businesses.
    Registrants also could incur costs associated with coordinating
with proxy voting advice businesses to receive the proxy voting advice,
reviewing the proxy voting advice, and determining whether to prepare
and file additional soliciting materials in response to the proxy
voting advice. We expect a registrant would bear these costs only if it
anticipated the benefits of such steps would exceed the costs of such a
program. Similarly, because more registrants who are the subjects of
proxy voting advice will have access to such proxy voting advice in
advance of the shareholder vote, more registrants may file additional
soliciting materials in response to proxy voting advice as a result of
the rule amendments than currently do. Investment advisers, who can
reasonably be expected to become aware of additional soliciting
materials could incur additional costs in connection with the review of
that information. Because these costs will vary depending upon the
particular facts and circumstances of the proxy voting advice, any
issues identified therein, the resources of the registrant or
investment adviser, and in the case of an investment adviser, its
policies and procedures with respect to proxy voting, it is difficult
to provide a quantifiable estimate of these costs.
4. Amendments to Rule 14a-(9)
a. Benefits
    Finally, we are amending Rule 14a-9 to add as an example of what
could be misleading, the failure to disclose certain material
information about proxy voting advice, specifically information about
the proxy voting advice business's methodology, sources of information,
and conflicts of interest. We do not expect the amendment to the list
of examples in Rule 14a-9 to significantly alter existing disclosure
practices, as it will largely codify existing Commission guidance on
the applicability of Rule 14a-9 to proxy voting advice.\630\ To the
extent the

amendment prompts some proxy voting advice businesses to provide
additional disclosure about the bases for their voting advice, the
clients of these businesses--and the investors they serve--may benefit
from receiving additional information that could aid in making voting
determinations.
---------------------------------------------------------------------------

    \630\ See Commission Interpretation on Proxy Voting Advice at
47419.
---------------------------------------------------------------------------

b. Costs
    The final amendments to Rule 14a-9 will impose direct costs on
proxy voting advice businesses to the extent the amended rule prompts
some proxy voting advice businesses to provide additional disclosure
about the bases for their voting advice. We expect any such costs to be
minimal, especially given that the examples being codified were
included in prior Commission guidance.\631\
---------------------------------------------------------------------------

    \631\ See supra notes 46 and 67 and accompanying text.
---------------------------------------------------------------------------

    Some commenters asserted that the main cost of the Rule 14a-9
amendments will be an increase in litigation risk for proxy voting
advice businesses.\632\ Several commenters stated that this increased
litigation risk would make it more expensive and burdensome for proxy
voting advice businesses to provide their advisory services.\633\ One
commenter asserted that the proposed changes amount to a new cause of
action under Rule 14a-9.\634\ Two other commenters argued that the
proxy voting advice businesses' response to the threat of litigation
under Rule 14a-9 would be to err on the side of caution in complex or
contentious matters, thus increasing the likelihood of the proxy voting
advice business issuing pro-registrant proxy voting
recommendations.\635\ We believe several factors will serve to limit
this risk. As discussed above, Rule 14a-9 liability is grounded in the
concept of materiality and thus would be based on the particular facts
and circumstances and assessed from the perspective of the reasonable
shareholder.\636\ Moreover, neither our proposed amendment to Rule 14a-
9 nor the other amendments we are adopting will broaden the concept of
materiality or create a new cause of action, as some commenters
suggested. Thus, the amendment does not change the scope or application
of existing law. Therefore, we do not expect the new amendment to Rule
14a-9 to generate significant new litigation risk for proxy voting
advice businesses or to result in a shift to more pro-registrant proxy
voting recommendations.
---------------------------------------------------------------------------

    \632\ See letters from IAA; ISS; Glass Lewis II; Minerva I.
    \633\ See letters from IAA; Glass Lewis II; Minerva I.
    \634\ See letter from C. Icahn.
    \635\ See letters from ISS; Elliott I.
    \636\ See discussion in supra Section II.D.3.
---------------------------------------------------------------------------

5. Effect on Smaller Entities
    Several commenters specifically stated that the economic analysis
failed to consider the effect and cost of the proposal on smaller proxy
voting advice businesses.\637\ One of these commenters asserted that
small entities (defined by the commenter as those with up to $5 million
in assets) would face significant resource and capacity burdens when
complying with the proposed amendments, without improvements in the
quality of voting for clients.\638\ Another commenter similarly stated
the proposals would be particularly burdensome for small proxy voting
advice businesses.\639\ One commenter stated that the economic analysis
failed to consider the proposal's effect on small and medium-sized
investment advisers and stated these entities would be
disproportionately affected.\640\
---------------------------------------------------------------------------

    \637\ See letters from Felician Sisters II; Good Shepherd; IASJ;
Interfaith Center II; St. Dominic of Caldwell.
    \638\ See letter from IASJ.
    \639\ See letter from Interfaith Center II.
    \640\ See letter from IAA.
---------------------------------------------------------------------------

    As mentioned in Section IV.B.1 above, the Commission is not aware
of smaller firms that currently supply research, analysis, and
recommendations to support the voting decisions of their clients that
would fall within the definition of ``solicitation.'' We therefore
cannot estimate how many small proxy voting advice businesses will be
affected. However, we are cognizant that any smaller proxy voting
advice businesses that operate now or in the future may incur
proportionally higher compliance costs even under the final amendments,
especially if some of the potential costs of the amendments are fixed.
For example, small proxy voting advice businesses may not have
conflicts of interest disclosure policies in place, or may not have
mechanisms to inform clients of registrant feedback. We believe that
the new principles-based approach we are adopting should help address
some of the concerns about the final rule's disparate effect on smaller
firms by providing small proxy voting advice businesses with the
flexibility to design policies and procedures that are scaled to the
scope of their business operations.
    Further, we believe that the principles-based approach should
afford existing proxy voting advice businesses flexibility to leverage
their existing practices and mechanisms to efficiently comply with the
new requirements, reducing the compliance burdens that they might pass
through to smaller clients. Finally, we believe that because the final
rules promote the availability of more complete and accurate
information to proxy voting advice clients, they are responsive to
calls for proxy process reform by smaller issuers to ``inspire
confidence in the voting process, drive shareholder engagement, and
bolster long-term value creation.'' \641\ Smaller issuers may also
benefit from the final amendments insofar as they will have greater
opportunity to receive proxy voting advice and inform their
shareholders of their views on such advice, relative to the
opportunities proxy voting advice business currently offer registrants
under voluntary review programs.\642\
---------------------------------------------------------------------------

    \641\ See 2019 Small Business Forum.
    \642\ See supra Section IV.B.1.a.ii.
---------------------------------------------------------------------------

D. Effects on Efficiency, Competition, and Capital Formation

1. Efficiency
    As discussed in Section IV.B above, proxy voting advice businesses
perform a variety of functions for their clients, including analyzing
and making voting recommendations on matters presented for shareholder
vote and included in registrants' proxy statements. As an alternative
to utilizing these services, clients of proxy voting advice businesses
could instead conduct their own analysis and execute votes using
internal resources.\643\
---------------------------------------------------------------------------

    \643\ Clients of proxy voting advice businesses may also rely on
some combination of internal and external analysis.
---------------------------------------------------------------------------

    We believe that, for purposes of general analysis, it is reasonable
to assume that the cost of analyzing matters presented for shareholder
vote will not vary significantly with the size of the position being
voted. Given the costs of analyzing and voting proxies, the services
offered by proxy voting advice businesses may offer economies of scale
relative to their clients performing those functions themselves. For
example, a GAO study found that among 31 institutions, including mutual
funds, pension funds, and asset managers, large institutions rely less
than small institutions on the research and recommendations offered by
proxy voting advice businesses.\644\ Small

institutional investors surveyed in the study indicated they had
limited resources to conduct their own research.\645\
---------------------------------------------------------------------------

    \644\ See 2007 GAO Report, supra note 474, at 2; see also letter
from BRT (stating since many institutional investors face voting on
a large number of corporate matters every year but lack personnel
and resources, they outsource tasks to proxy advisors); see also
letters in response to the SEC Staff Roundtable on the Proxy Process
from BlackRock (Nov. 16, 2018) (``BlackRock's Investment Stewardship
team has more than 40 professionals responsible for developing
independent views on how we should vote proxies on behalf of our
clients.''); NYC Comptroller (Jan. 2, 2019) (``We have five full-
time staff dedicated to proxy voting during peak season, and our
least-tenured investment analyst has 12 years' experience applying
the NYC Funds' domestic proxy voting guidelines.'').
    \645\ See 2007 GAO Report, supra note 474, at 2; see also
letters in response to the SEC Staff Roundtable on the Proxy Process
from Ohio Public Retirement (Dec. 13, 2018) (``OPERS also depends
heavily on the research reports we receive from our proxy advisory
firm. These reports are critical to the internal analyses we perform
before any vote is submitted. Without access to the timely and
independent research provided by our proxy advisory firm, it would
be virtually impossible to meet our obligations to our members.'');
Transcript of Roundtable on the Proxy Process at 194 (comments of
Mr. Scot Draeger) (``If you've ever actually reviewed the
benchmarks, whether it's ISS or anybody else, they're very extensive
and much more detailed than small firm[s] like ours could ever
develop with our own independent research.'').
---------------------------------------------------------------------------

    By establishing requirements that promote transparency in proxy
voting advice, the final amendments could lead to an increased demand
for proxy voting advice businesses' voting advice. To the extent proxy
voting advice businesses offer economies of scale relative to their
clients performing certain functions themselves, increased demand for,
and reliance upon, proxy voting advice business services could lead to
greater efficiencies in the proxy voting process. At the same time, the
final amendments will impose certain additional costs on proxy voting
advice businesses, and these costs may be passed on to their clients.
To the extent the costs passed on to a client are greater than the
related benefits (or vice versa) to the client it could lead to
decreased (or increased) demand for proxy voting advice business
services by the client. As each client individually decides whether to
use proxy voting advice business services, if aggregate demand for
proxy voting advice business services increases (decreases), there will
be more (or fewer) efficiencies in the proxy voting process.
    Some commenters asserted that the ability of registrants to review
the advice and the threat of litigation from registrants would result
in voting advice from proxy voting advice businesses that is less
accurate, useful, and valuable to their clients.\646\ If clients
perceive the amendments as affecting proxy voting advice businesses'
objectivity and independence, this could lead to a decrease in demand
for proxy voting advice and potentially fewer efficiencies in the proxy
voting process.\647\ However, as discussed above, we have made a number
of changes to the proposed amendments that we believe address these
concerns and will lead to more accurate, transparent and complete
information for proxy voting advice business clients.\648\ In addition,
as discussed above, we do not expect the new amendment to Rule 14a-9 to
generate significant new litigation risk for proxy voting advice
businesses.\649\
---------------------------------------------------------------------------

    \646\ See, e.g., letters from Prof. Bebchuk; ISS; ICGN; PRI II;
Torsten Jochem, Associate Professor of Finance, University of
Amsterdam, and Anjana Rajamani, Erasmus University Rotterdam (Dec.
16, 2019) (``Profs. Jochem and Rajamani''); Segal Marco II; TIAA;
Ivy Investment; Olshan LLP; First Affirmative; Lisa A. Smith, Vice
President, Advocacy and Public Policy, Catholic Health Association
of the United States (Feb. 3, 2020) (``Catholic Health'');
NorthStar; Rowan Finnegan (Feb. 3, 2020); NASAA; ProxyVote II; Diane
Wade, Head of ESG, CBRE Clarion Securities (Feb. 3, 2020)
(``CBRE''); Michael Rowland (Feb. 3, 2020); Dustyn Lanz, CEO,
Responsible Investment Association (Feb. 3, 2020) (``RIA''); Graeme
Black, Chair, Black Group Australia (Feb. 3, 2020) (``Black
Group''); Ario; CII IV; ACSI; BMO; John Starcher, President and CEO,
Bon Secours Mercy Health (Feb. 3, 2020) ``Bon Secours''); CFA
Institute I; Baillie Gifford; CIRCA; Joanie B. (Feb. 3, 2020);
Canadian Governance Coalition; AllianceBernstein; LA Retirement;
Glass Lewis II; CII V; C. Icahn; CII VI; LACERS; James Elbaor (Feb.
26, 2020); Terrence M. Burgess, Senior Managing Director, Wellington
Management Company (Mar. 3, 2020) (``Wellington''). See also IAC
Recommendation.
    \647\ As noted above, we do not have financial data about proxy
advice voting businesses, including financial data by service
provided or by client type, so making these assessments on a
quantitative basis is difficult.
    \648\ See discussion in supra Section IV.C.3.b.ii.
    \649\ See discussion in supra Section IV.C.4.b.
---------------------------------------------------------------------------

    Several commenters also stated that the proposed amendments could
adversely affect the efficiency of how capital is allocated in two ways
stemming from the potential threat of litigation by registrants and
their ability to influence proxy voting advice under the proposed
rule.\650\ First, some of these commenters expressed concern that the
amendments could reduce the independence of proxy voting advice
businesses and the diversity of thought in the market for proxy advice,
which in turn could reduce the information investors and investment
advisers have, resulting in less efficient investment decisions.\651\
Second, some of these commenters stated that the amendments would have
a silencing effect on proxy voting advice businesses, resulting in
value-destroying decisions by managers of registrants who are held less
accountable for their actions.\652\
---------------------------------------------------------------------------

    \650\ See, e.g., letters from Shareholder Rights II; ISS.
    \651\ See letters from Prof. Bebchuk; CalPERS; CFA Institute I.
    \652\ See letters from ISS; PRI II; Better Markets.
---------------------------------------------------------------------------

    We believe that the principles-based approach we are adopting helps
address commenter concerns about reductions in the reliability and
independence of proxy voting advice. The final amendments neither
require proxy voting advice businesses to share draft proxy voting
advice with registrants in advance of providing advice to their
clients, nor require proxy voting advice businesses to consider
feedback from registrants on the proxy voting advice. In this way, the
final amendments seek to limit the presence and ameliorate the possible
effects of the independence-related concerns raised by commenters while
preserving many of the intended benefits of the proposed engagement
process, such as enhancing the accuracy, transparency and completeness
of information available to clients of proxy voting advice businesses.
    Other commenters disputed that the proposed amendments would bring
about more accurate or transparent proxy voting advice, asserting that
proxy voting advice businesses already provide adequate disclosure
regarding conflicts of interest and a means for engagement with
registrants because the price and quality of service for proxy advice
is determined in a competitive market.\653\ In that case, the
amendments may not result in an increase in demand for proxy advisory
services. As discussed above, while we acknowledge that proxy voting
advice businesses currently disclose conflicts of interest to clients
and permit certain registrants to review proxy voting advice, the final
rules could nevertheless increase demand for proxy voting advice to the
extent that: (i) Clients prefer a more standardized time and means of
receiving conflict disclosures, and (ii) proxy voting advice businesses
expand their existing review procedures as a means of satisfying the
new conditions. Overall, given the changes in the final amendments
relative to the proposed amendments, we do not expect the final
amendments to have a significant effect on the demand for proxy
advisory services, and hence efficiency.
---------------------------------------------------------------------------

    \653\ See, e.g., letter from ISS.
---------------------------------------------------------------------------

2. Competition
    The amendments' requirements that promote transparency and more
effective evaluation of proxy voting advice could stimulate competition
among proxy voting advice businesses with respect to the quality of
advice. In particular, clients of proxy voting advice businesses may be
better able to assess conflicts of interest (and, more broadly,
alignment of interest) and the reliability of proxy voting advice,
which could, in turn, cause proxy voting advice businesses to compete
more on those dimensions.

    As discussed above, several commenters disagreed that the proposed
amendments would increase the quality or transparency of proxy advice,
which they thought was sufficient under the baseline, and stated that
the proposed amendments could reduce the quality of proxy advice if the
rule reduces the independence and diversity of thought amongst proxy
voting advice businesses.\654\ In that case, the rules may not increase
competition in the proxy advice market. However, as noted above, we
believe the final amendments' principles-based approach should address
many of these concerns because proxy voting advice businesses may, but
will no longer be required to, preview their proxy voting advice with
registrants.
---------------------------------------------------------------------------

    \654\ See supra notes 646 and 651.
---------------------------------------------------------------------------

    The final amendments could also have certain adverse effects on
competition. The final amendments will cause proxy voting advice
businesses to incur certain additional compliance costs as discussed in
Section II.C.2 above. How those costs will be shared between proxy
voting advice businesses and their clients depends on the ability of
proxy voting advice business to exercise market power in the pricing of
their services. One commenter noted that, although complaints about
pricing feature regularly in oligopolistic markets, proxy voting advice
business generally are not criticized for their pricing.\655\ The
commenter further explained that this might reflect clients' perception
that, due to the scale economies involved in proxy research, it is less
costly to purchase proxy voting advice than to engage in proxy research
themselves.\656\ The presence of these scale economies may provide
proxy voting advice businesses with substantial market power, including
the power to pass compliance costs associated with the final rules on
to their clients. If, however, as other commenters argued,\657\ clients
do not place a large value on proxy voting advice, then proxy voting
advice businesses may face limits in their ability to pass compliance
costs through to clients. In the Proposing Release, we acknowledged
that if costs borne by proxy voting advice businesses are large enough
to cause some businesses to exit the market or potential entrants to
stay out of the market, the proposed amendments could decrease
competition.\658\ For the reasons described below, we do not believe
this will be the case with the final amendments.
---------------------------------------------------------------------------

    \655\ See letter from C. Spatt.
    \656\ Id.
    \657\ See letters from B. Sharfman I and Manhattan Institute.
    \658\ See Proposing Release at 66550.
---------------------------------------------------------------------------

    Many commenters stated that the economic analysis in the Proposing
Release did not adequately consider the effects of the rule on
competition in the market for proxy advice.\659\ Some commenters
asserted that the cost burdens of the amendments, particularly those
associated with litigation exposure from registrants, would decrease
competition in the proxy advice market, raising barriers to entry in
the proxy advice market, and potentially forcing the exit of some proxy
voting advice businesses from the market.\660\ Several other commenters
argued that the proposed amendments would reduce competition by
creating new barriers to entry in what historically has been an
industry with few competitors.\661\ One commenter, a proxy voting
advice business in the U.K., stated that the Proposed Rule made it
highly unlikely it would enter the U.S. proxy voting advice business
market.\662\ Another commenter, however, stated that increased barriers
to entry would not reduce competition because, notwithstanding the
rule, entry would not occur because investors place little value on
proxy voting advice and financial incentives for entry are
correspondingly low.\663\ The final amendments reflect a principles-
based approach that is intended to limit the increased compliance costs
for proxy voting advice businesses and thus should reduce the potential
for significant adverse effects on competition.
---------------------------------------------------------------------------

    \659\ See letters from CII IV; Richard B. Zabel, General Counsel
& Chief Legal Officer, Elliott Management Corporation (Mar. 30,
2020) (``Elliott II''); Felician Sisters II; Glass Lewis II; Good
Shepherd; IASJ; ISS; Interfaith Center II; Minerva I; New York
Comptroller II; Prof. Bebchuk; St. Dominic of Caldwell; ProxyVote
II. See also IAC Recommendation.
    \660\ See letters from Prof. Bebchuk; TIAA; 62 Professors; CII
IV. See also IAC Recommendation.
    \661\ See, e.g., letters from ISS; CII IV; Segal Marco II; Prof.
Sergakis; 62 Professors.
    \662\ See letters from Minerva I.
    \663\ See letter from Manhattan Institute.
---------------------------------------------------------------------------

    Additionally, given certain industry practices, the costs
associated with the final amendments could affect proxy voting advice
businesses differently. For example, we understand that the three
existing proxy voting advice businesses that will be affected by the
final amendments already have processes in place for sharing certain
aspects of their analysis with certain registrants prior to making a
recommendation to clients, which they may be able to leverage to comply
with the new conditions. In contrast, firms considering entering the
market for proxy voting advice would need to develop such processes and
thus may initially experience somewhat higher costs in connection with
compliance with the final rules. A differential effect on costs across
proxy voting advice businesses could, in turn, affect competition
within the proxy voting advice business industry. Similarly, one
commenter stated that, if it were subject to the proposed amendments,
it likely would have to either significantly increase its fees or sell
their firm to one of the two dominant competitors.\664\ While that
commenter may not be subject to the final amendments,\665\ to the
extent that the costs associated with the final amendments
disproportionately affect proxy voting advice businesses without
existing processes that can be adapted to satisfy the new conditions,
particularly smaller proxy voting advice businesses that would
otherwise consider entering the market for proxy advice, the final
amendments could reduce competition in the market for proxy advisory
services. We expect the principles-based approach reflected in the
final amendments may help to ameliorate concerns about any differential
effect of the final amendments by affording proxy voting advice
businesses the flexibility to design policies and procedures that are
scaled to the scope of their operations and client base.
---------------------------------------------------------------------------

    \664\ See letter from ProxyVote II.
    \665\ See supra notes 170-173 and accompanying text.
---------------------------------------------------------------------------

    Overall, we believe the benefits of improving the transparency,
accuracy, and completeness of information available to shareholders
when making voting decisions and enhancing the overall functioning of
the proxy voting process, in furtherance of Section 14 of the Exchange
Act would support adoption of the amendments notwithstanding any
adverse effect on competition arising therefrom.
3. Capital Formation
    By facilitating the ability of clients of proxy voting advice
businesses to make informed voting determinations, the final amendments
could ultimately lead to improved investment outcomes for investors.
This in turn could lead to a greater allocation of resources to
investment. To the extent that the final amendments lead to more
investment, we could expect greater demand for securities, which could,
in turn, promote capital formation. Additionally, to the extent the
final amendments ameliorate frictions in the market for proxy voting
advice that may currently deter private companies from

becoming public reporting companies, the amendments could serve to
encourage more companies to become public.\666\
---------------------------------------------------------------------------

    \666\ See letters from Prof. Tingle (asserting that public
capital markets have become less attractive to companies that would
otherwise consider going public and that proxy voting advice
businesses have been singled out as possibly complicit in this
trend); TechNet (supporting the Proposed Rule as part of a
commitment to ``. . . make the U.S. the most attractive place in the
world for anyone to start a company, grow it here, and take it
public.'').
---------------------------------------------------------------------------

    Several commenters stated that the proposal to allow registrants to
review draft proxy advice could lead to the misuse of material non-
public information.\667\ This possibility is predicated on an
expectation that a proxy voting advice business's recommendation could
have an influence on the outcome of a voting matter before
shareholders. For example, if a proxy voting advice business's
recommendation is likely to influence the outcome of a vote that is
expected to generate stock price reactions, then advance knowledge of
such a recommendation would be potentially valuable to facilitate
insider trading. Any such misuse of material non-public information
could reduce investor confidence in the integrity of markets and lead
to a reduction in capital formation. However, the final amendments do
not mandate that registrants be given prior access to draft proxy
voting advice. In addition, as discussed above, some form of registrant
pre-review already exists at each of the three major proxy voting
advice businesses, and we are not aware of any misuse of such
information.
---------------------------------------------------------------------------

    \667\ See letters from CII IV; Glass Lewis II; ISS.
---------------------------------------------------------------------------

    Overall, given the many factors that can influence the rate of
capital formation, any effect of the final amendments on capital
formation is expected to be small.

E. Reasonable Alternatives

1. Use a More Prescriptive Approach in the Final Amendments
    Instead of a principles-based approach that allows proxy voting
advice businesses the flexibility to design their own measures to
ensure that clients have more complete and transparent information on
which to base their voting decisions, we could have used a more
prescriptive approach, such as the approach we proposed. For example,
we could have required proxy voting advice businesses to notify
registrants of their advice or provide their clients with registrants'
responses to that advice in certain specific ways and time frames. Such
a prescriptive approach could have reduced legal uncertainty for proxy
voting advice businesses, but it would have generated greater
compliance costs for proxy voting advice businesses, some or all of
which could have been passed on to their clients. The principles-based
approach we are adopting provides a significant degree of flexibility
to proxy voting advice businesses in deciding the best way to ensure
that more complete and transparent information is available to their
clients, and we expect that it will significantly reduce their
compliance costs.
2. Require Proxy Voting Advice Businesses To Include Full Registrant
Response in the Businesses' Voting Advice
    Rather than requiring proxy voting advice businesses to adopt and
publicly disclose written policies and procedures reasonably designed
to ensure that such businesses provide clients with a mechanism by
which the clients can reasonably be expected to become aware of
registrant responses to proxy voting advice, we could require proxy
voting advice businesses to include the registrant's full response in
the proxy voting advice itself. Including the registrant's full
response in the proxy voting advice would benefit clients of proxy
voting advice businesses by allowing them to avoid the additional step
of accessing the response. Including a full response in the voting
advice provided by proxy voting advice businesses also could benefit
registrants by having their responses more prominently displayed,
depending on where in the advice the response is included. Two
commenters suggested this as an appropriate alternative to the proposed
amendments.\668\
---------------------------------------------------------------------------

    \668\ See letters from NAM; BIO.
---------------------------------------------------------------------------

    However, requiring inclusion of the registrant's full response in
the proxy voting advice provided by proxy voting advice businesses
could disrupt the ability of such businesses to effectively design and
prepare their reports in the manner that they and their clients prefer.
Also, registrants would lose the flexibility to present their views in
the manner they deem most appropriate or effective.
3. Public Disclosure of Conflicts of Interest
    The final amendments require that proxy voting advice businesses
include in their advice (and in any electronic medium used to deliver
the advice) certain conflicts of interest disclosures. We could require
that those conflicts of interest disclosures be made publicly rather
than just to clients. Public disclosure of proxy voting advice
businesses' conflicts of interest could allow beneficial owners to
assess the conflicts for themselves. While there may be some benefit to
beneficial owners from having access to this information, this benefit
may be limited given that many beneficial owners have delegated
investment management functions to others in the first place and thus
would not be receiving the advice. In addition, one commenter noted
that publicly disclosing conflicts could undermine the information
barriers put in place between the consulting and proxy advice side of a
proxy voting advice business's operations.\669\
---------------------------------------------------------------------------

    \669\ See letter from ISS.
---------------------------------------------------------------------------

4. Require Additional or Alternative Mandatory Disclosures in Proxy
Voting Advice
    In addition to requiring the adopted conflicts of interest
disclosures, we could amend Rule 14a-2(b)(9) to require that proxy
voting advice businesses include in their proxy voting advice
additional disclosures, such as disclosure regarding the proxy voting
advice business's methodology, sources of information, or disclosures
regarding the use of standards that materially differ from relevant
standards or requirements that the Commission sets or approves. Proxy
voting advice businesses' clients may benefit from having consistent
disclosure on such matters as they assess the voting advice and make
decisions regarding their utilization of the voting advice. However,
such disclosures may not be material or necessary to assess proxy
voting advice in all instances, and would result in increased costs to
proxy voting advice businesses. Certain information may also comprise
proprietary information, disclosure of which, depending on the
specificity required, may result in competitive consequences to proxy
voting advice businesses. In light of these considerations, the adopted
rules will not require such disclosures in all instances.
    One commenter noted a suggestion from the 2010 Concept Release that
``proxy advisory firms could provide increased disclosure regarding the
extent of research involved with a particular recommendation and the
extent and/or effectiveness of its controls and procedures in ensuring
the accuracy of registrant data.'' \670\ The commenter also highlighted
another suggestion from the Concept Release noting that the
Commission's rules that govern NRSROs ``may be useful

templates for developing a regulatory program addressing conflicts of
interest and other issues with respect to the accuracy and transparency
of voting recommendations provided by proxy advisory firms.'' The
commenter stated that these two approaches should have been considered
as alternatives to the rule. We have considered the alternative of
requiring additional disclosure regarding the methods and procedures
used to develop proxy voting advice, but believe it is preferable to
avoid being overly prescriptive about the content of the report for a
particular registrant/recommendation. Instead, for the reasons
discussed throughout this release, we believe it is more appropriate to
focus on principles that will allow the clients of proxy voting advice
businesses to have access to more complete and transparent information
upon which to make a voting decision, while providing flexibility to
proxy voting advice businesses to determine the best means to satisfy
those principles. Moreover, while we recognize that other regulatory
regimes may take different approaches to similar issues, we note that
the role of NRSROs and proxy voting advice businesses differ from one
another and that following a similar regulatory approach might not be
appropriate. We also recognize that the costs and benefits of NRSRO
regulation differ from the costs and benefits of potential additional
regulation of proxy voting advice businesses. The principles-based
approach reflected in the final amendments is tailored to the unique
role played by proxy voting advice businesses in the proxy process and
is intended to be adaptable to existing market practices.
---------------------------------------------------------------------------

    \670\ See letter from Glass Lewis II.
---------------------------------------------------------------------------

5. Require Disabling or Suspension of Pre-Populated and Automatic
Submission of Votes
    The final amendments do not condition the availability of the Rules
14a-2(b)(1) and 14a-2(b)(3) exemptions on a proxy voting advice
business structuring its electronic voting platform to disable or
suspend the automatic submission of votes in instances where a
registrant indicates that it intends to file (or has filed) a response
to the voting advice as additional soliciting materials. Alternatively,
we could require such a condition. Another alternative would be to
require that the proxy voting advice business refrain from pre-
populating a client's voting choices once a registrant indicates it
intends to file a response, indefinitely or for a period of time, and
subject to conditions. Several commenters supported an alternative that
would generally limit or disable the automatic submission of votes,
claiming it would lead to more informed proxy voting, though these
commenters did not necessarily condition such limitations on the filing
of a registrant response.\671\
---------------------------------------------------------------------------

    \671\ See letters from BRT; NAM; BIO. But see, e.g., letters
from CII IV; Dan Jamieson (Jan. 16, 2020); IAA; ISS; New York
Comptroller II.
---------------------------------------------------------------------------

    We recognize that these pre-population and automatic submission
functions may enable proxy voting advice business clients to vote their
proxies prior to registrants being able to provide a response to the
proxy voting advice. We also recognize that disabling or suspending
these functions when registrants have indicated they intend to file
responses to voting advice could benefit the clients of proxy voting
advice businesses to the extent that it increases the likelihood that
the clients of the proxy voting advice businesses would review the
registrants' responses, and take them into consideration, before voting
their proxies. At the same time, depending on how such a measure is
implemented and conditioned, such an alternative could give rise to
timing pressures and other logistical challenges. For example,
disabling these functions permanently under certain circumstances could
increase costs for clients if they need to devote greater resources to
managing the voting process as a result, which may in turn also reduce
the value of the services of the proxy voting advice businesses.
    We have declined to adopt such a prescriptive approach at this
time, but rather have focused on an incremental principles-based
approach in order to see how practice develops in light of the changes
being adopted. The amendments we are adopting are intended to make
clients of proxy voting advice businesses aware of a registrant's views
about proxy voting advice in a timely manner, which could assist these
clients in making voting determinations. Further, the Commission has
provided investment advisers, who often engage proxy voting advice
businesses to provide voting related services, with additional guidance
regarding how they could consider their policies and procedures
regarding these types of automated voting functions.\672\
---------------------------------------------------------------------------

    \672\ See Supplemental Proxy Voting Guidance.
---------------------------------------------------------------------------

6. Exempt Smaller Proxy Voting Advice Businesses From the Additional
Conditions to the Exemptions
    As discussed in Section III.C.2 above, given certain industry
practices, the costs associated with the final amendments may be
different for certain proxy voting advice businesses. For example, the
three major proxy voting advice businesses have processes in place for
sharing certain aspects of their analysis with certain registrants
prior to making a recommendation to clients, which they may be able to
leverage to comply with the new conditions. However, it is possible
that entrants to this market (which could be smaller than the existing
three major proxy voting advice businesses) would have to develop new
processes to meet the conditions for exemption under the final
amendments if they choose to engage in the types of activities that
fall within the scope of Rule 14a-1(l)(1)(iii). Some of the costs of
developing these new processes are likely fixed, and do not vary with
the number of issuers a proxy voting advice business covers or the
number of clients it serves. Thus, the costs associated with the final
amendments could affect potential entrants into the market for proxy
advice that are smaller businesses more than the existing three major
proxy voting advice businesses. To the extent the costs associated with
the final amendments disproportionately affect smaller proxy voting
advice businesses that might consider entering the market in the
future, the final amendments could reduce competition among proxy
voting advice businesses.
    As a means of addressing the potential adverse effect on
competition among proxy voting advice businesses, we could exempt
smaller proxy voting advice businesses from the additional conditions
to the exemptions in Rules 14a-2(b)(1) and 14a-2(b)(3). Several
commenters supported such an alternative.\673\ Exempting smaller proxy
voting advice businesses from the additional conditions would reduce
the cost of the final amendments for such businesses, and could thus
facilitate the entry of new proxy voting advice businesses. However, we
expect the costs associated with the final amendments to be much
smaller compared to the initial costs of setting up the business,
including building a reputation for providing quality services, which
any newcomer will have to incur. Also, such an exemption would mean
that clients of these proxy voting advice businesses would not realize
the same benefits as clients of incumbent firms in terms of potential
improvements in the accuracy, completeness, and transparency of the
information available to them when

they make voting decisions.\674\ Moreover, as we have discussed in
prior sections, we anticipate that the principles-based approach we are
adopting is likely to result in more modest costs increases for proxy
voting advice businesses than the more prescriptive approach we
proposed, which should moderate the impact of the final amendments on
smaller potential entrants.
---------------------------------------------------------------------------

    \673\ See letters from SHARE II; CII IV; Manhattan Institute.
One commenter more generally argued that the Commission should
``adopt policies that would ease entry and participation in the
market.'' See letters from Elliott I, Prof. Li.
    \674\ See letter from SES.
---------------------------------------------------------------------------

7. Require a Narrower Scope of Registrant Notice
    A number of commenters suggested that registrants should only be
allowed to review the facts that a proxy voting advice business uses in
determining its voting recommendation, particularly if we proceeded
with a requirement that registrants review draft proxy voting reports
before they are sent to clients.\675\ For example, rather than
providing a full copy of its voting advice, a proxy voting advice
business could provide a summary thereof, setting forth the facts it
uses without specifying further details.
---------------------------------------------------------------------------

    \675\ See letters from ISS at 57; MFA & AIMA at 2; State Street
at 3; CFA Institute at 2, 8; CIRCA at 22; Glass Lewis II at 22-23;
IAC at 8-9.
---------------------------------------------------------------------------

    We note that while the principles-based approach we are adopting
does not dictate precisely how a proxy voting advice business provides
notice of proxy voting advice to registrants, the final amendments
require that proxy voting advice businesses share the full proxy voting
report with registrants. Although we acknowledge that commenters'
suggested alternative may be less costly for proxy voting advice
businesses to implement, we believe that providing registrants with the
full contents of proxy voting reports is necessary to achieve the
Commission's objective of facilitating informed proxy voting decisions.
Providing registrants with the full contents of the report gives
registrants the opportunity to file additional soliciting materials
that discuss not only the facts underlying the proxy voting advice
business's recommendations, but also the methodology and analysis the
proxy voting advice business used to arrive its recommendations. In
deciding how to vote on a proxy matter, clients of proxy voting advice
businesses may benefit from that additional discussion. As a result, we
anticipate the final amendments will more effectively facilitate
clients' assessment of proxy voting advice than this alternative.
Moreover, because the final amendments do not require an opportunity
for pre-publication review, we believe that the cost of sharing full
reports will be more modest under the final amendments than under the
proposed amendments.

VI. Paperwork Reduction Act

A. Background

    Certain provisions of our rules, schedules, and forms that will be
affected by the amendments contain ``collection of information''
requirements within the meaning of the Paperwork Reduction Act of 1995
(``PRA'').\676\ We published a notice requesting comment on changes to
these collection of information requirements in the Proposing Release
and submitted these requirements to the Office of Management and Budget
(``OMB'') for review in accordance with the PRA.\677\ The hours and
costs associated with maintaining, disclosing, or providing the
information required by the amendments constitute paperwork burdens
imposed by such collection of information. An agency may not conduct or
sponsor, and a person is not required to comply with, a collection of
information unless it displays a currently valid OMB control number.
The title for the affected collection of information is: ``Regulation
14A (Commission Rules 14a-1 through 14a-21 and Schedule 14A)'' (OMB
Control No. 3235-0059).
---------------------------------------------------------------------------

    \676\ 44 U.S.C. 3501 et seq.
    \677\ 44 U.S.C. 3507(d); 5 CFR 1320.11.
---------------------------------------------------------------------------

    The Commission adopted existing Regulation 14A \678\ pursuant to
the Exchange Act. Regulation 14A and its related schedules set forth
the disclosure and other requirements for proxy statements, as well as
the exemptions therefrom, filed by registrants and other soliciting
persons to help investors make informed voting decisions.\679\
---------------------------------------------------------------------------

    \678\ 17 CFR 240.14a-1 et seq.
    \679\ To the extent that a person or entity incurs a burden
imposed by Regulation 14A, it is encompassed within the collection
of information estimates for Regulation 14A. This includes
registrants and other soliciting persons preparing, filing,
processing and circulating their definitive proxy and information
statements and additional soliciting materials, as well as the
efforts of third parties such as proxy voting advice businesses
whose voting advice falls within the ambit of the federal rules and
regulations that govern proxy solicitations.
---------------------------------------------------------------------------

    A detailed description of the amendments, including the need for
the information and its use, as well as a description of the likely
respondents, can be found in Section II above, and a discussion of the
expected economic effects of the amendments can be found in Section IV
above.

B. Summary of Comment Letters to PRA Estimates

    The Commission received three comment letters in response to its
request for comment on the PRA estimates and analysis included in the
Proposing Release.\680\ These commenters expressed concern that the
estimates were not representative of actual impacts and that the
analysis failed to properly account for the paperwork burden that would
be incurred, in particular, by proxy voting advice businesses.\681\ Two
of the commenters asserted that the Commission's analysis understated
the magnitude of the hourly and cost burdens that the proposed
amendments would impose.\682\ One of those commenters provided detailed
estimates of its expected annual compliance burden for each of the
components of the proposed amendments.\683\
---------------------------------------------------------------------------

    \680\ See letters from IASJ; Glass Lewis I; ProxyVote I.
    \681\ See id.
    \682\ See letters from Glass Lewis I; ProxyVote I.
    \683\ See letter from Glass Lewis I.
---------------------------------------------------------------------------

C. Burden and Cost Estimates for the Amendments

    Below we estimate the incremental and aggregate effect on paperwork
burden as a result of the amendments. As discussed in Section II above,
we have made a number of changes from the proposed amendments, most
notably to shift to a principles-based approach in Rule 14a-
2(b)(9)(ii), and we have adjusted our estimates accordingly.
    The burden estimates were calculated by (i) estimating the number
of parties expected to expend time, effort, and/or financial resources
to generate, maintain, retain, disclose or provide information required
by the amendments, and then (ii) multiplying this number by the
estimated amount of time, on average, each of these parties would
devote in order to comply with these new requirements over and above
their existing compliance burden associated with Regulation 14A. These
estimates represent the average burden for all respondents, both large
and small. In deriving our estimates, we recognize that the burdens
will likely vary among individual respondents based on a number of
factors, including the nature and conduct of their business.
1. Impact on Affected Parties
    As discussed above in Section IV.B.1., there are a variety of
parties that may be affected, directly or indirectly, by the
amendments. These include proxy voting advice businesses; the clients
to

whom these businesses provide voting advice; investors and other groups
on whose behalf the clients of proxy voting advice business make voting
determinations; registrants who are conducting solicitations and are
the subject of proxy voting advice; and the registrants' shareholders,
who ultimately bear the costs and benefits to the registrant associated
with the outcome of voting matters covered by proxy voting advice.
    Of these parties, we expect that proxy voting advice businesses
and, to a lesser extent, registrants that are the subject of the proxy
voting advice, would incur some additional paperwork burden resulting
from the amendments.\684\ As discussed further below, we believe that
any incremental burden would be attributable primarily to new Rule 14a-
2(b)(9). With respect to the amendments to Rule 14a-1(l) and Rule 14a-
9, we do not expect the economic impact of these amendments will be
significant because they do not change existing law and therefore do
not change respondents' legal obligations.\685\ Moreover, any impact
arising from these amendments is not expected to materially change the
average PRA burden hour estimates associated with Regulation 14A. We
therefore have not made any adjustments to our PRA burden estimates in
respect of these amendments.
---------------------------------------------------------------------------

    \684\ The PRA requires that we estimate ``the total annual
reporting and recordkeeping burden that will result from the
collection of information.'' [5 CFR 1320.5(a)(1)(iv)(B)(5)] A
``collection of information'' includes any requirement or request
for persons to obtain, maintain, retain, report, or publicly
disclose information [5 CFR 1320.3(c)]. OMB's current inventory for
Regulation 14A, therefore, is an assessment of the paperwork burden
associated with such requirements and requests under the regulation,
and this PRA is an assessment of changes to such inventory expected
to result from adoption of the amendments. While other parties, such
as the clients of proxy voting advice businesses, may have costs
associated with the amendments (see supra Section IV.C.), only proxy
voting advice businesses and registrants will incur any additional
paperwork burden in order to comply with or respond to the
informational requirements of the amendments.
    \685\ The amendments to Rule 14a-1(l) codify existing Commission
interpretations and views about the applicability of the Federal
proxy rules to proxy voting advice and are not expected to have a
significant economic impact. See supra Section IV.C.2.b. The
amendments to Rule 14a-9 may impose direct costs on proxy voting
advice businesses to the extent the amended rule prompts some proxy
voting advice businesses to provide additional disclosure about the
bases for their voting advice. However, we expect any such costs to
be minimal, especially given that the examples in new paragraph (e)
of the Note to Rule 14a-9 were included in prior Commission
guidance. See supra Section IV.C.4.b. One commenter argued that
proxy voting advice businesses and their legal counsel would devote
significant time and effort to review and respond to feedback
received from registrants so as to protect the business from private
litigation claims stemming from Rule 14a-9, as amended. See letter
from Glass Lewis I. While the commenter mentioned the proposed
amendment to Rule 14a-9, we read this comment as primarily relating
to the proposed review and feedback proposal, which we are not
adopting. We do not believe that the amendment to Rule 14a-9
represents a change to existing law, nor does it broaden the concept
of materiality or create a new cause of action, as some commenters
have suggested. See discussion supra Section II.D.3.
---------------------------------------------------------------------------

a. Proxy Voting Advice Businesses
    In the Proposing Release, the Commission estimated that each proxy
voting advice business would incur an aggregate yearly increase in
burden of 500 hours due to the proposed amendments.\686\ In recognition
of the changes from the proposal as well as in consideration of the
comments received regarding the paperwork burdens of the proposed
amendments,\687\ we have adjusted our estimates of the burdens on proxy
voting advice businesses.
---------------------------------------------------------------------------

    \686\ See Proposing Release, PRA Table 1 ``Calculation of
Increase in Burden Hours Resulting from the Proposed Amendments,''
at 66553. The Commission estimated that, for each proxy voting
advice business, the burden would be 1,000 hours in the first year
following adoption and 250 hours in each of the following years, for
a three-year average of 500 burden hours. Id. at note d. to Table 1.
Given the Commission's assumption at the proposing stage that there
were five proxy voting advice businesses, the average of 500 hours
was multiplied by five to arrive at a total of 2,500 hours.
    \687\ See supra note 682.
---------------------------------------------------------------------------

    Proxy voting advice businesses are expected to incur an increased
burden as a result of new Rule 14a-2(b)(9), which will apply to anyone
relying on the exemptions in Rules 14a-2(b)(1) or (b)(3) who furnishes
proxy voting advice covered by Rule 14a-1(l)(1)(iii)(A). The amount of
the burden will depend on a number of factors that are firm-specific
and highly variable, which makes it difficult to provide reliable
quantitative estimates.\688\
---------------------------------------------------------------------------

    \688\ See generally the discussion supra in Sections
IV.C.3.a.ii. and b.ii. concerning the difficulty in providing
quantitative estimates of the costs to proxy voting advice
businesses imposed by the amendments.
---------------------------------------------------------------------------

    There are three components of new Rule 14a-2(b)(9) that we expect
to result in an increased burden. First, in accordance with Rule 14a-
2(b)(9)(i), proxy voting advice businesses will be required to include
in their proxy voting advice (or in an electronic medium used to
deliver the advice) disclosure of conflicts of interest specifically
tailored to proxy voting advice businesses and the nature of their
services.\689\ Second, under Rule 14a-2(b)(9)(ii)(A), proxy voting
advice businesses will be required to adopt and publicly disclose
written policies and procedures reasonably designed to ensure that
registrants that are the subject of the proxy voting advice have such
advice made available to them at or prior to the time such advice is
disseminated to the proxy voting advice business's clients. Third,
under Rule 14a-2(b)(9)(ii)(B), the proxy voting advice business will be
required to adopt and publicly disclose written policies and procedures
reasonably designed to ensure that the proxy voting advice business
provides clients with a mechanism by which they can reasonably be
expected to become aware of a registrant's written statements about the
proxy voting advice in a timely manner before the shareholder meeting.
The amendments also provide non-exclusive safe harbors that the proxy
voting advice businesses may use to satisfy the principle-based
requirements in Rule 14a-2(b)(9)(ii). We address each of these three
components in turn.
---------------------------------------------------------------------------

    \689\ Rule 14a-2(b)(9)(i).
---------------------------------------------------------------------------

    With respect to the conflicts of interest disclosure in new Rule
14a-2(b)(9)(i), the facts and circumstances unique to each proxy voting
advice business, including the conflicts of interest disclosures it
currently provides to its clients as well as the nature of its material
interests, transactions, and relationships, will dictate the additional
disclosure, if any, it must provide under the final rule. For example,
to the extent that proxy voting advice businesses are already providing
the kind of conflicts of interest disclosure required by the rule, it
would reduce their new compliance burden. Another factor that
complicates the calculation of burden is the principles-based nature of
the conflicts disclosure requirement, which eschews prescriptive
disclosure standards in favor of providing proxy voting advice
businesses the flexibility to determine which situations merit
disclosure and the specific details to provide to their clients about
any conflicts of interest identified. While this flexibility in the
rule's application is beneficial for both proxy voting advice business
and their clients, it limits our ability to predict the associated
paperwork burden. Under the rule, a proxy voting advice business's
disclosure could differ for each registrant and be subject to change in
the future as both the business's and its clients' circumstances
change.
    One proxy voting advice business estimated that its burden
associated with the identification and disclosure of conflicts of
information under the proposed rules would add 5,969 burden hours each
year.\690\ While we believe

that the principles-based focus of the adopted requirement, in tandem
with a proxy voting advice business's existing conflicts disclosure
systems and practices (particularly as to registrants that have been
the focus of the business's proxy coverage in prior years), could
significantly mitigate any increased paperwork burden corresponding to
the new rules, we think it is appropriate to increase our estimates to
align more closely with this commenter's input. Accordingly, we
estimate the conflicts of interest disclosure in new Rule 14a-
2(b)(9)(i) to result in 6,000 additional burden hours per proxy voting
advice business.
---------------------------------------------------------------------------

    \690\ See letter from Glass Lewis I. Glass Lewis calculated that
it issued 5,565 total proxy research reports on U.S. companies in
2018. Assuming one hour spent for each report to identify any
potential conflicts and another .5 hours to prepare conflicts
disclosure regarding 807 of the 5,565 registrants for whom Glass
Lewis determined it had disclosable conflict information, Glass
Lewis estimated an increased burden of 5,969 hours annually to
comply with the new conflicts of disclosure requirements in proposed
Rule 14a-2(b)(9)(i).
---------------------------------------------------------------------------

    The remainder of the additional paperwork burden associated with
the amendments will derive from the requirements of Rules 14a-
2(b)(9)(ii)(A) and (B). Because these rules have been designed to
permit proxy voting advice businesses substantial flexibility over the
manner in which they comply, we expect those businesses will implement
mechanisms differently depending on, among other things, the facts and
circumstances of their particular business operations and the nature of
their client bases.\691\ Furthermore, some proxy voting advice
businesses may already have systems sufficient to address some or all
of the mechanics required to comply with Rules 14a-2(b)(9)(ii)(A) and
(B),\692\ which would be expected to limit their overall burden but
cannot be precisely estimated.
---------------------------------------------------------------------------

    \691\ As one example, to be eligible for the safe harbor in Rule
14a-2(b)(9)(iv), a proxy voting advice business has the option to
provide notice on its electronic client platform that the registrant
has filed additional soliciting materials, or it could choose to
provide notice through email or other electronic means. Both
mechanisms for informing clients could involve initial set-up costs
as well as ongoing costs that are hard to predict. Since they are
not required to rely on the safe harbor, proxy voting advice
businesses may also put in place other mechanisms to inform their
clients of a registrant's views about the proxy voting advice, which
could be more or less costly than satisfying the conditions of the
safe harbor.
    \692\ See supra note 609 in Section IV.C.3.b.2.
---------------------------------------------------------------------------

    It appears that the more prescriptive nature of the proposed
amendment regarding registrants' and certain other soliciting persons'
advance review and response to proxy voting advice was a large driver
of the hourly and cost burdens discussed by commenters. We believe the
flexibility afforded by the principles-based approach reflected in the
final rules should therefore result in significantly lower costs for
proxy voting advice businesses and their clients than under the
proposal.\693\
---------------------------------------------------------------------------

    \693\ For example, one commenter enumerated a number of elements
of the proposal that it believed would have an impact on a proxy
voting advice business's paperwork burden and provided estimates of
the hourly burden expected to be incurred that totaled 59,999 burden
hours. Of this amount, we have already addressed and incorporated
the 5,969 hours estimate regarding identifying and disclosing
conflicts. See supra note 690. We address the 19,648 hour estimate
regarding confidentiality agreements below. We believe the remaining
34,382 burden hours pertained to elements of the proposed rules that
are not directly relevant in light of our revisions in favor of a
more principle-based framework that no longer requires mandatory
review and feedback periods. See letter from Glass Lewis I.
---------------------------------------------------------------------------

    We believe that much of the burden of the final amendments would be
for the proxy voting advice business to develop policies that satisfy
the principles and accordingly modify or develop systems and practices
to implement such policies. To derive an estimate for these costs, we
start with our estimated number of registrants filing proxy materials
annually, which is 5,690.\694\ We estimate that the burden on a proxy
voting advice business in setting up, modifying, and implementing such
policies and systems would involve approximately one half-hour per
registrant (2,845 hours) for the notice to registrants under Rule 14a-
2(b)(9)(ii)(A) and one half-hour per registrant (2,845 hours) for the
notice to clients of any response by the registrants under Rule 14a-
2(b)(9)(ii)(B).\695\ Our revised estimates take into consideration our
understanding that some proxy voting advice businesses have systems and
practices in place that may complement or overlap with the new
requirements, which could substantially mitigate any increases to their
overall burden. Also, these estimates represent the average annual
burden increase over three years, as we assume that the burden would be
greatest in the first year after adoption as proxy voting advice
businesses incorporate the new requirements into their existing
practices and procedures, but would be less in subsequent years.
---------------------------------------------------------------------------

    \694\ See supra note 549.
    \695\ In deriving our estimates of one half-hour per registrant
for each of Rule 14a-2(b)(9)(ii)(A) and Rule 14a-2(b)(9)(ii)(B), we
considered estimates provided by one commenter who estimated that
the ``Implementation of final notice period'' component of the
proposal would impose a burden of 0.5 hours per registrant, as would
the ``Process, review and implement requests for a hyperlinked
response'' component. See letter from Glass Lewis I. While these two
proposed components are not part of the final rules, they are in
some ways analogous to the two principles for which proxy voting
advice businesses may need to implement systems under the final
rules. Accordingly, we believe one half-hour burden per registrant
for each of these components is an appropriate estimate as to the
burden on each proxy voting advice business.
---------------------------------------------------------------------------

    In addition to these system-related costs, we expect that the proxy
voting advice businesses would, as a general matter, obtain
acknowledgments or agreements with respect to the use of any
information shared with a registrant, as we expect that the business
would seek to limit disclosure of its report. Given that the rules do
not require proxy voting advice businesses to give pre-release copies
of proxy voting advice to registrants, in contrast to the proposal, we
believe the need for proxy voting advice businesses to individually
negotiate and secure detailed confidentiality agreements from
registrants will be substantially lessened. This is particularly true
to the extent that a proxy voting advice business already maintains a
practice of providing copies of its proxy voting advice to registrants
and can therefore utilize its existing practices with respect to
confidentiality provisions. This would include, for example, the
practice of requiring registrants to agree to or acknowledge certain
terms of use before accessing the proxy voting advice. In this regard,
we note that some proxy voting advice businesses currently provide
reports to registrants without requiring formal confidentiality
agreements, instead requiring only an electronic acknowledgement of
terms of use.\696\
---------------------------------------------------------------------------

    \696\ See supra note 615. For example, Glass Lewis requires a
registrant to click and acknowledge/accept/agree to certain ``terms
of use'' before being able to access the notice and recommendations.
---------------------------------------------------------------------------

    We recognize that there nevertheless may be some hourly and cost
burden associated with a proxy voting advice business's efforts to
obtain acknowledgements \697\ or other kinds of agreements with
registrants before sharing proxy voting advice materials and that there
could be a range of approaches. One approach may be to develop a
standardized form of acknowledgement regarding the report's terms of
use and implementing systems to track the acknowledgments. Under such
an approach, we estimate that each proxy voting advice business would
incur 100 hours in the first year of compliance to draft such
standardized terms of use and update systems to implement and track it,
and 25 hours each year thereafter to implement the terms of use and
systems on a going-forward basis, for a three-year average of 50 hours
per year per proxy voting advice business associated with securing an
acknowledgment or other assurance that the proxy advice will not

be disclosed. However, we recognize that proxy voting advice businesses
could choose instead to negotiate individual terms of use with each
registrant. As a result of modifications we have made from the proposal
in response to commenters, we anticipate that the burden in those cases
would nonetheless be significantly less than the four hours per issuer
burden estimate provided by a commenter regarding the proposal.\698\ We
estimate an average burden of one hour per registrant \699\ under those
circumstances, for a total estimate of 5,690 hours per year associated
with securing an acknowledgment or other assurance that the proxy
advice will not be disclosed. Accordingly, depending on which approach
a proxy voting advice business chooses, we expect that the burden could
range from 50 hours to 5,690 hours per year per proxy voting advice
business. Given current practices, we expect that proxy voting advice
business would generally seek to rely on standardized terms of use.
Nevertheless, for purposes of this PRA analysis, and so as to not
underestimate the burden, we use an estimate of 5,690 hours per proxy
voting advice business to obtain acknowledgments.
---------------------------------------------------------------------------

    \697\ See paragraph (B) of the Rule 14a-2(b)(9)(iii) safe
harbor.
    \698\ See letter from Glass Lewis I.
    \699\ Out of the estimated 18,534 registrants that may be
affected to a greater or lesser extent by the final amendments,
5,690 filed proxy materials with the Commission during calendar year
2018. See Section IV.B.1. and supra note 549.
---------------------------------------------------------------------------

    Overall, we believe that proxy voting advice businesses will incur
an annual incremental paperwork burden to comply with Rule 14a-2(b)(9)
as follows.

------------------------------------------------------------------------
                                           Proxy voting advice business
            New requirement                estimated incremental annual
                                                compliance burden
------------------------------------------------------------------------
Rule 14a-2(b)(9)(i)--Conflicts           Increase in paperwork burden
 Disclosure.                              corresponding to:
Proxy voting advice business must        To the extent that the proxy
 include conflicts of interest            voting advice business's
 disclosure in its proxy voting advice    current practices and
 (or electronic medium used to deliver    procedures do not already
 the advice), as well as a discussion     satisfy the requirement:
 of any policies and procedures used to   Identification and
 identify and address conflicts, and      disclosure to clients of
 any actual steps taken to address any    qualifying conflicts of
 conflicts.                               interest. Includes burden
                                          associated with internal
                                          processes and procedures for:
                                         [cir] Reviewing and preparing
                                          disclosures describing
                                          conflicts of interest,
                                          relevant conflicts policies
                                          and procedures, and actual
                                          steps taken to address
                                          conflicts identified;
                                         [cir] Developing and
                                          maintaining methods for
                                          tracking conflicts of
                                          interest;
                                            [cir] Seeking legal or other
                                             advice; and
                                            [cir] Updating electronic
                                             client platforms, as
                                             applicable.
                                         We estimate the increase in
                                          paperwork burden to be 6,000
                                          hours per proxy voting advice
                                          business.
Rule 14a-2(b)(9)(ii)(A)--Notice to       Increase in paperwork burden
 Registrants and Rule 14a-2(b)(9)(iii)    corresponding to:
 Safe Harbor.
The proxy voting advice business has     To the extent that the proxy
 adopted and publicly disclosed written   voting advice business's
 policies and procedures reasonably       current practices and
 designed to ensure that registrants      procedures are not already
 who are the subject of proxy voting      sufficient:
 advice have such advice made available   Developing new or
 to them at or prior to the time the      modifying existing systems,
 advice is disseminated to clients of     policies and methods, or
 the proxy voting advice business.        developing and maintaining new
 Safe Harbor--The proxy voting    systems, policies and methods
 advice business has written policies     to ensure that it has the
 and procedures that are reasonably       capability to timely provide
 designed to provide a registrant with    each registrant with
 a copy of the proxy voting advice        information about its proxy
 business's proxy voting advice, at no    advice necessary to satisfy
 charge, no later than the time it is     the requirement in Rule 14a-
 disseminated to the business's           2(b)(9)(ii)(A) and/or the safe
 clients. Such policies and procedures    harbor in Rule 14a-
 may include conditions requiring that:.  2(b)(9)(iii).
(A) The registrant has filed its          If applicable,
 definitive proxy statement at least 40   obtaining acknowledgments or
 calendar days before the security        agreements with respect to use
 holder meeting date (or if no meeting    of any information shared with
 is held, at least 40 calendar days       the registrant; and
 before the date the votes, consents,     Delivering copies of
 or authorizations may be used to         proxy voting advice to
 effect the proposed action); and.        registrants.
(B) The registrant has acknowledged      We estimate the increase in
 that it will only use the copy of the    paperwork burden to be 8,535
 proxy voting advice for its internal     hours per proxy voting advice
 purposes and/or in connection with the   business, consisting of 2,845
 solicitation and it will not be          hours for system updates and
 published or otherwise shared except     5,690 hours for
 with the registrant's employees or       acknowledgments regarding
 advisers.                                sharing information.

Rule 14a-2(b)(9)(ii)(B)--Notice to       Increase in paperwork burden
 Clients of Proxy Voting Advice           corresponding to:
 Businesses and Rule 14a-2(b)(9)(iv)     To the extent that the proxy
 Safe Harbor.                             voting advice business's
The proxy voting advice business has      current practices and
 adopted and publicly disclosed written   procedures are not already
 policies and procedures reasonably       sufficient:
 designed to ensure that the proxy        Developing new or
 voting advice business provides          modifying existing systems,
 clients with a mechanism by which they   policies and methods, or
 can reasonably be expected to become     developing and maintaining new
 aware of any written statements          systems, policies and methods
 regarding proxy voting advice by         capable of:
 registrants who are the subject of      [cir] Tracking whether the
 such advice, in a timely manner before   registrant has filed
 the shareholder meeting.                 additional soliciting
 Safe harbor--The proxy voting    materials;
 advice business has written policies    [cir] Ensuring that proxy
 and procedures that are reasonably       voting advice businesses
 designed to inform clients who receive   provide clients with a means
 the proxy voting advice when a           to learn of a registrant's
 registrant that is the subject of such   written statements about proxy
 voting advice notifies the proxy         voting advice in a timely
 voting advice business that it intends   manner that satisfies the
 to file or has filed additional          requirement in Rule 14a-
 soliciting materials with the            2(b)(9)(ii)(B) and/or the safe
 Commission setting forth the             harbor in Rule 14a-
 registrant's statement regarding the     2(b)(9)(iv).
 voting advice, by:.                      If relying on the safe
(A) Providing notice to its clients on    harbor in Rule 14a-
 its electronic client platform that      2(b)(9)(iv)(A) or (B), the
 the registrant intends to file or has    associated paperwork burden
 filed such additional soliciting         would include the time and
 materials and including an active        effort required of the proxy
 hyperlink to those materials on EDGAR    voting advice businesses firm
 when available; or.                      to:
(B) The proxy voting advice business     [cir] Provide notice to its
 providing notice to its clients          clients through the business's
 through email or other electronic        electronic client platform or
 means that the registrant intends to     email or other electronic
 file or has filed such additional        medium, as appropriate, that
 soliciting materials and including an    the registrant intends to file
 active hyperlink to those materials on   or has filed additional
 EDGAR when available.                    soliciting materials setting
                                          forth its views about the
                                          proxy voting advice; and
                                         [cir] include a hyperlink to
                                          the registrant's statement on
                                          EDGAR
                                         We estimate the increase in
                                          paperwork burden to be 2,845
                                          hours per proxy voting advice
                                          business.
                                        --------------------------------
    Total..............................  17,380 hours per proxy voting
                                          advice business.
------------------------------------------------------------------------

    Altogether, we estimate an annual total increase of 52,640 hours
\700\ in compliance burden to be incurred by proxy voting advice
businesses that would be subject to the amendments to Rule 14a-2(b)(9).
We assume that the burden would be greatest in the first year after
adoption, as proxy voting advice businesses incorporate the new
requirements into their existing practices and procedures.
---------------------------------------------------------------------------

    \700\ This represents the annual total burden increase expected
to be incurred by proxy voting advice businesses (as an average of
the yearly burden predicted over the three-year period following
adoption) and is intended to be inclusive of all burdens reasonably
anticipated to be associated with compliance with the conditions of
Rule 14a-2(b)(9). The Commission is aware of three businesses in the
U.S. (i.e., Glass Lewis, ISS, and Egan-Jones) whose activities fall
within the scope of proxy voting advice constituting a solicitation
under amended Rule 14a-1(l)(1)(iii)(A). We estimate that each of
these will have a burden of 17,380 hours per year. We recognize that
there could be other proxy voting advice businesses, including both
smaller firms and firms operating outside the U.S., which may also
be subject to the final rules. However, we expect such a number to
be small. Accordingly, rather than increasing our estimate of the
number of affected proxy voting advice businesses beyond the three
discussed above, we are increasing our annual total burden estimate
by 500 hours to account for those businesses. As a result, the
annual total burden that we estimate will result from this amendment
will be: (17,380 x 3) + 500 = 52,640 hours.
---------------------------------------------------------------------------

b. Registrants
    In addition to proxy voting advice businesses, we anticipate that
registrants would incur some additional paperwork burden as a result of
the amendments. Registrants could experience increased burdens
associated with coordinating with proxy voting advice businesses to
receive the proxy voting advice, reviewing the proxy voting advice, and
preparing and filing supplementary proxy materials in response to the
proxy voting advice, if they choose to do so.
    As the rules do not require registrants to engage with proxy voting
advice businesses or take any action in response to proxy voting
advice, we expect a registrant would bear additional paperwork burden
only if it anticipated the benefits of engaging with the proxy voting
advice business would exceed the costs of participation. These costs
will vary depending upon the particular facts and circumstances of the
proxy voting advice and any issues identified therein, as well as the
resources of the registrant, which makes it difficult to provide a
reliable quantifiable estimate of these costs. Nevertheless, in the
Proposing Release, the Commission stated its belief that the
corresponding burden on registrants would be not significant in most
cases, particularly when averaged among all affected registrants.\701\
As such, the Commission estimated that registrants would each incur, on
average, an increase of ten additional burden hours each year, for a
total increase among all registrants of 18,970 hours annually.\702\
---------------------------------------------------------------------------

    \701\ See Proposing Release, PRA Table 1 at 66553 and note e of
the table.
    \702\ Id.
---------------------------------------------------------------------------

    In consideration of commenters' views that the Commission's
estimates were too low,\703\ we have adjusted our prior burden
estimates upward. Nevertheless, we do not believe the annual burden to
be incurred by an individual registrant would be considerably greater
than was reflected in the Proposing Release, particularly in light of
the modifications we are making to the registrant review process that
was originally proposed. For example, the rules as adopted do not
mandate that registrants be afforded fixed periods of review of proxy
voting advice, as was the case with the proposal.\704\ Furthermore, our
estimates consider the extent to which some registrants' current
practices and procedures may already involve reviewing proxy voting
advice businesses' voting advice, filing additional soliciting
materials, and some amount of investor outreach in response to adverse
voting recommendations. Assuming that a

registrant's annual meeting of shareholders is covered by at least two
of the three major U.S. proxy voting advice businesses, and the
registrant has opted to review both sets of proxy advice and file
additional soliciting materials in response, we estimate an average
increase of 50 hours per registrant in connection with the amendments
for a total annual increase of 284,500 hours.\705\ As discussed above,
however, it is difficult to predict the effect of the amendments on a
registrant's paperwork burden with a great degree of precision.
---------------------------------------------------------------------------

    \703\ See letters from Glass Lewis I (``. . . the ten hour
estimate and resulting burden hour estimate is both unsupported and
likely significantly understated'') and ProxyVote I (``We believe
the Proposed Rulemaking significantly understates the actual burden
imposed on ProxyVote and thus the actual costs we will incur.'')
    \704\ See proposed Rule 14a-2(b)(9)(ii)(2). One commenter
criticized the Commission for not giving proper consideration to
registrants' burden hours associated with the ``review and
feedback'' periods. See Glass Lewis I.
    \705\ In the Proposing Release, for purposes of its PRA
analysis, the Commission assumed that, on average, one-third of the
5,690 registrants that filed proxy materials with the Commission
during calendar year 2018 (1,897) would be the subject of proxy
voting advice each year. See Proposing Release, note b. of PRA Table
1 at 66553. Some commenters who disagreed with this assumption
stated that this figure was too low. See letter from Glass Lewis I.
(suggesting that the correct number was ``likely much closer to 100%
of those that filed proxy materials with the Commission'') and
ProxyVote I (``The appropriate number of registrants that should be
subject to the Proposed Rulemaking's estimates should be 5,690
registrants, not 1,897 registrants''). We also note certain
statements from some proxy voting advice businesses indicating that
they cover tens of thousands of shareholder meetings annually across
global markets. See letters from Glass Lewis I and II; ISS; Egan-
Jones. Accordingly, we have reconsidered our original estimate of
one-third, and agree that our calculations should be based on the
larger number of 5,690 registrants, given the significant volume of
registrants and shareholder meetings that are the subject of proxy
voting advice each year. This results in a total annual burden
increase of 50 x 5,690 = 284,500 hours. We note that such burden
increase would be offset against any corresponding reduction in
burden resulting from the registrant forgoing other methods of
responding to the proxy voting advice (such as investor outreach)
the registrant determines are no longer necessary or are less
preferable in light of the new rules.
---------------------------------------------------------------------------

2. Aggregate Increase in Burden
    Table 1 summarizes the calculations and assumptions used to derive
our estimates of the aggregate increase in burden for all affected
parties corresponding to the amendments.

          PRA Table 1--Calculation of Aggregate Increase in Burden Hours Resulting From the Amendments
----------------------------------------------------------------------------------------------------------------
                                                                              Affected parties
                                                           -----------------------------------------------------
                                                               Proxy voting advice
                                                                    businesses                Registrants
                                                                                (A)                        (B)
----------------------------------------------------------------------------------------------------------------
Burden Hour Increase......................................                     52,640                    284,500
----------------------------------------------------------------------------------------------------------------
Aggregate Increase in Burden Hours........................   [Column Total (A)] + [Column Total (B)] = [337,140]
----------------------------------------------------------------------------------------------------------------

3. Increase in Annual Responses
    We believe that the amendments would increase the number of annual
responses \706\ to the existing collection of information for
Regulation 14A. Although we do not expect registrants to file any
different number of proxy statements as a result of our amendments, we
do anticipate that the number of additional soliciting materials filed
under 17 CFR 240.14a-6 may increase in proportion to the number of
times that registrants choose to provide a statement in response to a
proxy voting advice business's proxy voting advice as contemplated by
Rule 14a-2(b)(9)(ii)(B) and/or the safe harbor under Rule 14a-
2(b)(9)(iv). For purposes of this PRA, we estimate that there would be
an additional 783 annual responses to the collection of information as
a result of the amendments.\707\
---------------------------------------------------------------------------

    \706\ For purposes of the Regulation 14A collection of
information, the number of annual responses corresponds to the
estimated number of new filings that will be made each year under
Regulation 14A, which includes filings such as DEF 14A; DEFA14A;
DEFM14A; and DEFC14A. When calculating PRA burden for any particular
collection of information, the total number of annual burden hours
estimated is divided by the total number of annual responses
estimated, which provides the average estimated annual burden per
response. The current inventory of approved collections of
information is maintained by the Office of Information and
Regulatory Affairs (OIRA), a division of OMB. The total annual
burden hours and number of responses associated with Regulation 14A,
as updated from time to time, can be found at https://www.reginfo.gov/public/do/PRAMain.
    \707\ Because a registrant's decision to review and file
additional soliciting materials in response to proxy voting advice
will be entirely voluntary, it is difficult to predict how
frequently such parties will choose to do so. For purposes of the
PRA estimate in the Proposing Release, the Commission used as its
baseline the average number of times firms filed additional
definitive proxy materials in response to proxy voting advice over
the three calendar years 2016 (99), 2017 (77) and 2018 (84), or 87.
See Proposing Release at n. 269. For purposes of its PRA analysis,
the Commission estimated that at least three times as many
registrants would choose to prepare responses to proxy voting advice
and request that their hyperlink be provided to the recipients of
the advice pursuant to proposed Rule 14a-2(b)(9)(iii) than otherwise
had historically chosen to file additional soliciting materials. As
a result, the Commission estimated that three times as many
supplemental proxy filings would be made each year, which would