[Federal Register Volume 81, Number 218 (Thursday, November 10, 2016)]
[Proposed Rules]
[Pages 79122-79186]
[FR Doc No: 2016-26349]

Vol. 81

Thursday,

No. 218

November 10, 2016

Part II

 Securities and Exchange Commission

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17 CFR Part 240

 Universal Proxy; Proposed Rule

Federal Register / Vol. 81 , No. 218 / Thursday, November 10, 2016 /
Proposed Rules

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 240

[Release No. 34-79164; IC-32339; File No. S7-24-16 ]
RIN 3235-AL84

Universal Proxy

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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SUMMARY: We are proposing amendments to the federal proxy rules to
require the use of universal proxies in all non-exempt solicitations in
connection with contested elections of directors other than those
involving registered investment companies and business development
companies. Our proposal would require the use of universal proxies that
include the names of both registrant and dissident nominees and thus
allow shareholders to vote by proxy in a manner that more closely
resembles how they can vote in person at a shareholder meeting. We
further propose amendments to the form of proxy and proxy statement
disclosure requirements to specify clearly the applicable voting
options and voting standards in all director elections.

DATES: Comments should be received on or before January 9, 2017.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/proposed.shtml);
     Send an email to<EMAIL_ADDRESS>Please include
File Number S7-24-16 on the subject line; or
     Use the Federal eRulemaking Portal (http://www.regulations.gov). Follow the instructions for submitting comments.

Paper Comments

     Send paper comments to Brent J. Fields, Secretary,
Securities and Exchange Commission, 100 F Street NE., Washington, DC
20549-1090.

All submissions should refer to File Number S7-24-16. This file number
should be included on the subject line if email is used. To help us
process and review your comments more efficiently, please use only one
method. The Commission will post all comments on the Commission's
Internet Web site (http://www.sec.gov/rules/proposed.shtml). Comments
are also available for Web site viewing and printing in the
Commission's Public Reference Room, 100 F Street NE., Washington, DC
20549-1090 on official business days between the hours of 10:00 a.m.
and 3:00 p.m. All comments received will be posted without change; we
do not edit personal identifying information from submissions. You
should submit only information that you wish to make available
publicly.
    Studies, memoranda or other substantive items may be added by the
Commission or staff to the comment file during this rulemaking. A
notification of the inclusion in the comment file of any such materials
will be made available on the SEC's Web site. To ensure direct
electronic receipt of such notifications, sign up through the ``Stay
Connected'' option at www.sec.gov to receive notifications by email.

FOR FURTHER INFORMATION CONTACT: Tiffany Posil, Special Counsel, or
Christina Chalk, Senior Special Counsel, in the Office of Mergers and
Acquisitions, at<PHONE_NUMBER>, or Steven G. Hearne, Senior Special
Counsel, in the Office of Rulemaking, at<PHONE_NUMBER>, Division of
Corporation Finance, Securities and Exchange Commission, 100 F Street
NE., Washington, DC 20549.

SUPPLEMENTARY INFORMATION: We are proposing new Rule 14a-19 and
amendments to Rules 14a-2,\1\ 14a-3,\2\ 14a-4,\3\ 14a-5,\4\ 14a-6,\5\
14a-101 \6\ under the Securities Exchange Act of 1934 (``Exchange
Act'').\7\
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    \1\ 17 CFR 240.14a-2.
    \2\ 17 CFR 240.14a-3.
    \3\ 17 CFR 240.14a-4.
    \4\ 17 CFR 240.14a-5.
    \5\ 17 CFR 240.14a-6.
    \6\ 17 CFR 240.14a-101.
    \7\ 15 U.S.C. 78a et seq.
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Table of Contents

I. Introduction
    A. Background
    B. Current Proxy Voting Process in Contested Elections
    C. Recent Feedback on the Proxy Voting Process
    D. Need for Proposed Amendments
II. Proposed Amendments
    A. Bona Fide Nominees and the Short Slate Rule
    1. Revision to the Consent Required of a Bona Fide Nominee
    2. Elimination of the Short Slate Rule
    3. Solicitation Without a Competing Slate
    B. Use of Universal Proxies
    1. Mandatory Use of Universal Proxies in Non-Exempt
Solicitations in Contested Elections
    2. Dissident's Notice of Intent To Solicit Proxies in Support of
Nominees Other than the Registrant's Nominees
    3. Registrant's Notice of Its Nominees
    4. Minimum Solicitation Requirement for Dissidents
    5. Dissemination of Proxy Materials
    6. Form of the Universal Proxy
    7. Timing of Universal Proxy Solicitation Process
    C. Additional Revisions
    1. Director Election Voting Standards Disclosure and Voting
Options
    D. Investment Companies
III. General Request for Comment
IV. Economic Analysis
    A. Background
    B. Baseline
    1. Affected Parties
    2. Contested Director Elections
    3. Other Methods to Seek Change in Board Representation
    C. Broad Economic Considerations
    D. Discussion of Economic Effects
    1. Effects on Shareholder Voting
    2. Potential Effects on Costs of Contested Elections
    3. Potential Effects on Outcomes of Contested Elections
    4. Potential Effects on Incidence and Threat of Contested
Elections
    5. Specific Implementation Choices
V. Paperwork Reduction Act
    A. Background
    B. Summary of Proposed Amendments' Impact on Collection of
Information
    C. Estimate of Burdens
    D. Request for Comment
VI. Small Business Regulatory Enforcement Fairness Act
VII. Initial Regulatory Flexibility Act Analysis
    A. Reasons for, and Objectives of, the Proposed Action
    B. Legal Basis
    C. Small Entities Subject to the Proposed Rules
    D. Projected Reporting, Recordkeeping and Other Compliance
Requirements
    E. Duplicative, Overlapping or Conflicting Federal Rules
    F. Significant Alternatives
    G. Solicitation of Comment
VIII. Statutory Authority and Text of Proposed Rule Amendments

I. Introduction

A. Background

    A shareholder's ability to participate in the election of directors
has been recognized as a fundamental part of state corporate law.\8\
State statutes require corporations to hold an annual meeting of
shareholders for the purpose of electing directors.\9\ Today, few
shareholders of companies with a class of securities registered under
the Exchange Act attend a registrant's meeting to vote in person.
Rather, the primary way for shareholders to learn

about matters to be decided on at a meeting and to vote on the election
of directors is through the proxy process.
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    \8\ See Preston v. Allison, 650 A.2d 646, 649 (Del. 1994); see
also Blasius Indus., Inc. v. Atlas Corp., 564 A.2d 651, 659 (Del.
Ch. 1988) (``The shareholder franchise is the ideological
underpinning upon which the legitimacy of directorial power
rests.'').
    \9\ See, e.g., Model Bus. Corp. Act Sec.  7.01 (2008); Cal.
Corp. Code Sec.  600(b) (2009); Del. Code. Ann. tit. 8, Sec.  211(b)
(2009); N.Y. Bus. Corp. Law Sec.  602(b) (2009).
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    While state law typically authorizes the use of proxies to permit
shares to be voted without shareholders attending the meeting,\10\
parties soliciting proxy authority to vote Exchange Act-registered
securities must comply with the federal proxy rules pursuant to Section
14 of the Exchange Act.\11\ Section 14 of the Exchange Act authorizes
the Commission to establish rules and regulations governing the
solicitation of any proxy or consent or authorization in respect of any
security registered pursuant to Section 12 of the Exchange Act.
Registrants with reporting obligations only under Exchange Act Section
15(d) and foreign private issuers are not subject to the federal proxy
rules. The congressional report accompanying the Exchange Act stated
that ``[f]air corporate suffrage is an important right that should
attach to every equity security bought on a public exchange.'' \12\ The
congressional committees recommending passage of Section 14(a) proposed
that ``the solicitation and issuance of proxies be left to regulation
by the Commission'' \13\ and explained that Section 14(a) would give
the Commission the ``power to control the conditions under which
proxies may be solicited with a view to preventing the recurrence of
abuses which have frustrated the free exercise of the voting rights of
stockholders.'' \14\ Regulation of the proxy process has been a core
function of the Commission since its inception. In discussing the
regulation of the proxy process, Chairman Ganson Purcell explained to a
committee of the House of Representatives in 1943: ``The rights that we
are endeavoring to assure to the stockholders are those rights that he
has traditionally had under State law. . . .'' \15\
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    \10\ See, e.g., Del. Code Ann. tit. 8, Sec.  212.
    \11\ 15 U.S.C. 78n(a).
    \12\ H. R. Rep. No. 73-1383, 2d Sess., at 13 (1934). See also
Mills v. Elec. Auto-Lite Co., 396 U.S. 375, 381 (1970); J. I. Case
Co. v. Borak, 377 U.S. 426, 431 (1964). The congressional report
accompanying the Exchange Act further indicated that ``[i]nasmuch as
only the exchanges make it possible for securities to be widely
distributed among the investing public, it follows as a corollary
that the use of the exchanges should involve a corresponding duty of
according to shareholders fair suffrage.'' H. R. Rep. No. 73-1383,
2d Sess., at 14 (1934).
    \13\ S. Rep. No. 73-792, 2d Sess., at 12 (1934).
    \14\ H.R. Rep. No. 73-1383, 2d Sess., at 14 (1934). Courts have
found that the relevant legislative history also demonstrates an
``intent to bolster the intelligent exercise of shareholder rights
granted by state corporate law.'' Roosevelt v. E.I. Du Pont de
Nemours & Co., 958 F.2d 416, 421 (D.C. Cir. 1992); see also Borak,
377 U.S. at 431.
    \15\ Securit[ies] and Exchange Commission Proxy Rules: Hearings
on H.R. 1493, H.R. 1821, and H.R. 2019 before the House Comm. on
Interstate and Foreign Commerce, 78th Cong., 1st Sess. 172 (1943)
(statement of SEC Chairman Ganson Purcell).
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    Enhancing the ability of shareholders to exercise their right to
elect directors through the proxy process has been the focus of
numerous rule proposals, staff reports and comment letters over the
years.\16\ In the 1990s, the Commission conducted an extensive
examination of the effectiveness of the proxy voting process and its
effect on corporate governance. This review resulted in amendments to
the federal proxy rules that sought to reduce regulatory constraints on
communication among shareholders and the effective exercise of
shareholder voting rights.\17\ In the 2000s, the Commission focused on
the shareholder franchise by seeking public input through roundtables
\18\ and engaging in rulemaking relating to the inclusion of
shareholder nominees for director in the registrant's proxy
materials.\19\ The current approach to shareholder proposals under Rule
14a-8 permits proposals relating to bylaw amendments that would allow
shareholder director nominees to be included in a registrant's proxy
materials alongside the registrant's slate of director nominees.
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    \16\ See, e.g., Reexamination of Rules Relating to Shareholder
Communications, Shareholder Participation in the Corporate Electoral
Process, and Corporate Governance Generally, Release No. 34-13482
(Apr. 28, 1977) [42 FR 23901 (May 11, 1977)]. See also Reexamination
of Rules Relating to Shareholder Communications, Shareholder
Participation in the Corporate Electoral Process, and Corporate
Governance Generally, Release No. 34-13901 (Aug. 29, 1977) [42 FR
44860 (Sept. 7, 1977)]; Staff Report: Review of the Proxy Process
Regarding the Nomination and Election of Directors, U.S. Securities
and Exchange Commission (July 15, 2003), available at https://www.sec.gov/news/studies/proxyrpt.htm, Security Holder Director
Nominations; Release No. 34-48626 (Oct. 14, 2003) [68 FR 60784 (Oct.
23, 2003)] (proposing rules to require companies to include
shareholder nominees in their proxy materials in the event a
director receives over 35 percent withhold votes or a shareholder
proposal requesting access receives more than 50 percent of the
votes); Shareholder Proposals, Release No. 34-56160 (July 27, 2007)
[72 FR 43466 (Aug. 3, 2007)] (proposing rules relating to the
inclusion of bylaw amendments regarding nomination procedures and
the inclusion of shareholder nominees in the registrant's proxy
materials); and Proxy Disclosure and Solicitation Enhancements,
Release No. 34-60280 (July 10, 2009) [74 FR 35076 (July 17, 2009)]
(proposing to modify the short slate rule to make it available to a
non-management soliciting person seeking authority to vote for
nominees named in the registrant's or in any other person's proxy
statement).
    \17\ See Regulation of Communications Among Shareholders,
Release No. 34-30849 (June 23, 1992) [57 FR 29564 (July 2, 1992)]
(``Short Slate Rule Revised Proposing Release'') and Regulation of
Communications Among Shareholders, Release No. 34-31326 (Oct. 16,
1992) [57 FR 48276 (Oct. 22, 1992)] (``Short Slate Rule Adopting
Release''). The amendments sought to address some of these concerns
by establishing an exemption for persons not seeking proxy
authority, establishing a safe harbor from the definition of
solicitation for certain types of shareholder communications, and
allowing dissident shareholders to seek proxy authority to vote for
some of management's nominees when seeking minority representation
on the board of directors.
    \18\ See, e.g., Roundtable on the Federal Proxy Rules and State
Corporation Law (May 7, 2007) and Roundtable on Proxy Voting
Mechanics (May 24, 2007). Materials related to the 2007 roundtables,
including an archived broadcast and a transcript of the roundtable,
are available online at https://www.sec.gov/spotlight/proxyprocess.htm.
    \19\ See, e.g., Facilitating Shareholder Director Nominations,
Release No. 33-9046 (June 10, 2009) [74 FR 29024 (Jun. 18, 2009)]
(proposing rules to require registrants to include shareholder
nominees in a registrant's proxy materials); Facilitating
Shareholder Director Nominations, Release. No. 33-9136 (Aug. 25,
2010) [75 FR 56668 (Sept. 16, 2010)] (adopting rules to require,
under certain circumstances, a registrant's proxy materials to
provide shareholders with information about, and the ability to vote
for, shareholder nominees for director). In 2011, the U.S. Court of
Appeals for the District of Columbia vacated the part of the 2010
rules that required, in certain circumstances, a registrant's proxy
materials to provide shareholders with information about, and the
ability to vote for, a shareholder's nominees for director. See Bus.
Roundtable v. SEC, 647 F.3d 1144 (D.C. Cir. 2011) (vacating Exchange
Act Rule 14a-11). Contemporaneous amendments to Exchange Act Rule
14a-8 (17 CFR 240.14a-8) that permit bylaw amendments allowing
shareholder nominees to be included in registrant proxy materials
were not challenged in the litigation and remain in effect.
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    Despite these initiatives, under the current proxy rules,
shareholders voting by proxy in a contested election \20\ may not be
able to replicate the vote they could cast if they voted in person at a
shareholder meeting because the choices available to shareholders
voting for directors through the proxy process are not the same as
those available to shareholders voting in person at a shareholder
meeting. Shareholders voting in person at a meeting may select among
all of the duly nominated \21\ director candidates proposed for
election by any party and vote for any combination of those candidates.
Shareholders voting by proxy, however, are limited to the selection of
candidates provided by the party soliciting the shareholder's proxy.
Although the current proxy rules allow a soliciting party to provide
shareholders with the full selection of nominees if all such

nominees have consented to being named on its proxy card, aspects of
the current proxy rules \22\ and the parties' strategic interests
typically result in limiting shareholders' choice to the slates of
nominees chosen by the soliciting parties. Thus, shareholders voting by
proxy are unable to make selections based solely on their preferences
for particular candidates. As discussed in Section I.C. below, some
shareholders have recently highlighted this limitation and requested
Commission action.\23\
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    \20\ As used in this release, the term ``contested election''
refers to an election of directors where a registrant is soliciting
proxies in support of nominees and a person or group of persons is
soliciting proxies in support of director nominees other than the
registrant's nominees. We recognize that a contested election can be
defined in broader terms.
    \21\ A duly nominated director candidate is a candidate whose
nomination satisfies the requirements of any applicable state or
foreign law provision or a registrant's governing documents as they
relate to director nominations.
    \22\ See infra Section I.B for a discussion of Rule 14a-4(d)(1),
the bona fide nominee rule, and the definition of a bona fide
nominee in Rule 14a-4(d)(4).
    \23\ See Letter from the Council of Institutional Investors
(Jan. 8, 2014), available at https://www.sec.gov/rules/petitions/2014/petn4-672.pdf (requesting that the Commission eliminate the
requirement to obtain a nominee's consent to be named on a proxy
card in a contested election and allow shareholders to vote for
their preferred combination of nominees on a single proxy card). See
also Letter from the California Public Employees' Retirement System
(Apr. 6, 2015), available at https://www.sec.gov/comments/4-681/4681-10.pdf (``We strongly believe that shareowners should have the
ability to vote for any combination of director candidates in
contested elections. . . . We believe that achieving this ideal
requires the Commission to adopt necessary technical fixes to the
bona fide nominee rule and adopt a mandatory universal proxy
card.'').
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    The changes to the federal proxy rules we propose today would allow
a shareholder voting by proxy to choose among director nominees in an
election contest in a manner that reflects as closely as possible the
choice that could be made by voting in person at a shareholder meeting.
To this end, we are proposing to require the use of a ``universal
proxy,'' or a proxy card that includes the names of all duly nominated
director candidates for whom proxies are solicited, for all non-exempt
solicitations in contested elections.\24\ We believe that shareholders
should be afforded the opportunity to fully exercise their vote for the
director nominees they prefer. This concept--that the proxy voting
process should mirror to the greatest extent possible the vote that a
shareholder could achieve by attending the shareholders' meeting and
voting in person--has guided our efforts in proposing these
changes.\25\ We have looked to this concept because we believe that
replicating the vote that could be achieved at a shareholder meeting is
the most appropriate means to ensure that shareholders using the proxy
process are able to fully and consistently exercise the ``fair
corporate suffrage'' available to them under state corporate law and
that Congress intended our proxy rules to effectuate.\26\
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    \24\ Although investment companies are subject to the federal
proxy rules, the amendments that we are proposing today would not
apply to investment companies registered under Section 8 of the
Investment Company Act of 1940 or business development companies as
defined by Section 2(a)(48) of the Investment Company Act of 1940.
See infra Section II.D.
    \25\ We recognize that the proxy process may not be able to
perfectly replicate the vote in a director election that can be
achieved by attending a meeting and voting in person. For example,
the proposed mandatory universal proxy system would not enable
shareholders to vote by proxy on a director nomination presented
from the floor of the meeting and not included in a proxy statement.
However, this is a rare occurrence due to the prevalence of advance
notice bylaw provisions and the low chance for success of
nominations from the floor without soliciting proxies. We further
note that the proposed universal proxy system does not seek to
replicate the voting choices a shareholder would have on non-
election proposals if voting in person at a shareholder meeting. The
current proxy rules do not limit shareholders' exercise of their
voting rights on non-election proposals to the same extent they
limit the exercise of shareholders' rights on election proposals
because parties can include another party's non-election proposal on
the proxy card without such party's consent. As a result, our
rulemaking efforts have focused on director election proposals.
    \26\ See supra notes 12 and 15.
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B. Current Proxy Voting Process in Contested Elections

    Shareholders that attend a meeting in person generally vote by
casting a written ballot provided at the meeting that includes the
names of all duly nominated candidates for the board of directors.\27\
Thus, in a contested election, shareholders attending the meeting in
person and casting a written ballot can vote for the nominees of their
choice from each party's slate of nominees, up to the specified number
of board seats up for election. In contrast, in the proxy solicitation
process for an election contest, the registrant's director nominees
\28\ are typically presented as one slate in the registrant's proxy
statement and proxy card, and the dissident's \29\ full or partial
slate \30\ of nominees is presented in the dissident's proxy statement
and proxy card. Unlike submitting ballots when a shareholder attends a
meeting in person, a shareholder generally may not validly submit two
separate proxy cards, even when the total number of nominees for which
the two cards are marked does not exceed the number of directors being
elected. In general, under state law, a later-dated proxy card revokes
any earlier-dated one and invalidates the votes on the earlier-dated
card.\31\ Shareholders voting by proxy are therefore effectively
required to submit their votes on either the registrant's or the
dissident's proxy card and cannot pick and choose from nominees on both
cards.
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    \27\ Based on the staff's conversations with parties frequently
engaged in the tabulation of ballots for contested elections.
    \28\ We recognize that a registrant's board of directors (or a
nominating committee it creates) commonly nominates directors for
election to the board. For ease of reference, we refer to those
nominees as ``registrant nominees'' throughout this release.
    \29\ The term ``dissident'' as used in this release refers to a
soliciting person other than the registrant who is soliciting
proxies in support of director nominees other than the registrant's
nominees.
    \30\ ``Partial slate'' as used in this release refers to the
nomination of a number of director candidates that is less than the
number of directors being elected at the meeting. ``Full slate'' as
used in this release refers to the nomination of a number of
director candidates that is equal to the number of directors being
elected at the meeting.
    \31\ See, e.g., Standard Power & Light Corp. v. Inv. Assocs., 51
A.2d 572, 608 (Del. 1947); Parshalle v. Roy, 567 A.2d 19, 23 (Del.
Ch. 1989). See also R. Franklin Balotti, et al., Delaware Law of
Corporations and Business Organizations, Sec.  7.20 (3d ed. 2015)
(``Except in the case of irrevocable proxies, a subsequent proxy
revokes a former proxy. In determining whether a proxy is
subsequent, the date of execution controls.'').
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    Additionally, shareholders voting by proxy are generally limited in
their choice of nominees by Exchange Act Rule 14a-4(d)(1), the ``bona
fide nominee rule,'' \32\ which provides that no proxy shall confer
authority to vote for any person to any office for which a ``bona fide
nominee is not named in the proxy statement.'' The term ``bona fide
nominee'' is defined as a nominee who has ``consented to being named in
the proxy statement and to serve if elected.'' \33\ Thus, in an
election contest, one party may not include the other party's nominees
on its proxy card unless the other party's nominees consent. In the
staff's experience, such consent is rarely provided. Because contested
elections are usually contentious, the nominees may refuse to consent
to being included on the opposing party's card because of a perceived
advantage to forcing shareholders to choose between the competing
slates of nominees. A party's nominees may also refuse to consent to
being named on the opposing party's proxy card because the nominees do
not want to appear to support the opposing party's position or director
nominees. As a result, shareholders are limited in their ability to
vote for directors from both the registrant's and the dissident's
slate.
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    \32\ 17 CFR 240.14a-4(d)(1).
    \33\ 17 CFR 240.14a-4(d)(4).
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    Moreover, since neither party is required to include the other
party's nominees, even if a nominee consents to being named on the
other party's proxy card, that other party can determine whether to
include the nominee for strategic or other reasons. In the staff's
experience, a party will seek to have its nominees included on the
opposing party's proxy card when the party

believes its slate is at a disadvantage in the election contest. The
party that appears to have an advantage in the contest then has no
strategic incentive to include the other party's nominees on its proxy
card.\34\ Thus, even though a mechanism exists where shareholders could
receive a proxy card listing all of the nominees in a contested
election, because competing parties rarely have an incentive to include
the other party's nominees on their card, shareholders today are almost
always required to choose between competing proxy cards.
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    \34\ For example, when a proxy advisory firm recommends a vote
for some, but not all, dissident nominees, in the absence of a
universal proxy shareholders seeking to cast a vote for the
recommended dissident nominees must use the dissident's proxy card.
In that circumstance, a registrant may want to use a universal proxy
to allow shareholders to vote for some registrant nominees while
voting for some dissident nominees in accordance with the proxy
advisory firm's recommendation. The dissident nominees, however, may
have no incentive to consent to their inclusion on a universal proxy
if they believe it is strategically advantageous to have
shareholders choose between the two cards because it may result in
shareholders voting on the dissident card and, as a result, more
dissident nominees being elected.
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    Currently, for shareholders to be assured that they can vote for
the mix of registrant and dissident nominees that they choose (i.e., to
``split their vote''), they generally must attend the meeting in person
and vote. Shareholders that hold their securities in street name are
required to take the additional step of obtaining a legal proxy from
their broker before they are permitted to vote at the meeting. We
understand that in some close elections, proxy solicitors and parties
to the contest have helped shareholders who hold a large stake in the
registrant split their votes by arranging for an in-person
representative to vote their shares at the meeting on the ballots used
for in-person voting. Since the ballots provided at the meeting include
the names of both registrant and dissident nominees, this arrangement
allows those shareholders to choose from all duly nominated
candidates.\35\ However, these options for splitting votes are either
not made available to or are impractical for most other shareholders
who are, therefore, more limited in their ability to vote for their
preferred combination of director nominees.
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    \35\ In those instances, the proxy solicitor creates a
provisional ballot to reflect the split vote. We are also aware of
instances where proxy solicitors have sought to facilitate vote
splitting for some shareholders who hold a large stake in the
registrant by instructing them to obtain a legal proxy and modify
the registrant's proxy card to indicate their preferred combination
of nominees by striking any registrant nominee they do not support
and indicating the dissident nominee they wish to support. Parties
to contested elections have questioned whether this approach is
consistent with the current definition of a bona fide nominee in
Rule 14a-4(d)(4).
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    Rule 14a-4(d)(4), the ``short slate rule,'' was adopted in 1992 to
permit a dissident seeking to elect a minority of the board to ``round
out its slate'' by soliciting proxy authority to vote for some
registrant nominees on the dissident's card. Prior to adopting this
rule, shareholders voting using the proxy card of a dissident seeking
to elect a partial slate were disenfranchised with respect to the
remaining seats on the board, which served as a disincentive for
shareholders to grant proxies to that dissident.\36\ As the Commission
noted in adopting the short slate rule, the bona fide nominee rule
``has acted to prevent the form of proxy from being used to allow
shareholders to exercise their state law right through the proxy
process, and as a result, has both cut off shareholder rights and
greatly disadvantaged shareholder nominees seeking minority
representation on the board of directors.'' The Commission adopted the
short slate rule to mitigate the disadvantage that dissidents faced
when putting forth a partial slate of nominees.\37\
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    \36\ See Short Slate Rule Revised Proposing Release, at 29573
(noting that ``shareholders may be unwilling to execute a proxy that
does not contain authority to vote for all seats up for election,
absent cumulative voting, since the shareholder would not be
exercising its full voting power.'')
    \37\ See Short Slate Rule Adopting Release.
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    The short slate rule permits a dissident to indicate on its card
that it intends to use its proxy authority to vote for the registrant
nominees other than the nominees named on the card and thereby allows
shareholders to vote for the registrant nominees other than those
specified. The shareholder also is provided an opportunity to write in
the names of any other registrant nominees with respect to which the
shareholder withholds voting authority, although to do so, the
shareholder must consult the registrant's soliciting materials in order
to obtain the names of all registrant nominees. The short slate rule is
available only in election contests in which the dissident is seeking
to elect nominees that would constitute a minority of the board and it
applies only to the dissident.\38\ In addition, the short slate rule
permits the dissident, not the shareholder, to select which, if any, of
the registrant nominees to vote for using the short slate proxy card.
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    \38\ Registrants are not permitted to rely on the short slate
rule to solicit authority to vote for some of the dissident's
nominees. Theoretically, a registrant might wish to rely on the
short slate rule if it was proposing a partial slate of nominees
that would constitute a minority of the board. However, as a
practical matter, such solicitations very rarely occur.
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    As originally proposed, Rule 14a-4(d) would have permitted
proponents to include the names of registrant nominees on the proponent
proxy card.\39\ Commenters from the registrant community opposed the
amendment, suggesting that including registrant nominees on the
dissident's card could imply that the registrant nominees supported the
dissident's position, that it would confuse shareholders, and that
minority representation on the board would cause the board to be less
effective. The Commission responded by adopting the current version of
the short slate rule that permits the dissident to name the registrant
nominees for whom the dissident will not vote. The Commission also
stated that commenters' concerns that the election of dissident
nominees to the board could hinder the board's effectiveness are
arguments best made to the shareholders and determined in an
election.\40\ In taking this measured step of adopting a modified short
slate rule, the Commission noted the appeal of a universal proxy in
permitting shareholders to exercise their vote in the same manner as at
a shareholder meeting.\41\
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    \39\ See Short Slate Rule Revised Proposing Release.
    \40\ See Short Slate Rule Adopting Release, at 48288.
    \41\ Id. While neither proposing nor adopting a universal proxy,
the Commission acknowledged that requiring a registrant to include
dissident nominees in the registrant's proxy statement ``would
represent a substantial change in the Commission's proxy rules.''
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    While the short slate rule provides the opportunity, in a contested
election where a dissident is seeking election of a minority of the
board, for a shareholder to use a proxy card to vote for all seats up
for election, it does not provide that shareholder the opportunity to
choose among all registrant and dissident nominees. To address this
limitation, in recent years, proxy solicitors for registrants and
dissidents have facilitated vote splitting to allow a few large
shareholders to choose among all registrant and dissident nominees in a
contested election. In addition, some commentators have suggested the
possibility of requiring both parties to include each other's nominees
on their own proxy cards.\42\ We believe it is

appropriate to now consider a more direct route for shareholders to
exercise the same vote as they could if voting in person at a
shareholder meeting. Revising our rules to facilitate the full exercise
of the shareholder franchise would reduce the costs for shareholders to
vote for their choice of director nominees and provide all shareholders
of the company the same voting opportunities currently available to
only certain shareholders.
---------------------------------------------------------------------------

    \42\ See, e.g., Richard J. Grossman & J. Russel Denton, Never
Mind Equal Access: Just Let Shareholders ``Split Their Ticket'', The
M&A Lawyer (Jan. 2009) (discussing the issue of shareholders seeking
to split their votes and recommending requiring the use of a
universal proxy card in bona fide election contests); Tom Ball, The
Quest for Universal Ballots: Might Boards Benefit Too?, Deal Lawyers
(Nov.-Dec. 2014), available at http://www.morrowco.com/wp-content/uploads/2015/01/Deal-Lawyers-article-on-Universal-Ballots-Nov-Dec-20141.pdf (suggesting universal proxy could have strategic benefits
for registrants in certain situations).
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C. Recent Feedback on the Proxy Voting Process

    In 2013, the Commission's Investor Advisory Committee (``IAC'')
\43\ recommended that we explore revising our proxy rules to provide
proxy contestants with the option to use a universal proxy card in
connection with short slate director nominations.\44\ In early 2014, we
received a rulemaking petition (``Rulemaking Petition'') requesting
that we require the use of a universal proxy that would allow
shareholders to vote for their preferred combination of registrant and
dissident nominees in contested director elections.\45\ In response to
this feedback, the Commission staff undertook a review of the proxy
rules and the Commission held a roundtable in February 2015 to explore
ways to improve proxy voting, including through the adoption of
universal proxies.\46\
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    \43\ The IAC was established in April 2012 pursuant to Section
911 of the Wall Street Reform and Consumer Protection Act [Pub. L.
111-203, sec. 911, 124 Stat. 1376, 1822 (2010)] (``Dodd-Frank Act'')
to advise the Commission on regulatory priorities, the regulation of
securities products, trading strategies, fee structures, the
effectiveness of disclosure, initiatives to protect investor
interests and to promote investor confidence and the integrity of
the securities marketplace. The Dodd-Frank Act authorizes the
Investor Advisory Committee to submit findings and recommendations
for review and consideration by the Commission. The IAC made its
universal proxy card recommendation at its July 25, 2013 meeting.
See Recommendations of the Investor Advisory Committee Regarding SEC
Rulemaking to Explore Universal Proxy Ballots (Jul. 25, 2013),
available at https://www.sec.gov/spotlight/investor-advisory-committee-2012/universal-proxy-recommendation-072613.pdf (``IAC
Recommendation'').
    \44\ A ``short slate director nomination'' occurs where
dissident nominees, if elected, would constitute a minority of the
board of directors. See Rule 14a-4(d).
    \45\ See Letter from the Council of Institutional Investors
(Jan. 8, 2014), available at http://www.sec.gov/rules/petitions/2014/petn4-672.pdf. The Rulemaking Petition requested that the
Commission eliminate the requirement to obtain a nominee's consent
to be named on a proxy card in a contested election and to allow
shareholders to vote for their preferred combination of nominees on
a single proxy card.
    \46\ See Proxy Voting Roundtable, U.S. Securities and Exchange
Commission (Feb. 19, 2015), available at http://www.sec.gov/spotlight/proxy-voting-roundtable.shtml.
---------------------------------------------------------------------------

    The IAC has observed that many retail and institutional investors
do not have the practical ability to attend shareholder meetings in
person and vote by ballot, which would permit them to choose among all
of the candidates who are duly nominated.\47\ The IAC recommended that
the Commission explore revising the bona fide nominee rule to permit
the use of universal proxies. In reaching this recommendation, the IAC
noted that the effect of the bona fide nominee rule, in conjunction
with state corporate law voting provisions, is that shareholders voting
by proxy have no practical ability to vote for a combination of
dissident nominees and registrant nominees, in contrast to
shareholders' ability to pick among all of the duly nominated
candidates when they vote in person at a meeting.\48\
---------------------------------------------------------------------------

    \47\ See IAC Recommendation, at 1.
    \48\ See IAC Recommendation. In addition, the IAC recommended
that the Commission explore whether all or only a portion of duly
nominated candidates must or may appear on a universal proxy card.
---------------------------------------------------------------------------

    The Rulemaking Petition requested that the Commission amend the
proxy rules to remove the requirement to obtain the consent of the
opposition's nominees prior to including those nominees on a proxy card
and require the use of a universal proxy that would allow shareholders
to vote for their preferred combination of registrant and dissident
nominees. The Rulemaking Petition contended that such amendments are
necessary to fully enfranchise shareholders. It also noted that
universal proxy cards would be less likely to confuse shareholders and
less complex than proxy cards under the short slate rule, thus
resulting in a less cumbersome voting process.
    At the February 2015 proxy voting roundtable,\49\ one panel
addressed the current state of contested elections and whether changes
should be made to the federal proxy rules to facilitate the use of
universal proxy cards. The discussion focused on, among other things,
whether universal proxies would increase the frequency of election
contests or provide an advantage to one party or the other in a
contested election. Some panelists stated that universal proxies would
result in more contests; \50\ others stated that they could facilitate
settlements or accommodations with dissidents before a contest arose
resulting in fewer contests.\51\ Several panelists asserted that
adopting universal proxy would more closely replicate the vote that
could be made by voting in person at a shareholder meeting,\52\ while
another asserted that such a change should not be made in a vacuum
without more broadly addressing the proxy voting process.\53\ While
panelists differed on many aspects of the universal proxy card, the
fundamental concept that the proxy system should allow shareholders to
vote by proxy as closely as possible to how they could vote in person
at a shareholder meeting was generally acknowledged.\54\
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    \49\ See supra note 46.
    \50\ See, e.g., Unofficial Transcript of the Proxy Voting
Roundtable (Feb. 19, 2015) (``Roundtable Transcript''), comments of
David A. Katz, Partner, Wachtell, Lipton, Rosen & Katz LLP, at 41,
Anne Simpson, Senior Portfolio Manager and Director of Global
Governance, CalPERS, at 43 and Steve Wolosky, Partner, Olshan Frome
& Wolosky, LLP, at 48-49, available at http://www.sec.gov/spotlight/proxy-voting-roundtable/proxy-voting-roundtable-transcript.txt.
    \51\ See, e.g., Roundtable Transcript, comments of Michelle
Lowry, Professor, Drexel University, at 60 and Lisa M. Fairfax,
Professor, George Washington University Law School, at 48.
    \52\ See, e.g., Roundtable Transcript, comments of Lisa M.
Fairfax, Professor, George Washington University Law School, at 30
and Anne Simpson, Senior Portfolio Manager and Director of Global
Governance, CalPERS, at 35-36, 73.
    \53\ See, e.g., Roundtable Transcript, comments of David A.
Katz, Partner, Wachtell, Lipton, Rosen & Katz LLP, at 74. We note,
however, that the panelist did not specify what other parts of the
proxy system should be addressed.
    \54\ In a comment letter following the roundtable, one commenter
reiterated its recommendation that the Commission propose rules to
facilitate the use of universal proxies for contested elections,
contending that such a change would enfranchise shareholders by
permitting them to vote for the combination of nominees that they
believe best serves their economic interest, lessen shareholder
confusion concerning the proxy and lower shareholders' costs to
vote. See Letter from the Council of Institutional Investors (Mar.
5, 2015), available at http://www.sec.gov/comments/4-681/4681-7.pdf.
In contrast, another commenter suggested that mandating universal
proxies would facilitate election contests that are disruptive to
public companies and instead encouraged more robust communications
between management and shareholders. See Letter from the Center for
Capital Markets Competitiveness (Feb. 18, 2015), available at http://www.sec.gov/comments/4-681/4681-6.pdf.
---------------------------------------------------------------------------

D. Need for Proposed Amendments

    We believe the proxy system should allow shareholders to achieve by
proxy the vote they could cast in person at a shareholder meeting. We
believe that the right to vote is of particular importance when
shareholders are deciding among candidates in a contested election.
While the Commission has taken some steps in the past to facilitate
shareholders' ability to choose among the nominees in competing slates,
such as through the adoption of the short slate rule, we are

concerned that the current proxy rules may not allow shareholders to
fully exercise their voting rights. In particular, our rules may not
permit shareholders to select their preferred combination of nominees
through the proxy process, even though they could do so if they were to
attend a shareholder meeting. In its review of proxy contests, the
staff has become aware of parties engaging in practices to facilitate
split voting for certain, typically large, shareholders.\55\ The staff
has also observed other ``self-help'' measures intended to facilitate
split voting, such as attempting to allow shareholders to ``write in''
their candidate of choice on a proxy card, or in the case of
registrants that are at risk of losing a majority of the seats on the
board, nominating less than the total number of directors up for
election to effectively assure the election of some dissident nominees.
We believe a universal proxy card would better enable shareholders to
have their shares voted by proxy for their preferred candidates and
eliminate the need for special accommodations to be made for
shareholders outside the federal proxy process in order to be able to
make such selections. We further believe that a universal proxy system
would help to ensure that all shareholders of the company are
consistently and uniformly afforded the ability to select the director
candidates of their choice in contested elections.
---------------------------------------------------------------------------

    \55\ See supra note 35 and accompanying text.
---------------------------------------------------------------------------

    As a result, we are proposing to require the use of universal
proxies in all non-exempt solicitations in connection with contested
elections where a person or group of persons is soliciting proxies in
support of director nominees other than the registrant's nominees. We
are proposing this approach because our rationale for requiring the use
of universal proxies--that the proxy voting process should allow as
much as possible the voting choices that a shareholder would have when
attending the meeting and voting in person--applies equally to all
contested elections. We believe our rules should allow shareholders to
select the combination of nominees that best aligns with their
interests in any contested election.
    In proposing these changes, we are cognizant of concerns that have
been raised that including one party's nominees on the other party's
proxy card could cause shareholder confusion or imply that the
soliciting party supports the other party's nominees. We believe that
some of these concerns would be mitigated by the amendments we propose
today, including the proposed requirement to clearly distinguish
between the registrant and dissident nominees on the proxy card.\56\ To
the extent that the proposed amendments do not fully alleviate these
concerns, we believe they can be addressed through disclosure in the
proxy statement.
---------------------------------------------------------------------------

    \56\ See proposed Rule 14a-19(e)(3).
---------------------------------------------------------------------------

    We are also mindful that some have expressed that dissident
representation on a board could lead to a less effective board of
directors due to dissension, loss of collegiality and fewer qualified
persons being willing to serve. As explained in more detail in Section
IV.D below, while the proposed amendments are expected to result in
reduced costs for shareholders seeking to split their votes, it is
unclear whether the amendments would affect the number of dissident
nominees elected to the board.\57\ Similarly, it is unclear whether
registrants would necessarily face an increased incidence of changes in
board dynamics. If the proposed amendments result in additional
dissident representation, it is difficult to predict whether such
additional dissident representation would enhance or detract from board
effectiveness and shareholder value.\58\ Similar concerns were
expressed at the time the Commission adopted the short slate rule.\59\
As the Commission stated in adopting the short slate rule, arguments
that the election of dissident nominees will hinder the board's
effectiveness are best made to the shareholders for their consideration
when making voting decisions and ``should not be a basis for imposing .
. . regulatory barriers to the full exercise of the shareholder
franchise.'' \60\ Nevertheless, we solicit comment on the possible
positive or negative impact the amendments could have on board
performance. In particular, we solicit data on the effect of the
proposed amendments on both the number of proxy contests and the
resulting effect, if any, on dissident or incumbent director
representation on boards. For the reasons discussed throughout this
release, we preliminarily believe that facilitating the full exercise
of the shareholder franchise by a broader group of shareholders may
justify mandating the use of universal proxies in contested elections.
---------------------------------------------------------------------------

    \57\ See infra Section IV.D.3 (discussing potential economic
effects on outcomes of contested elections).
    \58\ See infra Section IV.C (discussing broad economic
considerations).
    \59\ See Short Slate Rule Adopting Release.
    \60\ See Short Slate Rule Adopting Release, at 48288.
---------------------------------------------------------------------------

II. Proposed Amendments

    Section 14 of the Exchange Act authorizes the Commission to
establish rules and regulations governing the solicitation of any proxy
or consent or authorization in respect of any security registered
pursuant to the Exchange Act. In regulating the proxy process, we have
sought to facilitate the rights shareholders have traditionally had
under state law. We believe the current proxy rules could be improved
to allow shareholders to more efficiently and fully exercise these
rights in contested elections. To that end, we are proposing amendments
to our proxy rules that would permit shareholders to vote by proxy for
any combination of candidates for the board of directors, as they could
if they attended the shareholder meeting in person and cast a written
ballot.\61\
---------------------------------------------------------------------------

    \61\ As discussed in Section II.D, the amendments we are
proposing today to implement a mandatory universal proxy system
would not apply to investment companies registered under Section 8
of the Investment Company Act of 1940 or business development
companies as defined by Section 2(a)(48) of the Investment Company
Act of 1940.
---------------------------------------------------------------------------

    In order to provide for the use of universal proxy cards in
contested elections, we are proposing to amend the proxy rules to
establish new procedures for the solicitation of proxies, the
preparation and use of proxy cards and the dissemination of information
about all director nominees in contested elections. Specifically, we
are proposing amendments that would:
     Revise the consent required of a bona fide nominee;
     Eliminate the short slate rule;
     Require the use of universal proxy cards in all non-exempt
solicitations in connection with contested elections;
     Require dissidents to provide registrants with notice of
intent to solicit proxies in support of nominees other than the
registrant's nominees and the names of those nominees;
     Require registrants to provide dissidents with notice of
the names of the registrant's nominees;
     Prescribe a filing deadline for dissidents' definitive
proxy statement;
     Require dissidents to solicit the holders of shares
representing at least a majority of the voting power of shares entitled
to vote on the election of directors; and
     Prescribe requirements for universal proxy cards.
    We also are proposing additional improvements to the proxy voting
process by making changes to the form of proxy. Consistent with our
goal of facilitating shareholder voting in

director elections, we are proposing additional amendments that would
apply to all director elections. First, we are proposing to amend Rule
14a-4(b) to mandate that proxy cards include an ``against'' voting
option when applicable state laws give effect to a vote against. We are
similarly proposing amendments to require proxy cards to give
shareholders the ability to ``abstain'' in an election where a majority
voting standard is in effect. Finally, we are also proposing amendments
to the proxy statement disclosure requirements to mandate disclosure
about the effect of a ``withhold'' vote in an election.

A. Bona Fide Nominees and the Short Slate Rule

    The current proxy rules limit the ability of parties in a contested
election to include the names of all nominees on their proxy card.
Exchange Act Rules 14a-4(d)(1) and 14a-4(d)(4) provide that no proxy
may confer authority to vote for any nominee unless that nominee has
consented to being named in the proxy statement and to serve if
elected. As a result, a party in a contested election cannot include on
its proxy card a nominee from the opposing party without the express
authorization of that nominee, which is rarely provided. These proxy
rules, along with state law rules regarding the effect of later-dated
proxy cards, effectively create a system in which parties to a
contested election distribute their own proxy cards that include only a
subset of all director nominees. Ultimately, these limitations restrict
the voting choices available to shareholders using the proxy process,
as these shareholders are unable to use a proxy to vote for a
combination of nominees of their choice.
    The Commission sought to address some of the concerns about
shareholders' inability to split their vote between the registrant's
and the dissident's proxy cards through the adoption of the short slate
rule.\62\ The short slate rule permits a dissident seeking to elect a
minority of the board to solicit authority to vote for some of the
registrant's nominees on its proxy card. However, to comply with Rule
14a-4(d)(4), the dissident is only permitted to include on its proxy
card the names of the registrant's nominees for whom it will not vote.
While this rule provides shareholders with some additional choices in
the proxy voting process, shareholders wishing to vote for nominees for
all of the board seats up for election are still limited to voting by
proxy for the combination of nominees that either the dissident or
registrant chooses. Moreover, the short slate rule does not contemplate
a registrant proposing a partial slate of nominees (or nominating less
than the total number of directors to be elected), a tactic that may be
advantageous for some registrants.\63\
---------------------------------------------------------------------------

    \62\ See Short Slate Rule Adopting Release.
    \63\ See Ronald Barusch, Dealpolitick: Management Takes Page
from Activist Playbook with ``Short Slates,'' Wall St. J. (July 31,
2014), available at http://blogs.wsj.com/moneybeat/2014/07/31/dealpolitik-management-takes-page-from-activists-playbook-with-short-slates/ (referencing a new trend among registrants that are at
risk of losing a majority of the seats on the board in which the
registrant nominates less than the total number of directors up for
election to effectively assure the election of some dissident
nominees).
---------------------------------------------------------------------------

1. Revision to the Consent Required of a Bona Fide Nominee
    To allow for proxy cards that reflect the complete choice of
candidates for election, we are proposing amendments to Rule 14a-4(d)
to change the definition of ``bona fide nominee'' \64\ for registrants
other than investment companies registered under Section 8 of the
Investment Company Act of 1940 (``funds'') and business development
companies as defined by Section 2(a)(48) of the Investment Company Act
of 1940 (``BDCs'').\65\ Proposed Rule 14a-4(d)(1)(i) would define a
bona fide nominee as a person who has consented to being named in a
proxy statement relating to the registrant's next meeting of
shareholders at which directors are to be elected. This would
effectively expand the scope of a nominee's consent to include consent
to being named in any proxy statement for the applicable meeting. By
changing the requirement that a person consent to being named in ``a''
proxy statement instead of being named in ``the'' proxy statement,\66\
parties in a contested election will be able to include all director
nominees on their proxy cards, rather than only those nominees who have
consented to being named on that particular party's proxy card.\67\
This change would remove a current impediment to a registrant or a
dissident including the other party's nominees on its proxy card.
---------------------------------------------------------------------------

    \64\ See proposed Rule 14a-4(d)(1)(i).
    \65\ As discussed in Section II.D, the amendments we are
proposing today to implement a mandatory universal proxy system
would not apply to funds or BDCs. For purposes of the rules that
apply to funds and BDCs, the definition of a bona fide nominee and
the short slate rule in current Rule 14a-4(d)(4) would be retained
in proposed Rule 14a-4(d)(1)(ii).
    \66\ We also are proposing a corresponding change from ``the''
proxy statement to ``a'' proxy statement in Rule 14a-4(c)(5).
    \67\ We are proposing these amendments at the same time we
propose Rule 14a-19 that would require the use of universal proxies
in non-exempt solicitations in all contested elections, assuming
certain conditions are met. See infra Section II.B. We note,
however, that the proposed amendments to the bona fide nominee rule
could operate independently from the proposed requirement to use
universal proxies. The proposed amendments to the bona fide nominee
rule, standing alone, essentially would allow parties the option of
providing a universal proxy or alternatively providing a proxy with
just some of the opposing party's nominees. We request comment below
about this approach, including whether there are additional changes
we should make to our rules to better enable the amendments to Rule
14a-4(d) to operate independently.
---------------------------------------------------------------------------

    We are cognizant of the concerns that have been raised about
allowing the parties in an election contest to include the other
party's nominees on their proxy card. These include concerns that
listing registrant nominees on a dissident's proxy card could imply
that registrant nominees support the dissident and would serve with
dissident nominees, if elected, and objections about nominees being
forced to lend their name, stature and reputation to the election
campaign of a person with whom the nominee did not choose to run.\68\
Similarly, there may be a question as to whether listing dissident
nominees on a registrant's proxy card could lend credibility to the
dissident nominees or imply that the registrant supports the dissident
nominees. We believe, however, that these concerns would be mitigated
by the proposed requirement to clearly distinguish between the
registrant and dissident nominees on the proxy card \69\ and through
disclosure in each party's proxy statement. We also believe the
proposed presentation and formatting requirements coupled with the fact
that all nominees would be included on the card help to minimize these
concerns. In contrast to the presentation of nominees on a dissident's
proxy card under the short slate rule where the dissident's partial
slate of nominees is presented together with certain registrant
nominees (albeit in an indirect manner), the nominees of each party
would be grouped together and presented on a universal proxy card as a
separate slate of the nominating party. As a result, we believe it
would be less likely under a universal proxy system

that shareholders would reasonably conclude that the registrant's
nominees support the dissident simply because the registrant's nominees
are included on the dissident's proxy card.
---------------------------------------------------------------------------

    \68\ The Commission noted these and other concerns when adopting
the short slate rule in 1992. See Short Slate Rule Adopting Release,
at 48288. We believe these concerns would be especially acute if we
were to amend only Rule 14a-4(d) to change the consent required of a
bona fide nominee, because such an amendment would allow the parties
to choose which of the other party's nominees to include on their
proxy card. We recognize that such concerns could be mitigated by
the proposed requirement to clearly distinguish between each party's
nominees, and registrants could further mitigate these concerns
through disclosures in their soliciting materials. We request
comment below regarding other ways to address them.
    \69\ See proposed Rule 14a-19(e)(3).
---------------------------------------------------------------------------

    We also believe that some of these issues would be less acute with
the implementation of a mandatory system for universal proxies in all
contested elections. If mandatory use of universal proxies is
implemented, we believe it would be increasingly unlikely that
shareholders would conclude that the registrant's nominees support a
dissident's campaign simply because the registrant's nominees are
included on the dissident's proxy card. We also believe that these
concerns can be addressed through disclosure in the proxy statement.
    Proposed Rule 14a-4(d)(1)(i) would retain the requirement that a
nominee consent to serve, if elected. The consent requirement would
continue to help ensure that a registrant or dissident does not
nominate a person who has not consented to serve as a director of the
registrant.\70\ As the Commission indicated when adopting the short
slate rule, a proxy statement should disclose if any nominee has
determined to serve only if its nominating party's slate is elected or
to resign if one or more of the opposing party's nominees were elected
to the board of directors.\71\
---------------------------------------------------------------------------

    \70\ While the proposed amendments to Rule 14a-4(d)(1) to change
the consent required of a bona fide nominee could operate
independently from proposed Rule 14a-19, which would require the use
of a universal proxy card, we are not proposing a change to the
consent requirement without mandatory use of universal proxy cards
in contested elections. See infra Section II.B for a discussion of
mandatory use of universal proxies.
    \71\ See Short Slate Rule Adopting Release, at 48289 n.78.
---------------------------------------------------------------------------

Request for Comment
    1. We are proposing to amend Rule 14a-4(d)(1) to change the
requirement that a nominee consent to being named in ``the'' proxy
statement to require that the nominee consent to being named in ``a''
proxy statement for the next meeting at which directors are to be
elected. This change would enable parties in a contested election to
include all director nominees on their proxy card, including nominees
of an opposing party. Should we amend the requirement as proposed? Why
or why not? Could there be potential concerns with opposing parties
naming nominees of the other party on their proxy card? Please explain.
How can we address or mitigate any such concerns?
    2. Should the proposed amendments to Rule 14a-4(d)(1) be adopted
without proposed Rule 14a-19, which would require the mandatory use of
universal proxies? \72\ Why or why not? If only the proposed amendments
to Rule 14a-4(d)(1) were adopted and a party in a contested election
had the option, but was not required, to include all director nominees
on its proxy card, would proposed Rule 14a-4(d)(1) further the goal of
effectively facilitating shareholders' ability to vote by proxy for
director nominees as they could vote in person at a meeting? Why or why
not?
---------------------------------------------------------------------------

    \72\ See infra Section II.B for a discussion of proposed Rule
14a-19 and the proposed mandatory universal proxy system.
---------------------------------------------------------------------------

    3. If we were to adopt the proposed amendments to Rule 14a-4(d)(1)
to permit the parties in an election contest to include the other
party's nominees on their proxy card without mandating the use of
universal proxies for all parties, are there other amendments that
would need to be adopted to facilitate the operation of proposed Rule
14a-4(d)(1)? For example, should we permit parties to decide whether to
include some or all of the opposing party's nominees? Should we instead
require a party seeking to include names of an opposing party's
nominees on its proxy card to include the names of all of the opposing
party's nominees? Should we consider rules that would require a party
opting to use a universal proxy to provide notice of its intent to use
a universal proxy and the names of its nominees or require the other
party to provide a list of its nominees to the party seeking to use a
universal proxy? Would other amendments be necessary, such as the
proposed amendments concerning the form and format of the proxy card or
additional disclosure requirements?
    4. Do the proposed amendments allow the soliciting parties in a
contested election to adequately address the concerns raised about
possible voter confusion arising from nominees of one party being
placed on the proxy card of an opposing party or creating an
implication that a party's nominees support the opposing party and
would serve with the opposing party's nominees, if elected? Are there
other ways that the amendments could address these concerns? For
example, should we require a statement that inclusion of an opposing
party's nominees on the proxy card should not be construed as an
endorsement of the opposing party's views or nominees?
    5. When adopting the short slate rule, the Commission indicated
that the possibility that nominees may not serve if elected with one or
more of the opposing party's nominees is best addressed through
disclosure. Should we adopt an amendment requiring disclosure about the
possibility that nominees may refuse to serve if elected with any of
the opposing party's nominees? Should we require disclosure describing
how the resulting vacancy can be filled under the registrant's
governing documents and applicable state law?
    6. Are there any additional disclosures that we should require in
the proxy materials or on the proxy card or other steps we should take
to address concerns with the proposed amendments to Rule 14a-4(d)(1) to
permit opposing parties to name each other's director nominees on their
proxy cards?
2. Elimination of the Short Slate Rule
    We are proposing revisions to Rule 14a-4(d) to eliminate the short
slate rule for registrants other than funds and BDCs.\73\ The short
slate rule was adopted to mitigate concerns about a dissident's
inability to allow shareholders to vote on its proxy card for all board
seats up for election when soliciting in support of a partial slate of
nominees.\74\ Proposed Rule 14a-4(d)(1)(i) would permit a proxy to
confer authority to vote for a nominee named on a proxy card if that
nominee consented to being named in any proxy statement for the
applicable meeting. Additionally, each party in a contested election
would be required to include on its proxy card all candidates that have
consented to being named on a proxy card for the applicable
meeting.\75\ Thus, if a dissident solicits proxies in support of a
partial slate of nominees, our proposed rules would permit shareholders
to vote for any combination of registrant and dissident nominees in
order to cast a vote for a full slate of directors.
---------------------------------------------------------------------------

    \73\ See supra note 65.
    \74\ See Short Slate Rule Adopting Release, at 48288.
    \75\ See infra Section II.B for a discussion of proposed Rule
14a-19.
---------------------------------------------------------------------------

    As a result, the short slate rule would no longer be necessary to
accomplish its intended purpose. While the elimination of the short
slate rule would take away the ability of a dissident to select the
registrant nominees it prefers to round out its slate of nominees, the
dissident still would have the ability to include recommendations for
its preferred registrant nominees in its proxy materials. If the short
slate rule is eliminated and mandatory universal proxy is adopted,
shareholders would be able to select their preferred combination of
nominees, including the registrant nominees, if any, when voting for
directors using the dissident's proxy card.

Request for Comment
    7. If we change the consent required of a bona fide nominee, as
proposed, is there any reason the short slate rule, or a modified
version of the rule, should be retained? If so, what circumstances
would warrant the continued use of the short slate rule and should it
be modified to enhance its utility?
    8. While the short slate rule permits a dissident seeking to elect
a minority of the board to solicit authority to vote for some of the
registrant's nominees on its proxy card, the dissident is only
permitted to include on its proxy card the names of the registrant's
nominees for whom it will not vote. Should we consider modifying the
short slate rule to enable a dissident soliciting in support of a slate
that would constitute a minority of the board to round out its slate by
soliciting authority to vote for the dissident's choice of registrant
nominees whose names are included on the dissident's card instead of
the current system of soliciting authority to vote for registrant
nominees who are not named?
    9. Should we retain the short slate rule but modify it to make it
available to dissidents soliciting authority to vote for a slate of
nominees that, if elected, would constitute a majority of the board of
directors?
    10. Should we retain the short slate rule but modify it to make it
available to registrants as well as dissidents? A registrant can
nominate less than the total number of directors up for election to
ensure that some dissident nominees are elected. Should we make a
modified short slate rule available to the registrant in that scenario?
    11. Should we consider any modified version of the short slate rule
instead of a universal proxy system? Would a modified version of the
short slate rule further the goal of effectively facilitating
shareholders' ability to vote by proxy for director nominees as they
could vote in person at a meeting? Please explain.
3. Solicitation Without a Competing Slate
    While the impetus for proposing amendments to Rule 14a-4(d), as
described above, is to address situations in which there are competing
slates for the board of directors, we note that the proposed amendments
would affect the conduct of proxy contests even when a proponent is not
nominating its own candidates for the board of directors. A proponent
might, for example, seek authority to vote ``against'' one or more (but
fewer than all) of the registrant nominees. In that situation, the bona
fide nominee rule currently would prevent the proponent from naming,
and soliciting votes ``for,'' any of the other registrant nominees
because they have not consented to being named in the proponent's proxy
statement. Furthermore, the short slate rule is not available for a
proponent's solicitation of authority to vote ``against'' one or more
of the registrant nominees.\76\
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    \76\ While the short slate rule currently permits a proponent to
seek authority to vote for registrant nominees when the proponent is
nominating at least one candidate (so long as the proponent's
candidate or candidates would constitute a minority of the board of
directors), the rule does not address a situation where a proponent
is seeking votes solely with respect to registrant nominees. See
Rule 14a-4(d)(4).
---------------------------------------------------------------------------

    Another situation in which a proponent might seek to solicit
proxies without nominating its own candidates would be where a
proponent wants to solicit votes for its own proposal that is unrelated
to director elections (e.g., a corporate governance proposal). While a
proponent in that case might want to include the registrant nominees on
its proxy card so that shareholders supporting its proposal would be
able to use the proponent's proxy card also to vote in the election of
directors, the bona fide nominee rule currently would not permit the
proponent to include the names of registrant nominees and solicit votes
``for'' those individuals.\77\
---------------------------------------------------------------------------

    \77\ While the proponent currently could include a proposal for
the election of all of the registrant's nominees as a group without
naming such nominees, the proponent still would have limited options
in the way it could present this group on its proxy card without
running afoul of the bona fide nominee rule (e.g., the proponent
would not have the ability to present individual voting boxes for
each of the registrant's nominees).
---------------------------------------------------------------------------

    In cases such as those described above, the proposed amendments to
Rule 14a-4(d) would permit a proponent to solicit authority to vote on
some or all of the named registrant nominees by providing that a person
is a bona fide nominee as long as he or she consents to being named in
``a'' proxy statement for the next meeting at which directors are to be
elected. We are not proposing to require proponents conducting a
solicitation without a competing slate to include the names of all
registrant nominees on their proxy cards. These campaigns do not
implicate our rationale for requiring the use of universal proxy cards
in contested elections since shareholders can fully exercise their vote
for the director nominees they prefer by using the registrant's proxy
card. In addition, we believe that permitting proponents to solicit
authority to vote on some, but not all, of the registrant nominees is
appropriate because such campaigns do not implicate concerns that have
been raised about allowing the parties in an election contest to
include the other party's nominees on their proxy card. Commenters on
the short slate rule proposed in 1992 raised concerns that modification
of the bona fide nominee rule to permit inclusion of registrant
nominees on a dissident's proxy card would force a registrant nominee
to lend his or her name, stature, or reputation to the election
campaign of a person with whom he or she does not choose to run; create
an implication that the registrant nominees support a proponent's
solicitation and would serve alongside proponent nominees if elected;
and potentially confuse shareholders.\78\ These concerns do not arise
in the context of solicitations without a competing slate.\79\ In this
situation, there is no solicitation that will result in a registrant
nominee serving alongside proponent nominees and shareholders can fully
exercise their vote for the director nominees that they prefer by using
the registrant's proxy card. We also do not believe that there is a
potential for shareholder confusion in this situation because there is
only one set of names for persons nominated to the board of directors;
however, we solicit comment on this point below.\80\
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    \78\ See Short Slate Rule Adopting Release, at 48288.
    \79\ But see supra Section II.A.1 and infra Section II.B.6 for a
discussion of these concerns in the context of contested elections
that would trigger proposed Rule 14a-19 and mandatory universal
proxies.
    \80\ We also believe that these concerns could be less acute
with the implementation of our proposed rules for mandatory use of
universal proxies in all contested elections. If mandatory use of
universal proxies is implemented, we believe it would be
increasingly unlikely that shareholders could reasonably draw any
implication that a registrant nominee supports a proponent's
campaign with respect to the proponent's non-election proposal
simply because the names of registrant nominees appear on the
proponent's proxy card.
---------------------------------------------------------------------------

Request for Comment

    12. The proposed amendments to the bona fide nominee definition
would permit proponents to include the names of some or all of the
registrant's nominees on its proxy card even when the proponent is not
nominating its own candidates. Should this be permitted? Why or why
not? Are there additional or different changes that we should make to
our rules that apply to a situation in which the proponent is not
nominating its own candidates? For example, should we instead require
those proponents to include the names of all registrant nominees? Why
or why not?
    13. Would the inclusion of registrant nominees on a proponent's
proxy card when the proponent is not nominating its own candidates
imply that the

registrant nominees support the proponent's proposal? Would the
inclusion cause shareholder confusion? If so, does the ability to
provide disclosure in a party's soliciting materials sufficiently
address this implication or possible confusion? Are there additional
disclosures or are there other changes that would avoid or mitigate
this implication or confusion? Please provide specific suggestions.

B. Use of Universal Proxies

    To update our proxy system to better facilitate shareholders'
ability to vote for their choice of nominees, we also are proposing
amendments to the federal proxy rules that would require each
soliciting party in a contested election to distribute a universal
proxy that includes the names of all candidates for election to the
board of directors. The dissident in a contested election would be
required to provide notice to the registrant of its intent to solicit
proxies in support of director nominees, other than the registrant's
nominees, and the names of those nominees, no later than 60 calendar
days prior to the anniversary of the previous year's annual meeting
date.\81\ Similarly, the registrant in a contested election would be
required to notify the dissident of the names of the registrant's
nominees no later than 50 calendar days prior to the anniversary of the
previous year's annual meeting date.\82\
---------------------------------------------------------------------------

    \81\ See proposed Rule 14a-19(a) and (b); infra Section II.B.2.
In order to make shareholders aware of the notice deadline, we also
are proposing to require registrants to disclose in their proxy
statement the deadline for providing such notice for the
registrant's next annual meeting. See proposed Rule 14a-5(e)(4).
    \82\ See proposed Rule 14a-19(d); infra Section II.B.3.
---------------------------------------------------------------------------

    In a contested election, after the dissident provides the above
notice, it would be required to solicit the holders of shares
representing at least a majority of the voting power of shares entitled
to vote on the election of directors.\83\ We are additionally proposing
that the dissident be required to file its definitive proxy statement
with the Commission by the later of 25 calendar days prior to the
meeting date or five calendar days after the date the registrant files
its definitive proxy statement.\84\ To ensure that each party's
nominees are presented in a clear and impartial manner, the proposed
rules also would impose specific presentation and formatting
requirements for all director election proposals on universal proxy
cards.\85\
---------------------------------------------------------------------------

    \83\ See proposed Rule 14a-19(a)(3); infra Section II.B.4.
    \84\ See proposed Rule 14a-19(a)(2); infra Section II.B.5.
    \85\ See proposed Rule 14a-19(e); infra Section II.B.6.
---------------------------------------------------------------------------

1. Mandatory Use of Universal Proxies in Non-Exempt Solicitations in
Contested Elections
    We are proposing new Rule 14a-19(e) to require that proxy cards
used in a non-exempt solicitation in connection with a contested
election include the names of all duly nominated candidates for
election to the board.\86\ Rule 14a-4(b)(2) currently requires that a
form of proxy providing for the election of directors shall set forth
the names of the persons nominated for election as directors, including
certain shareholder nominees. Proposed Rule 14a-19(e), in conjunction
with the proposed change to the consent required of a bona fide nominee
discussed above, would require proxy cards used in contested elections
to include the names of all nominees of the registrant, certain
shareholders, and any dissident that has complied with proposed Rule
14a-19. We believe this change would better enable shareholders to vote
for their preferred combination of nominees in a contested election of
directors and would allow the proxy process to more closely replicate
the voting choices available at a shareholder meeting.
---------------------------------------------------------------------------

    \86\ Proposed Rule 14a-19(e) would require that the proxy card
include the names of all persons nominated for election by the
registrant, any person or group of persons that has complied with
Rule 14a-19, and any person whose nomination by a shareholder or
shareholder group satisfies the requirements of an applicable state
or foreign law provision or a registrant's governing documents as
they relate to the inclusion of shareholder director nominees in the
registrant's proxy materials.
---------------------------------------------------------------------------

a. Mandatory Use of Universal Proxies
    We considered whether to propose the mandatory use of universal
proxies or to allow each party to decide whether to use a universal
proxy. We have received divergent recommendations on this issue and, as
discussed below, in order to more effectively address the problem of
shareholders' inability to vote by proxy for the combination of
nominees of their choice, we have decided to propose a mandatory rule.
    The Rulemaking Petition recommended that the Commission require all
duly nominated candidates be named in the universal proxy, noting that
such requirement would ensure shareholders' ability to use either
party's proxy card to vote for the combination of board candidates they
prefer. The Rulemaking Petition also contended that simply repealing
the consent required of a bona fide nominee might encourage parties to
circulate semi-universal proxy cards featuring more, but not all,
candidates.\87\
---------------------------------------------------------------------------

    \87\ See Rulemaking Petition.
---------------------------------------------------------------------------

    In contrast, the IAC recommended a rule in which proxy contestants
would have the option (but not the obligation) to use a universal
proxy,\88\ allowing one or both parties in an election contest to
choose whether to use a universal proxy card that includes the names of
the other party's nominees. The IAC noted that such a rule could allow
a party to decide which bona fide nominees to include on its proxy card
to accompany its own nominees, particularly when parties found all or
certain individuals on a competing slate to be particularly
objectionable. The approach recommended by the IAC could also give the
parties in an election contest latitude to use a universal proxy card
if and when it suits their strategic needs.\89\
---------------------------------------------------------------------------

    \88\ See IAC Recommendation.
    \89\ For example, if the registrant is concerned about a
possible split recommendation from a proxy advisory firm, the
registrant may opt to use a universal proxy to avoid the unintended
consequences of a split vote recommendation. If a dissident is
soliciting proxies in support of a full slate of nominees, a proxy
advisory firm may decide that change is necessary on the board of
directors, but not a change in the majority of directors, and
recommend a split vote on the dissident's proxy card (e.g., vote
``for'' three of the dissident nominees and ``withhold'' on six).
Since shareholders following this recommendation would use the
dissident proxy card to cast their votes on the election of
directors, this could result in more dissident nominees being
elected, a consequence the registrant might seek to avoid by opting
to use a universal proxy. Additionally, if a registrant is at risk
of losing a majority of the seats on the board of directors, the
registrant might opt to use a universal proxy to garner more votes
for the registrant's nominees than would have been achieved if the
shareholders were forced to choose between voting for the
dissident's slate on the dissident's proxy card or the registrant's
slate on the registrant's proxy card.
---------------------------------------------------------------------------

    We are proposing a mandatory system for universal proxies in
contested elections because it best replicates how a shareholder could
vote by attending a shareholder meeting in person and leaves all
discretion in the voting decision to the shareholder. Requiring
universal proxies in contested elections would permit shareholders to
select the combination of nominees that best aligns with their
interests instead of limiting shareholders' choice to a slate of
candidates chosen by a party in the contest.
    A mandatory system for universal proxies also would mitigate
potential shareholder confusion and logistical issues that may result
from allowing the parties in a contested election to choose whether to
use a universal proxy. For example, under the proposed mandatory
system, shareholders would receive proxy cards that include the names
of all nominees rather than proxy cards

with only some of the nominees from which to choose. The inclusion of
all nominees on all proxy cards should reduce the confusion of
competing and differing cards and mitigate concerns that including one
party's nominees on an opposing party's card could imply that those
nominees support the opposing party.
    Further, a mandatory system would reduce the likelihood that the
proxy card would be used as a tactical tool in the proxy contest. In
contrast, under an optional system, if a soliciting person believed
that it could receive more support for its slate by adding just one or
two nominees from the other slate, it might solicit with a proxy card
that only included those nominees. Similarly, a soliciting person under
an optional system might decide not to use a universal card if it
perceived an advantage in forcing a choice between the two competing
slates. Both of these situations would limit shareholder voting
options, which would be counter to the intended purpose of this
rulemaking to facilitate shareholders' ability to vote for their
preferred combination of director nominees as they could in person at a
meeting. The mandatory system we are proposing would apply uniformly to
all soliciting parties and to all election contests \90\ to prevent
soliciting parties from selectively using universal proxies for
tactical purposes.
---------------------------------------------------------------------------

    \90\ As discussed in Section II.D infra, the amendments we are
proposing today to implement a mandatory universal proxy system
would not apply to funds or BDCs.
---------------------------------------------------------------------------

    Shareholders seeking to have director nominees included in a
registrant's proxy materials pursuant to state or foreign law
provisions or a registrant's governing documents, such as the ``proxy
access'' bylaws that some registrants have recently adopted,\91\ must
comply with those requirements. Nominees included in a registrant's
proxy materials in this way are commonly referred to as ``proxy access
nominees.'' Because a mandatory universal proxy system may provide a
less costly means for shareholders or their nominees to gain a form of
access to a registrant's proxy card, some may view a universal proxy
system as a substitute for proxy access bylaw provisions. However, we
believe that the proposed mandatory universal proxy system differs in
significant respects from proxy access because it would not provide
shareholders or their nominees with access to a registrant's proxy
materials in the same manner and extent provided by proxy access
bylaws.
---------------------------------------------------------------------------

    \91\ See Sullivan & Cromwell LLP, Proxy Access: Developments in
Market Practice, at 2 (Apr. 8, 2016), available at https://www.sullcrom.com/siteFiles/Publications/SC_Publication_Proxy_Access__Developments_in_Market_Practice.pdf
(``S&C April Report'') (stating that 200 public companies had
adopted some form of proxy access since the 2015 proxy season,
compared to 15 companies prior to 2015).
---------------------------------------------------------------------------

    Proxy access bylaws commonly require the registrant to include in
its proxy statement the names of the nominating shareholder's nominees,
disclosure required by Schedule 14A about the nominating shareholder
and its nominees, and a statement provided by the nominating
shareholder in support of its nominees' election to the board.\92\
Nominating shareholders complying with proxy access bylaws are not
required to prepare and file their own preliminary and definitive proxy
statements, disseminate any proxy material or solicit any shareholders,
while information about their nominees, including in many cases the
nominating shareholder's own statement about its nominees, is included
in the registrant's proxy materials and provided to shareholders along
with the registrant's proxy card listing the names of the nominating
shareholder's nominees.
---------------------------------------------------------------------------

    \92\ See, e.g., S&C April Report, at A-1 to A-8 (including a
sample form of proxy access bylaw that reflects recent developments
in market practice). If a registrant is required to include a proxy
access nominee in its proxy materials pursuant to a proxy access
bylaw, Item 7(f) of Schedule 14A would require the registrant to
include in its proxy statement the disclosure required from the
nominating shareholder under Item 6 of Schedule 14N about the
nominating shareholder and the proxy access nominee. Nominating
shareholders complying with proxy access bylaws must provide notice
to the registrant on a Schedule 14N of their intent to have a
nominee included in the registrant's proxy materials pursuant to the
registrant's proxy access bylaw by the deadline set forth in Rule
14a-18 and file that notice with the Commission on the date first
transmitted to the registrant. 17 CFR 240.14a-18.
---------------------------------------------------------------------------

    In contrast, the proposed mandatory universal proxy system would
require only that the registrant include the names of the dissident
nominees on its proxy card.\93\ The registrant's proxy card would
clearly distinguish those nominees from the registrant's nominees.\94\
No other disclosure about the dissident's nominees would be required by
the registrant. For example, the registrant's proxy materials would not
be required to include detailed information about the dissident or its
nominees. Nor would the registrant be required to include any
statements by the dissident in support of its nominees' election.
Rather, the registrant would only be required to include a statement in
its proxy statement directing shareholders to refer to the dissident's
proxy statement for information required by Schedule 14A about the
dissident's nominees.\95\ The dissident would be wholly responsible for
disseminating information about its nominees to shareholders and
soliciting proxies in support of its nominees. As a result, the
dissident would need to undertake the time, effort and cost of
preparing and filing a preliminary proxy statement, completing the
staff review process, preparing and filing a definitive proxy statement
by the deadline imposed by proposed Rule 14a-19,\96\ and soliciting the
holders of shares representing at least a majority of the voting power
of shares entitled to vote on the election of directors.\97\ Thus, the
dissident's ``access'' in the proposed mandatory universal proxy system
would be limited to the listing of nominee names on the proxy card and
would be accompanied by the obligation to solicit on behalf of its own
nominees.
---------------------------------------------------------------------------

    \93\ See proposed Rule 14a-19(e)(1); infra Section II.B.6.
    \94\ See proposed Rule 14a-19(e)(3); infra Section II.B.6.
    \95\ See proposed Item 7(h) of Regulation 14A. As discussed in
more detail in Section II.B.5.b infra, to provide shareholders with
access to information about all nominees when they receive a
universal proxy card, we are proposing a requirement that each party
in a contested election refer shareholders to the other party's
proxy statement for information about the other party's nominees and
explain that shareholders can access the other party's proxy
statement for free on the Commission's Web site. Registrants subject
to election contests today routinely refer to the dissident, the
dissident's nominees and the dissident's proxy materials in their
proxy statements likely on the basis that the existence of
alternative nominees is a material fact. See 17 CFR 240.14a-9. For
example, based on a review of 72 proxy contests that the staff
identified as involving competing slates of director nominees in
calendar years 2014 and 2015, see infra note 115, the staff found
that in 68 contests (or 94 percent of the contests), registrants
identified the dissident in their proxy statements. As for the four
contests where the registrants did not identify the dissidents,
either the parties reached a settlement before the annual meeting or
the registrant did not file a proxy statement for the annual meeting
because it was acquired in an intervening transaction. As a result,
we do not expect the proposed requirement to result in meaningfully
new disclosure for registrants.
    \96\ See proposed Rule 14a-19(a)(2); infra Section II.B.5.a.
    \97\ See proposed Rule 14a-19(a)(3); infra Section II.B.4.
---------------------------------------------------------------------------

Request for Comment
    14. Should we mandate the use of universal proxies in contested
elections, as proposed? Does such a requirement more effectively
replicate in-person attendance at a shareholder meeting than the
current proxy system? Are there additional changes we should make to
our proxy rules to facilitate shareholders' ability to vote by proxy in
the same manner they could vote in person at a meeting?
    15. Our proposal applies to all companies with a class of
securities registered under Section 12 of the

Exchange Act but would not apply to funds and BDCs. Should we exclude
any other types of registrants, such as smaller reporting companies
and/or emerging growth companies? Why or why not?
    16. Would mandatory use of universal proxies impose additional
costs on dissidents and/or registrants? If yes, please identify the
costs and quantify them to the extent practicable. Would some of these
costs be avoided under an optional system? If so, which ones and why?
Would some of the benefits attributable to a mandatory system be
reduced or eliminated under an optional system? If so, which ones and
why?
    17. Would a mandatory universal proxy system result in investor
confusion, such as confusion regarding which party a nominee supports?
Would the proposed requirement to clearly distinguish between
registrant and dissident nominees on the proxy card avoid or mitigate
that confusion? Are there additional rule changes that we should make
in this regard?
    18. Should we make the use of universal proxies optional rather
than mandatory? Why or why not? Would an optional system further the
goal of effectively facilitating shareholders' ability to vote by proxy
for director nominees as they could vote in person at a meeting? If
universal proxies were optional, we are interested in the views of both
registrants and dissidents as to how frequently they would choose to
use a universal proxy and why. Under what circumstances would one party
choose to include the names of an opponent's nominees? Under an
optional system, if one party opts to use a universal proxy, is the
other party likely to follow suit? Would allowing for optional use of
universal proxies result in confusion?
    19. If we were to adopt an optional system, should we require a
party opting to use a universal proxy to include all of the other
party's nominees on its card or should we allow each party to select
which nominees to include? If we do not require all nominees to be
listed, would shareholders be confused by the contrasting proxy cards?
Would such a system lead to the parties utilizing universal proxies
only when it offers them a strategic advantage?
    20. If we were to adopt an optional system, should both parties be
permitted to decide whether to use a universal proxy card? If so,
should this decision be made at the beginning of the contest before any
proxy cards are distributed, or should a party be able to opt to use a
universal proxy in the midst of a contest after it or the other party
has distributed a conventional (non-universal) card? What, if any, of
the other proposed amendments should we maintain in an optional system?
For example, should we retain the proposed notice requirements and the
dissident's definitive proxy statement filing deadline for universal
proxy or some other variation of these proposed requirements? Should we
retain the proposed amendments to the form of the universal proxy card?
    21. Should we instead adopt a hybrid system in which the use of
universal proxies in contested elections is mandatory for one party but
optional for the other? Would such a system effectively facilitate
shareholders' ability to vote by proxy for director nominees as they
could vote in person at a meeting? Under a hybrid system, which party
should be required to use the universal proxy? For example, should we
require the use of a universal proxy by dissidents but make it optional
for registrants? This type of hybrid system would permit shareholders
to select their preferred combination of dissident and registrant
nominees on the dissident's proxy card while still requiring a
dissident to conduct an independent solicitation. However, only those
shareholders that a dissident elects to solicit would receive a
universal proxy unless the registrant opted to use a universal proxy.
Should we require the party using the universal proxy in a hybrid
system to furnish a proxy statement to all shareholders to ensure that
every shareholder receives a universal proxy and can vote for their
preferred combination of nominees as they could if attending the
shareholder meeting in person? In a hybrid system, would it be
necessary or helpful to require dissidents to provide notice of the
names of their nominees to registrants as we have proposed for the
mandatory universal proxy system? What other requirements would be
needed in a hybrid system? Under a hybrid system in which one party is
required to use a universal proxy, is the other party likely to follow
suit and elect to provide a universal proxy as well? Would a hybrid
system provide advantages to one party or the other in an election
contest? If so, which party would it benefit and why?
    22. If we do not adopt a mandatory system for universal proxies,
how else could we enable shareholders to vote by proxy for their choice
of nominees in a contested election?
    23. Would mandatory use of universal proxies increase the frequency
of contested elections? Why or why not? Would the optional use of
universal proxies have a similar impact? Why or why not?
    24. Would shareholders use mandatory universal proxy instead of a
registrant's proxy access bylaw? Why or why not? What would be the
implications of such use and should any additional rule changes be made
in this regard?
b. Use in Contested Elections
    We are proposing to apply the requirement to use universal proxies
to all non-exempt solicitations in connection with contested elections
where a person or group of persons is soliciting proxies in support of
director nominees other than the registrant's nominees.\98\ We are
proposing this approach because our rationale for requiring the use of
universal proxies--that the proxy voting process should mirror as much
as possible the vote that a shareholder could make by attending the
meeting and voting in person--applies equally to all types of contested
elections. We believe our rules should permit shareholders to select
the combination of nominees that best aligns with their interests in
any contested election, whether a dissident is soliciting proxies in
support of a number of nominees that would constitute a minority or a
majority of the board of directors.
---------------------------------------------------------------------------

    \98\ As discussed in Section II.D infra, the amendments we are
proposing today to implement a mandatory universal proxy system
would not apply to funds or BDCs.
---------------------------------------------------------------------------

    We recognize that there are differing views on the types of
contests that warrant the use of universal proxies. For example, the
IAC recommended the use of universal proxies only in connection with
short slate director nominations, while the Rulemaking Petition
recommended the use of universal proxies in all contested
elections.\99\ We considered limiting the requirement to use universal
proxies to contests where the election could not result in a change in
a majority of the board of directors. We are aware that where a contest
results in a change in a majority or all of the directors, there may be
consequences beyond the resulting change in the board of directors.
These may include triggering provisions in debt covenants and other
material contracts and agreements. We also recognize that those who
believe the use of universal proxies would increase the success of
dissidents may contend that requiring universal proxies in all contests
(including contests in which the election of a dissident's nominees
would result in a change in a majority

of the directors) would likely increase the occurrence of these change-
in-control consequences. However, we believe these change-in-control
implications and any associated risks are better addressed through
disclosure in the proxy statement (as is currently the case) rather
than through federal proxy rules applicable to the solicitation
process.\100\
---------------------------------------------------------------------------

    \99\ See IAC Recommendation; Rulemaking Petition.
    \100\ We are unaware of any empirical studies providing direct
evidence that requiring universal proxy cards would increase the
incidence of the change-in-control consequences discussed here.
---------------------------------------------------------------------------

    The mandatory universal proxy system, as proposed, would not apply
to an election of directors involving only registrant and proxy access
nominees. Where proxy access nominees are included on the registrant's
proxy card and there is no competing slate of dissident nominees,
shareholders will already have access to a proxy that reflects all of
their voting options for the election of directors. Therefore, we are
not proposing that the requirements of the proposed universal proxy
system would apply to such nominating shareholders.\101\
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    \101\ We are, however, proposing to require that the form of
universal proxy to be used by registrants and dissidents also
include any proxy access nominees. See proposed Rule 14a-19(e);
infra Section II.B.6.
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    We are proposing to apply the requirement to use a universal proxy
only to solicitations that involve a contested election. In
solicitations that do not involve a contested election, such as a
``vote no'' campaign (i.e., where a soliciting person is only
soliciting ``withhold'' or ``against'' votes with respect to one or
more of the registrant's nominees) or where a shareholder is only
soliciting proxies in support of a shareholder proposal, there are no
alternative director nominees. Those solicitations would not raise the
same concerns that mandatory universal proxy is intended to address
because the registrant's proxy card already provides shareholders with
the ability to select their choice of nominees from all director
candidates. Where the solicitation does not involve a contested
election, a proponent's form of proxy would be governed by Rule 14a-
4(b)(2), as it is today. We note, however, that Rule 14a-4(b)(2), in
conjunction with the proposed change to the consent required of a bona
fide nominee discussed above,\102\ would allow a proponent to include
the names of some or all registrant nominees on the proponent's proxy
card, which is not explicitly contemplated by the current proxy rules.
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    \102\ See proposed Rule 14a-4(d)(1)(i).
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    Similarly, the mandatory universal proxy system, as proposed, would
not apply to a dissident's consent solicitation \103\ to remove
existing registrant directors and replace them with dissident
nominees.\104\ We do not believe that universal proxy is needed for
consent solicitations because a registrant contesting such a
solicitation typically does so by soliciting revocations of the
consents and not by presenting a competing slate.\105\ These
solicitations, although related to the election of directors, do not
raise the same concerns that mandatory universal proxy is intended to
address because shareholders would have access to a consent card that
reflects all of their voting options for the removal and appointment of
directors to fill the vacancies, if any, created by the removal of
directors.
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    \103\ A consent solicitation involves the solicitation of
written consents from shareholders to take action without a meeting.
    \104\ See proposed Rule 14a-19(g).
    \105\ We acknowledge that a registrant could solicit consents
for a competing slate of nominees (e.g., the incumbent directors)
when soliciting for revocations of consents in the event the
dissident's removal proposal is successful. Based on the staff's
observations, registrants rarely, if ever, do so.
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Request for Comment
    25. Should we require the use of universal proxies in all contested
elections, as proposed? Should we instead limit the use of universal
proxies to contested elections in which a dissident is soliciting
proxies in support of a slate that, if elected, would constitute a
minority of the board of directors? If so, why should we differentiate
between such contests? Should we instead limit the use of universal
proxies in a different way?
    26. As proposed, a universal proxy would be permitted, but not
required, for other types of solicitations. Should we instead require
the use of a universal proxy in solicitations that do not involve a
contested election, such as a ``vote no'' campaign or where a
shareholder is only soliciting proxies in support of a shareholder
proposal? Why or why not?
    27. Should we expressly exclude consent solicitations from the
application of Rule 14a-19, as proposed? Are there any reasons why a
universal proxy requirement should apply to consent solicitations? If
so, please describe.
c. Exempt Solicitations
    We are proposing that universal proxies be required only in non-
exempt solicitations. Current Rule 14a-2(b) provides that certain
provisions of Regulation 14A, including Rules 14a-3, 14a-4, 14a-5 and
14a-6,\106\ do not apply to the exempt solicitations described in Rule
14a-2(b).\107\ Our proposed amendments would revise Rule 14a-2(b) to
specify that the requirements of proposed Rule 14a-19 similarly do not
apply to exempt solicitations under Rule 14a-2(b).
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    \106\ Rules 14a-3 through 14a-6 set forth the filing, delivery,
information and presentation requirements for the proxy statement
and form of proxy for solicitations subject to Regulation 14A. 17
CFR 240.14a-3--14a-6.
    \107\ Rule 14a-2(b) exempts certain solicitations from most of
the proxy rules other than the antifraud provisions. 17 CFR 240.14a-
2(b). For example, Rule 14a-2(b)(1) exempts solicitations by any
person who does not directly or indirectly seek authority to act as
proxy and does not furnish or request a form of revocation,
abstention, consent or revocation. Rule 14a-2(b)(2) exempts
solicitations, other than on behalf of the registrant, where the
aggregate number of persons solicited is not more than ten. These
solicitations are exempted from the proxy rules because ``the best
protection for shareholders and the marketplace is to identify those
classes of solicitations that warrant application of the proxy
statement disclosure requirement, and to foster the free and
unrestrained expression of views by all other parties.'' See Short
Slate Rule Adopting Release, at 48280.
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    We propose that universal proxies be required only in contested
elections where the dissident conducts a non-exempt solicitation that
is subject to Rule 14a-12(c) \108\ through the use of a proxy statement
and proxy card pursuant to Regulation 14A. Thus, the proposed
amendments would not apply to solicitations in which a person does not
seek authority to act as proxy and does not furnish or request a form
of revocation, abstention, consent or revocation, which are exempt
under Rule 14a-2(b)(1). Similarly, the proposed amendments would not
apply to solicitations in which the person is not acting on behalf of
the registrant and the aggregate number of persons solicited is not
more than ten, which are exempt under Rule 14a-2(b)(2).
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    \108\ Rule 14a-12(c) applies to ``[s]olicitations by any person
or group of persons for the purpose of opposing a solicitation
subject to this regulation by any other person or group of persons
with respect to the election or removal of directors at any annual
or special meeting of security holders.''
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    We are not proposing to require universal proxies in exempt
solicitations because we do not believe exempt solicitations are an
appropriate context for the universal proxy process. In a non-exempt
solicitation in connection with a contested election, the parties may
expend considerable time and effort and incur significant costs. This
includes filing a proxy statement with the Commission that contains all
required information about the director nominees and obtaining consent
of the nominees to be named in the proxy statement and to serve if
elected. In contrast, soliciting persons

conducting exempt solicitations are not required to file their proxy
materials with the Commission and may expend little time and effort and
incur limited costs. Accordingly, if we were to mandate the use of
universal proxies when a dissident is conducting an exempt
solicitation, the dissident could potentially capitalize on the
registrant's solicitation while expending very little time and effort
and incurring no costs itself. Moreover, shareholders would not be
assured of having the benefit of the robust disclosure required under
Regulation 14A, including disclosure about the dissident's nominees,
when casting their vote using a universal proxy.
Request for Comment
    28. Should we limit the requirement to use universal proxies to
non-exempt solicitations, as proposed? Should we instead require that
universal proxies also be used in some or all exempt solicitations? For
example, should universal proxies be required in contested elections
where a dissident is conducting an exempt solicitation under Rule 14a-
2(b)(2)? If so, should the proposed rules be applied differently in the
context of an exempt solicitation, such as requiring the dissident to
use a universal proxy in its exempt solicitation while giving the
registrant the option to use a universal proxy in its non-exempt
solicitation?
2. Dissident's Notice of Intent To Solicit Proxies in Support of
Nominees Other Than the Registrant's Nominees
    We are proposing to require the dissident to provide notice to the
registrant of its intent to solicit proxies in support of director
nominees other than the registrant's nominees.\109\ We believe that
establishing a notice requirement is necessary to provide a definitive
date by which the parties in a contested election will know that use of
universal proxies has been triggered. For that reason, we are proposing
a new notice requirement that would apply to any dissident who intends
to conduct a non-exempt solicitation and solicit proxies in support of
director nominees other than the registrant's nominees using its own
proxy card.
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    \109\ See proposed Rule 14a-19(a) and (b).
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    Proposed Rule 14a-19 would require a dissident to provide the
registrant with the names of the nominees for whom it intends to
solicit proxies no later than 60 calendar days prior to the anniversary
of the previous year's annual meeting date.\110\ If the registrant did
not hold an annual meeting during the previous year, or if the date of
the meeting has changed by more than 30 calendar days from the previous
year, proposed Rule 14a-19 would require that the dissident provide
notice by the later of 60 calendar days prior to the date of the annual
meeting or the tenth calendar day following the day on which public
announcement of the date of the annual meeting is first made by the
registrant. Proposed Rule 14a-19 would also require a dissident to
indicate its intent to comply with the minimum solicitation threshold
in proposed Rule 14a-19 \111\ by including in this notice a statement
that it intends to solicit the holders of shares representing at least
a majority of the voting power of shares entitled to vote on the
election of directors.\112\ This statement would also serve to
distinguish the notice under Rule 14a-19 from advance notice provided
pursuant to the registrant's governing documents and to put the
registrant on notice that the dissident intends to comply with the
requirements of Rule 14a-19. Proposed Rule 14a-19 would not require a
dissident to provide this notice to the registrant if the information
required in the notice has been provided in a preliminary or definitive
proxy statement filed by the dissident by the deadline imposed by
proposed Rule 14a-19. Proposed Rule 14a-19 also would not require a
dissident to file the notice with the Commission.
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    \110\ The proposed rule also would require that a dissident
promptly notify the registrant if any change occurs with respect to
its intent to solicit proxies in support of its director nominees.
See proposed Rule 14a-19(c).
    \111\ See infra Section II.B.4 for a discussion of the minimum
solicitation requirement in proposed Rule 14a-19.
    \112\ We are also proposing to require similar disclosure in a
dissident's proxy statement, which would be subject to the antifraud
provisions in Rule 14a-9. See infra Section II.B.4.
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    We are proposing 60 calendar days prior to the anniversary of the
previous year's annual meeting date as the notice deadline because we
believe it provides a definitive date far enough in advance of the
meeting to give the parties sufficient time after the notice is
provided to prepare a proxy statement and form of proxy in accordance
with the universal proxy requirements.\113\ In addition, we believe 60
calendar days prior to the anniversary of the previous year's annual
meeting date is not too far in advance of the meeting so as to impose a
significant additional burden for most dissidents. Our proposed
deadline for the notice is 30 calendar days later than the deadline
found in most advance notice bylaws, which typically require notice to
be delivered no earlier than 120 days and no later than 90 days prior
to the first anniversary of the prior year's annual meeting.\114\ In
fact, based on a review of the filings for the 72 contested elections
initiated in 2014 and 2015, we estimate that dissidents provided some
form of notice of their intent to nominate candidates for election to
the board of directors 60 or more calendar days prior to the
shareholder meeting date in 89 percent of the contests.\115\
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    \113\ For many registrants, the record date for determining
shareholders entitled to notice of the meeting cannot be more than
60 days before the date of such meeting. See, e.g., Del. Code Ann.
tit. 8, Sec.  213. Thus, as a practical matter, registrants very
rarely file their definitive proxy statement prior to such date.
    \114\ See Sullivan & Cromwell LLP, Proxy Access Bylaw
Developments and Trends, at 4 (Aug. 18, 2015), available at https://www.sullcrom.com/siteFiles/Publications/SC_Publication_Proxy_Access_Bylaw_Developments_and_Trends.pdf (``S&C
August Report''); Wachtell, Lipton, Rosen & Katz, Nominating and
Corporate Governance Committee Guide, at 22 (2015), available at
http://www.wlrk.com/files/2015/NominatingandCorporateGovernanceCommitteeGuide2015.pdf.
    \115\ The sample (``contested elections sample'') is based on
staff analysis of EDGAR filings for election contests with
preliminary proxy statements filed in calendar years 2014 and 2015
other than election contests involving funds or BDCs. Staff has
identified 72 proxy contests involving competing slates of director
nominees during this time period. For calculations in relation to
the meeting date, the data is based on 70 out of 72 identified proxy
contests since the registrant did not hold an annual meeting for the
election of directors in two cases. For purposes of determining the
earliest date the dissident provided some form of notice of its
intent to nominate candidates for election to the board, staff
considered disclosure in the dissident's definitive additional
soliciting materials filed under Rule 14a-12, disclosure in
amendments to the dissident's Schedule 13D and disclosure in both
the registrant's and dissident's proxy statements.
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    A dissident's obligation to comply with the notice requirement
under proposed Rule 14a-19 would be in addition to its obligation to
comply with any applicable advance notice provision in the registrant's
governing documents. In most cases, we do not anticipate that proposed
Rule 14a-19 would impose a meaningful additional burden on a dissident
since a dissident would generally have provided the names of its
nominees by the proposed deadline to comply with a typical advance
notice provision in a registrant's governing documents.\116\ While we
acknowledge that proposed Rule 14a-19 would impose a notice requirement
even in the case of registrants that do not have an advance notice
provision in their governing documents, we believe the requirement is
necessary so those

registrants receive notice of the names of a dissident's nominees in
time to prepare a universal proxy card and file it with their
preliminary proxy statement.
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    \116\ According to a law firm report, 95 percent of the S&P 500
and 90 percent of the Russell 3000 had advance notice provisions at
2014 year-end. See WilmerHale, 2015 M&A Report, at 5 (2015),
available at https://www.wilmerhale.com/uploadedFiles/Shared_Content/Editorial/Publications/Documents/2015-WilmerHale-MA-Report.pdf (citing www.SharkRepellent.net).
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    In most instances,\117\ Rule 14a-19 would effectively preclude a
dissident from launching an election contest less than 60 calendar days
prior to the annual meeting even if the registrant's governing
documents do not require advance notice by that date.\118\ We believe
such late-breaking contests are infrequent \119\ and usually precluded
by the prevalence of advance notice requirements in registrants'
governing documents. Proposed Rule 14a-19 would not, however, preclude
dissidents who are unable to meet the notice deadline from taking other
actions to attempt to effectuate changes to the board, such as
initiating a ``vote no'' campaign, conducting an exempt solicitation,
or calling a special meeting (to the extent permitted under the
registrant's bylaws) to remove existing directors and appoint their own
nominees to fill the vacancies.
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    \117\ Proposed Rule 14a-19 would not operate to preclude a
dissident from launching an election contest less than 60 calendar
days prior to the annual meeting date if the registrant did not hold
an annual meeting during the previous year and announced the date of
the upcoming annual meeting fewer than 70 calendar days prior to the
meeting date. In that instance, a dissident could launch an election
contest at any time prior to the tenth calendar day following the
registrant's public announcement of the meeting date (e.g., if the
registrant announced the date of the upcoming annual meeting 65
calendar days prior to the meeting date, the dissident could launch
an election contest as late as the 55th calendar day prior to the
meeting date). See proposed Rule 14a-19(b)(1).
    \118\ Proposed Rule 14a-19 would also effectively preclude a
dissident from launching an election contest less than 60 calendar
days prior to the annual meeting even if the registrant's board of
directors has waived the advance notice deadline in the registrant's
governing documents.
    \119\ Based on a review of the contested elections sample, see
supra note 115, the staff found that dissidents provided notice of
their intent to nominate director candidates fewer than 60 calendar
days prior to the shareholder meeting date in 11 percent of the
contests.
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    It is possible that a dissident will provide notice of the names of
its nominees under proposed Rule 14a-19 and later change its nominees.
It is also possible that a dissident will provide the notice required
under proposed Rule 14a-19 but take no further steps in the
solicitation of proxies in support of director nominees, or take some
additional steps but later change or abandon its solicitation efforts.
As proposed, Rule 14a-19 would require a dissident to promptly notify
the registrant of any change to the dissident's intent to comply with
the minimum solicitation threshold in proposed Rule 14a-19 or with