Supporting Statement UP.Final.11-18-2019

SUPPORTING STATEMENT FOR UNIVERSAL PROXY PROPOSED
AMENDMENTS
This supporting statement is part of a submission under the Paperwork Reduction
Act of 1995, 44 U.S.C. §3501, et seq.
A.

JUSTIFICATION
1.

CIRCUMSTANCES MAKING THE COLLECTION OF
INFORMATION NECESSARY

In Release No. 34-79164,1 the Commission proposed amendments 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. The proposal would require the use of proxy cards that include the
names of both registrant and dissident nominees allowing shareholders to vote by proxy in a
manner that more closely resembles how they can vote in person at a shareholder meeting.
The Commission further proposed 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.

The proposed amendments contain “collection of information” requirements
within the meaning of the Paperwork Reduction Act of 1995. The titles of the collections
of information impacted by the amendments are:



“Regulation 14A (Commission Rules 14a-1 through 14a-21 and Schedule 14A)”
(OMB Control No. 3235-0059); and
“Rule 20a-1 under the Investment Company Act of 1940, Solicitations of Proxies,
Consents, and Authorizations” (OMB Control No. 3235-0158).

2. PURPOSE AND USE OF THE INFORMATION COLLECTION
The Commission proposed to amend the proxy rules as they apply to operating
companies to revise the consent required of a bona fide nominee, eliminate the short slate
rule and add Rule 14a-19 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. The purpose of the amendments is to implement the use
of a universal proxy card to allow shareholders to vote by proxy in a manner that more
closely resembles how they can vote in person at a shareholder meeting.
The Commission also proposed amendments to the proxy rules relating to all
director elections to: specify that the proxy card must include an “against” voting option
when applicable state law gives effect to a vote “against”; require proxy cards to give
1

Universal Proxy, Release No. 34-79164 (Oct. 26, 2016) [81 FR 79122 (Nov. 10, 2016)].

shareholders the ability to “abstain” in an election where a majority voting standard is in
effect; and mandate disclosure about the effect of a “withhold” vote in an election. The
purpose of these proposed amendments is to better enable soliciting parties to properly seek
and authorize the appropriate voting option for shareholders.

3.

CONSIDERATION GIVEN TO INFORMATION TECHNOLOGY

The collection of information requirements of the amendments will be set forth in
Regulation 14A and Rule 20a-1. The information required by these rules is filed
electronically with the Commission using the Commission’s Electronic Data Gathering,
Analysis, and Retrieval (EDGAR) system.
4.

DUPLICATION OF INFORMATION
We are not aware of any rules that conflict with or substantially duplicate the final

rules.
5.

REDUCING THE BURDEN ON SMALL ENTITIES

The proposed amendments would affect some companies that are small entities
that have a class of securities that are registered under Section 12 of the Exchange Act.
The Commission performed an Initial Regulatory Flexibility Act Analysis and estimated
that there were approximately 692 issuers, other than investment companies, that may be
considered small entities.
The Commission considered a variety of alternatives to achieve our regulatory
objective to 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. The Commission did not propose alternative
approaches in this rulemaking because we do not believe they meet the regulatory objective
as well.

6.

CONSEQUENCES OF NOT CONDUCTING COLLECTION

Regulation 14A sets forth the disclosure requirements for proxy statements to
help investors make informed investment decisions. Rule 20a-1 applies those rules to
investment companies. Failure to conduct the collection of the information required by
the proposed amendments would frustrate the statutory intent of Section 14 of the
Exchange Act because shareholders would have less information on which to base voting
decisions.
7.

SPECIAL CIRCUMSTANCES
There are no special circumstances in connection with these amendments.

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8.

CONSULTATIONS WITH PERSONS OUTSIDE THE AGENCY

The Commission issued a release soliciting comment on the new “collection of
information” requirements and associated paperwork burdens.2 Comments on the
Commission’s releases are generally received from registrants, investors, and other
market participants. In addition, the Commission and staff participate in an ongoing
dialogue with representatives of various market participants through public conferences,
meetings and informal exchanges. The Commission considers all comments received. A
copy of the proposing release is attached.
9.

PAYMENT OR GIFT TO RESPONDENTS
No payment or gift to respondents.

10.

CONFIDENTIALITY
All documents submitted to the Commission are available to the public.

11.

SENSITIVE QUESTIONS

No information of a sensitive nature, including social security numbers, will be
required under these collections of information. The information collections collect basic
Personally Identifiable Information (PII) that may include name and job title. However,
the agency has determined that the information collections do not constitute a system of
record for purposes of the Privacy Act. Information is not retrieved by a personal
identifier. In accordance with Section 208 of the E-Government Act of 2002, the agency
has conducted a Privacy Impact Assessment (PIA) of the EDGAR system, in connection
with this collection of information. The EDGAR PIA, published on January 29, 2016, is
provided as a supplemental document and is also available at
https://www.sec.gov/privacy.
12/13. ESTIMATES OF HOUR AND COST BURDENS
The paperwork burden estimates associated with the proposed amendments
include the burdens attributable to collecting, preparing, reviewing and retaining records.
Regulation 14A and Rule 20a-1
The Commission proposed to amend the proxy rules as they apply to operating
companies to revise the consent required of a bona fide nominee, eliminate the short slate
rule and add Rule 14a-19 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.3 The proposed amendments would affect the collection
2
3

Id.
The Commission did not propose to amend the proxy rules for investment companies and business
development companies.

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of information requirements of soliciting parties by requiring the use of a universal proxy
card in all non-exempt solicitations in connection with contested elections, prescribing
requirements for universal proxy cards, and requiring the soliciting parties to add a
reference 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 on
the Commission’s website. The proposed amendments would additionally require
dissidents in such election contests to provide a notice of intent to solicit and a list of
their nominees to the registrant, require registrants to provide notice of the names of
nominees to the dissident, and eliminate the ability of dissidents to round out their slate
with registrant nominees through use of the short slate rule. The proposed amendments
would additionally prescribe filing deadlines for a dissident’s definitive proxy statement
and require dissidents to solicit at least a majority of the voting power of shares entitled
to vote on the election of directors; however, we do not believe that these requirements
will affect the reporting and cost burden associated with the collection of information.4
We believe that the proposed amendments regarding the use of a universal proxy card,
required notices and related disclosure would result in only a small amount of additional
required disclosure and the addition of only a limited amount of material (the names of
duly nominated director candidates for which the soliciting party has complied with Rule
14a-19 on proxy cards). The application of these amendments also would be limited to
contested elections.
The Commission also proposed amendments to the proxy rules relating to all
director elections to: specify that the proxy card must include an “against” voting option
when applicable state law gives effect to a vote “against”; require proxy cards to give
shareholders the ability to “abstain” in an election where a majority voting standard is in
effect; and mandate disclosure about the effect of a “withhold” vote in an election.
The proposed amendments requiring the appropriate use of an “against,” “abstain” or
“withhold” voting option should better enable soliciting parties to properly seek and
authorize the appropriate voting option for shareholders. We believe that the additional
4

The Commission’s current proxy rules do not prescribe minimum solicitation requirements for
either registrants or dissidents; however, customary practice has been for soliciting parties to
solicit more than a majority of shareholders because either, in the case of a registrant, they wish to
meet notice, informational and quorum requirements for the annual meeting, or, in the case of a
dissident, such solicitation is necessary in order to successfully wage a proxy contest. Based on
staff analysis of the industry data provided by a proxy services provider for 35 proxy contests
between June 30, 2015 and April 15, 2016, less than a majority of shareholders was solicited by a
dissident in only a single proxy contest in that sample. It is possible that the proposed
amendments may change the number and type of proxy contests, including a possible increase in
nominal contests in which dissidents spend little more than the basic required costs to pursue a
contest. In the release, we preliminarily estimated that, for a nominal proxy contest, it may cost
approximately $6,000 at a median-sized registrant using the least expensive approach to meet the
proposed minimum solicitation requirements through an intermediary. See Universal Proxy,
Release No. 34-79164 (Oct. 26, 2016) at notes 307 - 308. Because the Commission is unable to
predict how the proposed amendments may impact the number and type of election contests, and
in light of current solicitation practices, for PRA purposes, the Commission is not estimating that
the majority solicitation requirement for dissidents would increase the reporting and cost burden
associated with Regulation 14A.

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disclosure and revisions to the proxy card relating to these changes would similarly result
in only a small incremental increase in the required disclosure; however, the changes
would apply to proxy materials in all director elections, not just contested elections.
The Commission derived the new burden hour and cost estimates by estimating
the total amount of time it would take to prepare and review the required disclosures
called for by the proposed rules. This estimate represents the average burden for all
soliciting parties, both large and small. In deriving the estimates, we recognize that the
burdens will likely vary among soliciting parties, some soliciting parties will experience
costs in excess of this average in the first year of compliance with the amendments and
some parties may experience less than the average costs.
As discussed in the proposing release, it is unclear whether the proposed
amendments would result in an increase or decrease in the number of election contests,
and the Commission therefore estimates no change in the number of proxy statement
filings as a result of the proposed amendments. The Commission estimates that the
average incremental burden for a registrant to prepare a universal proxy card in a
contested election and include the required disclosure would be two hours. The
Commission similarly estimates that the average incremental burden for a dissident to
prepare a universal proxy card in a contested election and include the required disclosure
would be two hours. Additionally, the average incremental burden for a dissident and
registrant to prepare the notice to the opposing party containing the names of its
nominees in a contested election is estimated to be approximately one hour. Thus, the
estimate for the total incremental burden for Regulation 14A would increase by three
hours per election contest for registrants and three hours per election contest for other
soliciting parties.5 For purposes of the PRA, the Commission estimates there would be
36 annual election contests per year,6 resulting in 216 additional total incremental burden
hours (6 hours x 36 election contests) under Regulation 14A as a result of proposed Rule
14a-19 and the related amendments.
The Commission estimates that the additional disclosure and changes to the proxy
card relating to the appropriate use of “against,” “abstain” or “withhold” voting options in
proxy materials for all director elections would be considerably less than one hour for
each proxy statement and card relating to an election of directors. Unlike the proposed
amendments relating to election contests, these proposed amendments would apply to all
director elections, including director elections for registered investment companies and
business development companies. The disclosure and changes to the proxy card are
being proposed to require registrants to clarify existing standards, and many of the
descriptions and standards, once revised, are not likely to require significant revision
from year to year. We estimate that these changes would result in an average of 10
5

There may be a range of burdens by soliciting parties as they determine exactly how to present the
proxy card and the language of the required disclosure; however, the Commission estimates the
burdens described above as the average burden for soliciting parties.

6

The Commission does not estimate that there would be additional election contests as a result of
the proposed amendments. The estimate of approximately 36 election contests per year is based
on the average of actual proxy contests for elections of directors in 2014 (37) and 2015 (35).

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minutes of additional burden per response.7 For purposes of the PRA, we estimate the
proposed changes would result in 931 hours of additional total incremental burden under
Regulation 14A (10 minutes x 5,586 proxy statements) and 222 hours of total incremental
burden under Rule 20a-1 (10 minutes x 1,333 filings).
These estimates include the time and cost of preparing disclosure that has been
appropriately reviewed, including, as applicable, by management, in-house counsel,
outside counsel and members of the board of directors. This burden would be added to
the current burden for Regulation 14A and Rule 20a-1, as applicable. For proxy
statements under Regulation 14A, we estimate that 75 percent of the burden of
preparation is carried internally and that 25 percent of the burden of preparation is carried
by outside professionals retained at an average cost of $400 per hour. The portion of the
burden carried by outside professionals is reflected as a cost, while the portion of the
burden carried internally is reflected in hours. We estimate a similar allocation between
internal burden hours and outside professional costs with respect to the PRA burden for
Rule 20a-1.
As a result of the estimates discussed above, we estimate for purposes of the PRA
that the total incremental burden on all soliciting parties of the proposed amendments
under Regulation 14A would be 860 hours for internal time (1,147 total incremental
burden hours x 75 percent) and $114,700 (1,147 total incremental burden hours x 25
percent x $400) for the services of outside professionals. We further estimate for
purposes of the PRA that the total incremental burden on all soliciting parties of the
proposed amendments under Rule 20a-1 would be 166.5 hours for internal time (222 total
incremental burden hours x 75 percent) and $22,200 (222 total incremental burden hours
x 25 percent x $400) for the services of outside professionals.

7

We estimate that the incremental burden for the proposed disclosure and changes to the proxy card
would increase by 20 minutes in the first year and then be reduced to five minutes in years two
and three, resulting in a three year average of an increased 10 minute burden per response.

6

Summary of the proposed changes to annual compliance in Collection of
Information

Regulation 14A
Rule 20a-1

14.

Current
Annual
Responses
(A)

Proposed
Annual
Responses
(B)

Current
Burden
Hours
(C)

Increase in Burden
Hours
(D)

Proposed
Burden Hours
(E)
=C+D

Current
Professional
Costs
(F)

Increase in
Professional Costs
(G)

Proposed
Professional
Costs
=F+G

5,586
1,333

5,586
1,333

551,101
113,305

860
167

551,961
113,472

$73,480,012
$39,990,000

$114,700
$22,200

$73,594,712
$40,012,200

COSTS TO FEDERAL GOVERNMENT

The annual cost of reviewing and processing disclosure documents, including
registration statements, post-effective amendments, proxy statements, annual reports and
other filings of operating companies amounted to approximately $102 million in fiscal
year 2018, based on the Commission’s computation of the value of staff time devoted to
this activity and related overhead for the Division of Corporation Finance.
The annual cost of reviewing and processing registration statements, posteffective amendments, proxy statements, shareholder reports, and other filings of
investment companies amounted to approximately $22.2 million in fiscal year 2017,
based on the Commission’s computation of the value of staff time devoted to this activity
and related overhead for the Division of Investment Management.
15.

REASON FOR CHANGE IN BURDEN

As explained in further detail in Items 12 and 13 above, the proposed amendments
in Release No. 34-79164 implement changes to permit the use of a universal proxy card
to allow shareholders to vote by proxy in a manner that more closely resembles how they
can vote in person at a shareholder meeting.
The changes in burden of Regulation 14A relate to the incremental burden for a
registrant to prepare a universal proxy card in a contested election and include the
required disclosure and the incremental burden for a dissident to prepare a universal
proxy card in a contested election and include the required disclosure. Additionally, the
changes in burden of Regulation 14A include the incremental burden for a dissident and
registrant to prepare the notice to the opposing party containing the names of its
nominees in a contested election. The Commission proposed these changes to implement
the use of a universal proxy card in non-exempt solicitations in connection with contested
elections.

Additionally, the Commission proposed changes to better enable soliciting parties
to properly seek and authorize the appropriate voting option for shareholders. Unlike the
proposed amendments relating to election contests, these proposed amendments would
apply to all director elections, including director elections for registered investment
companies and business development companies. The disclosure and changes to the

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proxy card are being proposed to require clarification of the existing standards, and many
of the descriptions and standards, once revised, are not likely to require significant
revision from year to year. The changes in burden of Regulation 14A and Rule 20a-1
reflect the incremental burden from preparing the disclosure relating to these proposed
amendments.
16.

INFORMATION COLLECTION PLANNED FOR STATISTICAL
PURPOSES
The information collections do not employ statistical methods.

17.

APPROVAL TO OMIT OMB EXPIRATION DATE

We request authorization to omit the expiration date on the electronic version of
the form. Including the expiration date on the electronic version of the form will result in
increased costs, because the need to make changes to the form may not follow the
application’s scheduled version release dates. The OMB control number will be
displayed.
18.

EXCEPTIONS TO CERTIFICATION FOR PAPERWORK REDUCTION
ACT SUBMISSIONS

There are no exceptions to certification for the Paperwork Reduction Act
submissions.
B.

STATISTICAL METHODS
The information collections do not employ statistical methods.

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Regulation 14A Short Statement
The proposed amendments in Release 34-79164 would revise the consent required
of a bona fide nominee, eliminate the short slate rule and 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 to implement the use of a
universal proxy card to allow shareholders to vote by proxy in a manner that more closely
resembles how they can vote in person at a shareholder meeting. Additionally, the
proposed amendments would specify certain required voting options and mandate disclosure
about the effect of certain votes in an election to better enable soliciting parties to properly
seek and authorize the appropriate voting option for shareholders. We anticipate that the
proposed amendments would result in a small increase in the required disclosure and the
related burdens and costs for the registrants to prepare and review the collections of
information. For purposes of the PRA, we estimate that the proposed amendments to
Regulation 14A would result in a net increase of 860 burden hours and a net increase in the
cost burden of $114,700 for the services of outside professionals.

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Rule 20a-1

The proposed amendments in Release 34-79164 would revise the consent required
of a bona fide nominee, eliminate the short slate rule and 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 to implement the use of a
universal proxy card to allow shareholders to vote by proxy in a manner that more closely
resembles how they can vote in person at a shareholder meeting. Additionally, the
proposed amendments would specify certain required voting options and mandate disclosure
about the effect of certain votes in an election to better enable soliciting parties to properly
seek and authorize the appropriate voting option for shareholders. We anticipate that the
proposed amendments would result in a small increase in the required disclosure and the
related burdens and costs for the registrants to prepare and review the collections of
information. For purposes of the PRA, we estimate that the proposed amendments to
Rule 20a-1 would result in a net increase of 167 burden hours and a net increase in the cost
burden of $22,200 for the services of outside professionals.

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