Musings and Questions about the Universal Proxy Card

Arthur B. Crozier is Chairman and Gabrielle E. Wolf is a Director at Innisfree M&A Incorporated. This post is based on their Innisfree memorandum. Related research from the Program on Corporate Governance includes Universal Proxies (discussed on the Forum here) by Scott Hirst; Index Funds and the Future of Corporate Governance: Theory, Evidence and Policy (discussed on the Forum here); and The Specter of the Giant Three (discussed on the Forum here) both by Lucian A. Bebchuk and Scott Hirst.

Many have written, spoken and warned about the consequences of Federal Proxy Rule §14a-19 that requires all parties in contested elections to use universal proxy cards (“UPCs”) that list all director nominees presented for election at a shareholder meeting.  In short, use of a UPC will allow shareholders  to choose nominees from both slates, rather than the prior practice which limited choice to all or some of only one slate’s nominees.  Accordingly, a shareholder who is supportive of management but believes there should be some change on the Board of Directors can now vote easily for at least one opposition nominee while still voting for the remainder of management’s nominees and vice versa. This article sets forth some questions and reflections on the universal proxy card; we hope these musings will open the door to new conversations on the oft-discussed rule.

1-Will the UPC change voting tendencies of the “Big Three” index funds?

BlackRock, Vanguard and State Street Global Advisors (the “Big Three”) own an increasingly large percentage of the outstanding shares of mid-, large- and mega-cap public companies. [1] Indeed, the Big Three collectively own an average of 19.9% of S&P500 Companies.  Each of BlackRock, Vanguard and State Street vote all shares it holds as of the record date for a shareholder meeting and makes its own voting decisions, independent of the proxy advisory firms.  Because not all shares held as of a record date actually vote due to friction within the proxy system, post-record date sales of the subject stock and low turnout by retail investors, the Big Three can have outsized influence at most U.S. public companies.   Support from the Big Three therefore can play a decisive role in the ultimate outcome of most proxy contests.

BlackRock, Vanguard and State Street have historically supported management teams that present a credible long-term value creation strategy, [2] but they have recently become more skeptical of management teams, particularly concerning their efforts to address the long-term impact on shareholder value of environmental and social risks.  Under the old dueling proxy card regime, however, the Big Three rarely split their votes between management and dissident slates since in order to do so they would have to undergo the cumbersome process of requesting and submitting a “legal proxy” from their custodians and voting by ballot at the shareholder meeting. Instead, absent egregious missteps, lack of credibility or a Board that ignored the previously expressed will of its shareholders, the Big Three generally defaulted to supporting most of the issuer’s slate on its proxy card.

Will the advent of the universal proxy card upend this default? If BlackRock, Vanguard and State Street shift away from their historically issuer-friendly voting tendencies, the outcome of proxy contests will be significantly altered.  Together with the rest of corporate America, we are holding our breath until we find out more.

2- ISS’ framework has a new, unspoken third prong – if change is warranted and the dissident nominee(s) is (are) best positioned to effect such change, which incumbent director(s) should be replaced?

On August 23, 2023, ISS reiterated that its two-pronged framework for assessing whether to recommend that shareholders vote for a dissident’s director nominee(s) will remain largely unchanged under the UPC regime.   If the dissident meets its burden of proving that Board change is warranted (ISS’ first prong), then ISS will review the director nominees and focus on the second prong – will the dissident nominee(s) be more likely to effect positive change (i.e., increase shareholder value) versus the incumbent nominees? While these most important aspects of ISS’ framework remain unchanged, if the answer to this second prong is also affirmative, ISS will need to move onto a new third, unspoken prong: which incumbent nominee(s) should be replaced?

We have only seen one recent UPC contest that was not withdrawn or invalidated before the shareholder meeting; in its recommendation at Apartment Investment and Management Company (“AIV”), ISS recommended that shareholders vote for one of 2 dissident nominees, replacing an incumbent 73-year-old, white, male who had served on AIV’s board for 18 years.  Not much can be learned from a single precedent, but a “pale, male and stale” incumbent is an obvious vulnerability.  As a practical matter, dissidents using a UPC need to target specific management nominees for replacement to avoid shareholders supporting some of the dissident’s nominees and dispersing their votes for management nominees, potentially minimizing, if not eliminating, the number of dissident nominees elected. Previously, if ISS recommended for the dissident, its recommendation was to vote for some or all of the dissident nominees on the dissident’s card and did not need to recommend votes for or against any of the management nominees. [3] ISS will now be required to pick and choose the nominees with the appropriate skills and experience without the artificial constraints and unintended consequences of dueling proxy cards and regardless of either side’s recommendation.

3- To date, special interest groups have not taken advantage of the universal proxy card to nominate single-issue candidates.

To our knowledge, special interest groups including investors with a mandate to advance environmental and social causes and employee unions have not submitted advance notice of director nominations for the 2023 proxy season.  Leading up to the adoption of Rule §14a-19, there were rumors that ESG investors that historically put forth environmental and social Rule §14a-8 proposals, in particular, would pivot to nominating directors using a universal proxy card.

In 2022, precatory shareholder proposals submitted by proponents including As You Sow and Green Century Capital Management were increasingly prescriptive, veering towards dictating companies’ operations.  Average  support levels on such proposals were generally lower than on prior, more general proposals. There was speculation that these proponents would use the universal proxy card to give their campaigns more “teeth” without significant expense.  Such speculation was not all fearmongering; [4] As You Sow ostensibly prepared to nominate candidates by moving a nominal number of shares onto the registered list of several mega-cap companies in the lead-up to the 2023 proxy season.  Yet, for the most part, advance notice nomination deadlines for issuers with annual meetings in April and early May 2023 have passed and the wave of single-issue candidate nominations has not appeared.  At least not yet.

The supposed low cost of a UPC solicitation was seen as an important spur to ESG activists, in light of the requirement to solicit proxies from holders of as little as 67% of an issuer’s voting power, not all outstanding shares. At most companies with average levels of retail ownership, dissidents will be able to comply with the 67% requirement relatively inexpensively, especially if they distribute their proxy materials through Notice and Access provisions. [5] But merely delivering proxy materials to 67% of outstanding holders will not win a proxy contest or even enable a strong showing of support.  To do so, a dissident still needs to spend large sums of money.

A successful dissident campaign typically requires the following professional services:

  • Skilled lawyers to draft the proxy statement, review the “fight deck” and other solicitation materials for compliance with the proxy rules and draft letters to the SEC protesting points in the issuer’s solicitation materials, among other things.
  • A financial PR firm to draft press releases, write “fight letters” and engage with reporters at Reuters, the WSJ and Bloomberg to ensure favorable media coverage and to counter similar efforts by the issuer.
  • A proxy solicitor to analyze the issuer’s shareholder base, coordinate mailings and emails, and make phone calls to NOBO holders.

The dissident will also need to pay Broadridge, Mediant and other bank/broker intermediaries for distribution of additional solicitation materials to counter subsequent mailings by the issuer. In addition, the dissident will likely need to pay up in order to recruit candidates with the right credentials and experience needed to be taken seriously by shareholders, particularly in light of the likely more personalized attacks in a UPC contest. Even if a special interest group had pockets deep enough to conduct a successful UPC proxy contest, finding well-rounded, qualified directors is no easy task.  How many candidates with the experience and poise required to be elected to a public company board will agree to serve on a special interest group’s slate?

4- When is a FOR vote on a UPC Actually a WITHHOLD Vote?

The conventional wisdom had been that if a shareholder voted on a UPC for more directors than the number of seats to be filled at the meeting (overselects), that shareholder’s vote on directors could not be counted since there was no way to determine the shareholder’s electoral intent.  To count votes cast for all of the nominees supported on the card under such circumstances would effectively give that shareholder more than one vote per share. Before it withdrew from its proxy contest at The Walt Disney Company, however, Trian Partners pushed back against that conventional wisdom by providing on its UPC that if a registered shareholder voted on Trian’s blue UPC “for” more candidates than the 11 director seats up for election, then such proxy card would be voted “for” Trian nominee Nelson Peltz and the 10 Disney nominees that Trian deemed “acceptable,” and “withhold” on the Disney incumbent Trian targeted even though the shareholder’s proxy card specifically voted “for” such targeted incumbent. (Disney followed suit in its own proxy statement and UPC subsequent to Trian’s filing).

However, this discretionary language was only applicable for registered shareholders voting on a physical blue UPC. [6] [7]

We don’t know whether a court would accept such broad discretionary language, but the SEC did not object to its inclusion in Trian’s definitive proxy statement and UPC. It begs the question as to whether either party in a contest could disclose that if a shareholder underselects, that is fails to vote for all of the seats up for election, the named proxies have the discretion to vote for additional nominees up to the total number of seats to be filled.

5- Discretionary language and cumulative voting for proxy geeks

Even in a UPC regime, a shareholder’s choice of which proxy card to use matters.  This is primarily because of the discretionary language included on the back of the proxy card, which grants the proxy holders named on the card discretion to vote on any matters that are put to a vote at the meeting, but were not included as an agenda item on the card.

The terms of the grant of discretionary authority on a UPC  and the choice of card is even more important in a proxy contest with cumulative voting. [8] [9] A traditional (non-UPC) cumulative voting proxy card generally states that, unless otherwise instructed, the named proxies have discretionary authority to cumulate votes in such a manner that would result in the election of the maximum number of the nominees listed on the proxy holders’ proxy card. Because a UPC contains nominees for both slates, it is important that the grant of discretionary authority to cumulate votes be limited to ensuring the election of the maximum number of just the proxy holders’ nominees.  It is highly likely that any attempt to grant discretionary authority to cumulate votes away from the other side’s nominees (i.e., cumulate votes marked for the other side’s nominees as votes “for” the proxy holder’s nominees) would not be upheld.   In addition, in order to have maximum flexibility in cumulating votes, it is important to include the type of disclosure described above regarding casting votes in the case of over-selections and under-selections, to extent such provisions are valid.


With the increase in activism, the very early days of the UPC regime have the potential to be a trial by fire.  We haven’t seen many UPC contests to date, but there may be a plethora of such contests in the coming months that will hopefully answer some, if not all, the questions we raised.


1 See, Bebchuck, Hirst, Index Funds and the Future of Corporate Governance: Theory, Evidence, and Policy, 119 Columbia L. Rev. 2029-2146 (2019); Bebchuck, Hirst, The Specter of the Giant Three, 99 Boston University L. Rev. 721-741 (2019).(go back)

2Over the past five years, BlackRock, Vanguard and State Street have supported at least one dissident nominee in approximately 25%, 19.17% and 17.39% of proxy contests, respectively, at companies with a market capitalization of at least $1 billion.(go back)

3In practice, in recommending that shareholders vote on the dissident’s card, ISS effectively recommended for some of the non-targeted management nominees in “short slate” contests.  Under the prior dueling proxy card regime, the “short slate rule” permitted a dissident who was not seeking a majority of the Board to afford shareholders the opportunity to exercise their full shareholder franchise and vote for a full slate of candidates by “rounding out” its slate with certain of management’s nominees.  Mechanically, on its proxy statement, the dissident would target certain management nominees for replacement; a vote on the dissident’s proxy card would be a vote for its nominees and a vote for the non-targeted management nominees.(go back)

4“Just because you’re paranoid doesn’t mean they aren’t after you.” (Joseph Heller, Catch-22).(go back)

5For example, a dissident running a proxy contest at a certain mega-cap company with over 2.5 billion shares outstanding would need to spend only $135,000 to mail full sets of proxy statements (using e-delivery) to holders of 10,000+ shares – or only $61,000 to the same population using the “notice and access” method prescribed in Rule §14a-16.(go back)

6Registered holders traditionally hold a small minority of the outstanding shares, and in our experience in prior UPC contests there has not been a significant amount of over selection even at companies with large retail ownership.  That said, proxy contests are often decided by slim margins and every vote counts.(go back)

7Broadridge’s online system does not permit a beneficial shareholder to electronically select more than the maximum number of candidates and Broadridge maintained that it would invalidate all director votes on physical proxy cards with an over selection received from beneficial owners.(go back)

8In cumulative voting elections, the number of shares held by a shareholder is multiplied by the number of board seats to be filled at the meeting. Those votes can be voted in any proportion for the election of any number of nominees, including a single nominee.  As an example, if seven board seats are to be filled, a holder of 100 shares has 700 votes that can be cast for any one or more nominees, but not more than seven in total.(go back)

9While proxy contests involving cumulative voting are very rare in the United States, there may be one this year at Purple Innovation, Inc. which recently issued as a dividend to common stockholders a class of preferred stock with cumulative voting rights following a 45% shareholder’s nomination of a slate of candidates for election at the 2023 Annual Meeting.(go back)

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