Corporate Governance and Executive Compensation in the New Dodd Bill

by  Richard J. Sandler, for The Harvard Law School Forum at Harvard Law School, March 17, 2010.

The past 18 months have been witness to tremendous legislative and regulatory activity in the area of corporate governance and executive compensation. The 1,336-page Restoring American Financial Stability Act of 2010 (“2010 Dodd Bill”), introduced yesterday by Senate Banking Committee Chairman Christopher Dodd, contains meaningful governance and executive compensation mandates that extend beyond financial institutions. The provisions are similar to those in Senator Dodd’s prior attempt in November 2009 to overhaul financial regulation (“2009 Dodd Bill”), [1] but with some notable changes. In some cases, these changes bring the 2010 Dodd Bill closer to the provisions of the Wall Street Reform and Consumer Protection Act of 2009 passed in the House on December 11, 2009. [2] These governance and compensation sections are a small part of the overall 2010 Dodd Bill, which is expected to undergo significant discussion and debate in Congress.

As with the 2009 Dodd Bill, rather than simply preempting state corporate law, which might have been the more straightforward approach, other than say on pay, the governance and compensation elements of the 2010 Dodd Bill work through the SEC’s power to approve the listing standards of national stock exchanges. The 2010 Dodd Bill would authorize the SEC to promulgate rules that would, within one year after the date of enactment, prohibit the listing of any US public companies that fail to adopt the bill’s standards. The SEC would have the authority to exempt companies from any of the requirements based on size, market capitalization, number of shareholders or other criteria that the SEC deems appropriate. The 2010 Dodd Bill would also empower the SEC to provide for transition and cure periods…(continue reading)


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