Posts Tagged 'Dodd-Frank Act'

SEC Proposes Rule on Comp Committee Members

by Stephen Barlas for Human  Resource Executive Online, June 7th, 2011.

The Securities and Exchange Commission does not require compensation committee members to be “independent,” but companies will have to disclose potential conflicts of interest, according to the proposed rule, which is similar to the rules regarding comp committee advisers. 

Business groups are generally happy with the U.S. Securities and Exchange Commission’s proposal requiring independence of board compensation committees, although they are resisting new disclosures about compensation consultants.

The SEC’s proposed rule is another of the many proposed and final rules flowing out of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which added Section 10C to the Securities Exchange Act of 1934.

Section 10C requires the Commission to adopt rules directing the national securities exchanges — the big players are the New York Stock Exchange, Euronext and NASDEQ — to establish guidelines for the ways companies must determine whether comp committee members are independent.

The legislation does not require compensation consultants to be independent, but companies may have to disclose in their annual reports potential consultant conflicts beyond what is currently required in Regulation S-K.

Dodd-Frank’s guidelines, and the SEC’s translation of them into regulatory language, generally track the independence rules already in place at the exchanges with regard to boards of directors generally. (continue reading… )

Why corporate directors should thank Dodd and Frank

by Eleanor Bloxham, contributor for Fortune, May 18th, 2011.

The results of the year’s corporate board elections show that the consequences of financial reform legislation can actually go in favor of sitting directors.

Despite the grumbling and gnashing of teeth that followed its passage, the Dodd-Frank Senators Christopher Dodd and Barney Frank financial reform bill has turned out to be a boon for directors this proxy season.

In fact, 2011, at least so far, could be considered “proxy season-lite” as investors and their proxy advisors have focused on votes on executive pay  — a mandate within the Dodd-Frank bill — and away from no votes on the directors’ reelections.

Half way through the season, “negative recommendations are down considerably this year” says Ted Allen, head of publications and governance counsel. Most of those negative recommendations are in the smallest firms, “the wild west in terms of governance”, Allen says.

Looking at the statistics, “during all of 2010, ISS recommended against 13% of all Russell 3000 directors on the ballot,” Allen says. For 2011, ISS has recommended against only 7% of all Russell 3000 directors up for election through May 12.

As of last Friday, only seven directors had failed to win majority votes, Allen says. That figure is way down from prior years as well. For “full year 2010, 107 directors received majority opposition. In 2009, that figure was 95,” Allen says. (continue reading… )

The Dodd-Frank debacle, takeover edition

by Larry Ribstein for Truth on the Market, March 21st, 2011.

The so-called “Dodd-Frank Wall Street Reform and Consumer Protection Act” was supposed to fix the problems that led to the financial bust.  Of course, that would require some understanding of what, exactly, those problems were, which Congress lacked.  The Act did little to fix the credit raters or the derivatives market that surely had something to do with the crash.  But it did include countless ill-considered provisions and rules lying in wait behind studies.  I’ve already commented (here and here) on the Act’s unwarranted federal intrusion into aspects of corporate governance that had little to do with the meltdown. And I’ve noted the Act’s contribution to hobbling initial public offerings.

Yale’s Jon Macey comments in today’s WSJ on the potential fallout from one of D-F’s most buried little gems:  Section 929R(a)’s authorization to the SEC to reduce the period for reporting 5% share acquisitions from ten days to “such shorter time as the Commission may establish by rule.”  Marty Lipton’s takeover defense firm, Wachtell, Lipton, Rosen & Katz, has seized on this provision to propose that the SEC reduce that period to one day.

Alerting the market to a potential impending bid raises share prices and therefore the takeover’s overall cost. This would add to the effects of a long-term trend at both the state and federal level of allocating increasing shares of the potential gains from takeover-induced governance reforms to the incumbent shareholders and away from the bidder. This is fine for the shareholders, given the existence of a bid.  But if you increase the price of bids you’re likely to decrease the supply.  Fewer bids = more power to incumbent managers. (continue reading… )

 

 

Dodd-Frank Act in Middle of Battle Brewing Over SEC Funding

by Gary Larkin for The Conference Board, February 22nd, 2011.

While it may not be on the level of the historic protests in the Middle East or the budget battle playing out in Wisconsin, the funding “war” being waged against the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) in the Republican-controlled House of Representatives is worth noting if you are involved in the corporate governance function of your company.

If anything, the future of the more than $1 billion in federal funds is vulnerable as the new House has vowed to cut billions in government spending, including money that would be used to implement major parts of the Dodd-Frank Act. A bigger question for public companies is what the possible de-funding of some of the SEC programs, such as the whistleblower office and bounty, could mean to corporate governance regulation in the near term.

Granted, the SEC and CFTC, which oversees the derivatives industry, aren’t the only federal agencies facing the budget ax. But for the first time in recent memory, such regulators are getting support from non-political groups: institutional investors. In the past couple of weeks, both sides have made their pitches. It’s a battle pitting the Republican-led House and business organizations such as the Business Roundtable and U.S. Chamber of Commerce against the Democratic President and the Council of Institutional Investors (CII) and ShareOwners.org. (continue reading… )

 

The Latest Word on 2011 Say on Pay Vote Recommendations

by Charles M. Nathan, Latham & Watkins LLP for The Harvard Law School Forum, January 13th, 2011.

Dodd-Frank and Proposed Say on Pay Vote Rules

On October 18, 2010, the Securities and Exchange Commission (SEC) published proposed rules (Proposed Rules) implementing Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Act). Section 951 generally requires US public companies to provide their shareholders the right to cast three types of pay votes: (i) a vote to approve the compensation of the named executive officers (say on pay vote); (ii) a vote on the frequency with which shareholders should be entitled to cast votes on the company’s executive compensation (frequency vote) and (iii) a vote to approve certain payments made in connection with an acquisition, merger or other specified corporate transaction (golden parachute vote). As of this date, the SEC has not adopted any final rules on the say on pay votes, but they are expected any day.

This Commentary provides a brief overview of the Proposed Rules and their effective dates, the current institutional and public company say on pay trends and what companies should be doing now to prepare for their 2011 say on pay votes. For a more detailed overview of the Proposed Rules, please see our Client Alert: SEC Announces Preliminary Say on Pay Rules, dated November 4, 2010.

Bottom Lines

The bottom lines are that US public companies are generally required to hold say on pay and frequency votes at their first meetings of shareholders occurring on or after January 21, 2011. Public companies are not required to hold golden parachute votes until the SEC promulgates the final rules. The SEC expects to issue the final rules between January and March of 2011. Until that time, public companies holding shareholder meetings on or after January 21, 2011 are only required to hold say on pay and frequency votes. Public companies may, however, ultimately avoid a golden parachute vote if they properly disclose their golden parachute arrangements and subject them to a general say on pay vote, provided that the arrangement is not modified after its prior approval. (continue reading… )

 

The S.E.C., Whistle-Blowers and Sarbanes-Oxley

by Peter J. Henning for Deal Book NYTimes, November 9th, 2010.

Congress seems to love whistle-blowers.

The Dodd-Frank financial regulatory act makes that clear by requiring the Securities and Exchange Commission and Commodity Futures Trading Commission to pay at least 10 percent, and as much as 30 percent, of any monetary penalties more than $1 million to those who provide “original information” about a violation of the law.

The financial overhaul measure requires the agencies to set up whistle-blower programs by early next year.

The S.E.C., led by Mary L. Schapiro, released its proposal last week. Unfortunately for businesses, the S.E.C. must comply with the Congressional directive that puts the interest of attracting tips about corporate wrongdoing ahead of the internal compliance programs that most corporations set up under the Sarbanes-Oxley Act, which passed eight years ago. For businesses, it looks like Congress may be willing to use the new whistle-blower programs to undermine Sarbanes-Oxley.

Admittedly, most corporations grudgingly accepted the compliance programs required by Sarbanes-Oxley Act, including the elaborate reporting mechanisms that can involve reviews by the audit committee and the entire board if there is credible information of significant misconduct. The whistle-blower program does not negate Sarbanes-Oxley — companies will still have to keep compliance programs in place, often at a significant cost. But they may well fall into disuse now that employees have a monetary incentive to go directly to the S.E.C. (continue reading… )

 

 

How To Make The Best Of ‘Say On Pay’

by Donald Delves for Forbes, November 10th, 2010.

It’s all about better, more open communication than ever before.

The new federal requirement that public companies hold nonbinding shareholder votes on proposed executive compensation plans (the votes are known as “say on pay”) creates considerable challenges for corporate leaders. Image damage from “no” votes could be severe in today’s turbulent corporate governance environment, so companies must now become far more assertive in explaining how their top executives are paid.

This provision of the Dodd-Frank Act, effective next year, will have the effect of forcing public corporations to open kimonos they have long cinched tight–even companies with relatively transparent disclosure practices. They’ll have to abandon the legalistic approach of limiting their exposure of compensation discussions to that required by the SEC in proxy statement disclosures.

That change won’t come easily. Yet, despite the difficulties say on pay will create, many companies will ultimately view it as beneficial. For those who view it as an opportunity to engage in continuous dialogue about reaching corporate goals through responsible practices, it will lead to stronger links between pay and performance. (continue reading… )


 


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