On June 25, 2010, a House-Senate conference committee reached final agreement on the Dodd-Frank Act Reform and Consumer Protection Act (the “Act”). The conference report must be approved by the House and Senate before the bill is presented to the President for signature. The House is expected to approve the conference report on June 29 and the Senate is expected to vote soon thereafter.
The Act is comprehensive in scope, providing for important changes to the structure of national financial regulation and new substantive requirements that are applicable to a wide variety of market participants, including public companies that aren’t financial institutions. Among other steps, the Act includes corporate governance and executive compensation reforms, new registration requirements for hedge fund and private equity fund advisers, heightened regulation of over-the-counter derivatives and asset-backed securities and new rules for credit rating agencies. The Act also mandates significant changes to the jurisdiction of the Federal Reserve and the Securities and Exchange Commission as well as improved oversight and regulation of banks and non-bank financial institutions.
This memorandum outlines this Act’s key provisions.
Investor Protection Measures
The Act provides for the following corporate governance reforms:
Proxy access. The Act provides the SEC explicit authority to promulgate rules requiring U.S. public companies to include nominees submitted by shareholders in proxy solicitation materials and to follow specific procedures with regard to such solicitation. The legislation doesn’t call for the SEC to adopt proxy access rules, nor does it prescribe any parameters for any rules which are adopted. A late proposal by some Senators to add a 5 percent ownership requirement and a two-year holding period was defeated in conference. According to statements from the SEC Chairman and personnel, we anticipate that the SEC will take final action on proxy access shortly after the Act is signed into law and the rules will be in effect for the 2011 proxy season.
CEO and chairman disclosures. The Act directs the SEC to promulgate rules requiring U.S. public companies to disclose in their annual proxy statements the reasons why the organization has chosen to combine or separate the board chairman and CEO positions. The SEC’s 2009 amendments to its proxy rules require substantially similar revelation, therefore it’s unclear whether this provision of this Act will lead to any additional disclosure requirements.
Broker voting. The Act requires stock exchanges to prohibit agent discretionary voting in relation to the election of directors, executive compensation or some other important matter, according to the SEC. Broker optional voting has already been eliminated from the stock exchanges for director elections and this new provision will expand the prohibition to say-or-pay notes and other matters determined to be significant.