I am very pleased to announce the return of the ON Securities Blog. The blog is now part of the LexBlog network of legal blogs, and it features improved design as well as better functionality and support. I hope you will notice the difference.
As always, I will do my best to provide topical, useful and, if possible, entertaining commentary on securities compliance, corporate governance and executive compensation. The second part of this post, below, discusses the latest reform legislation being proposed by Senator Dodd, and places it in context with other proposed reforms in governance and compensation.
Occasionally, this blog will also cover other aspects of the world of private practitioners and in-house counsel, or the new world of social networking – such as these previous posts:
- “I Am Not a Crook” described useful lessons learned from a legal ethics program taught by Bud Krogh, a former assistant counsel in the Nixon White House who served jail time for his role in the break-in of Daniel Ellsberg’s psychiatrist’s office.
- "The Color of Blogging", which described the "very important" choice of a color scheme for the first version of this blog (and told the story of the picture of me above).
I appreciate the support of the readers who made the blog a success the first time around. I will try to find new ways to reach out to readers in the near future. Let me know if you have any suggestions or other comments.
The New Dodd Bill: A Preview of Possible Governance and Compensation Reforms
On March 15, Senator Christopher Dodd released a new 1,300+ page discussion draft of his proposed comprehensive financial reform legislation, the Restoring American Financial Stability Act of 2010. In addition to the provisions designed to reform the banking industry, the draft bill includes a variety of corporate governance and executive compensation reforms. For all public companies, the bill would
- require Say-on-Pay, a non-binding annual stockholder vote on executive compensation;
- authorize the SEC to require proxy access, which would enable major stockholders to nominate director candidates and have the nominees included in management’s proxy statement;
- authorize compensation committees to hire consultants and counsel, and establish standards for independent advisors to compensation committees;
- require proxy disclosure of executive pay vs. performance (including a chart); and
- require disclosure of whether the company permits hedging by directors and employees, and why the company chose to (or not to) separate the positions of chair and CEO.
For all listed companies, the draft bill would
- require majority voting for directors (with standards for accepting or rejecting the resignation of directors);
- establish independence standards for compensation committees; and
- require a clawback policy for all executive officers in the event of financial restatements.
I have reflected these features of the Dodd bill in a newly updated version of the ON Securities Cheat Sheet (PDF). The Cheat Sheet is a two-page summary of recent and proposed reforms affecting corporate governance and executive compensation, including SEC rules and proposed legislation. It’s meant to be an antidote for the dizziness and disorientation caused by diving into 1,300 page documents. To make it an even more handy reference, you can always find a link to the most up-to-date version on the home page of this blog, in the orange box at the right side cleverly captioned “ON Securities Cheat Sheet”.
The Dodd bill includes many of the same governance reforms as the Shareholder Bill of Rights Act of 2009, introduced by Senator Charles Schumer in May 2009 and also described in the Cheat Sheet. Like the Schumer bill, the draft Dodd bill includes corporate governance reforms, with some variations. For example, the Dodd bill authorizes, but does not require, the SEC to provide proxy access to facilitate stockholder nomination of director candidates. Also, both bills require majority voting for directors for uncontested elections of listed companies. However under the Dodd bill, if a director does not receive a majority of affirmative votes, the board of directors may elect to accept that directors resignation or, by a unanimous vote, reject the resignation. This is different from the Schumer bill, under which the board is required to accept the director’s resignation.
Over the next several months, the provisions of the various bills in Congress will continue to be reconciled, and the SEC will continue to consider its proposed rules. The pace of reform has slowed somewhat, but as I have said before, the various reforms are still jockeying for position like horses in an arcade game making their way around a race track, with the lead constantly shifting – similar to the game in this video.