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Recent Elections Not Expected to Have Major Impact on Corporate Governance

(The following post originally appeared on ONSecurities, a top Minnesota legal blog founded by Martin Rosenbaum to address securities, governance and compensation issues facing public companies.)

November 12, 2010

In a post in the ISS Insights Blog, “After Election Day, Governance Observers Expect Status Quo,” Ted Allen reports that the recent Congressional elections are unlikely to have a major impact on corporate governance reform under the Dodd-Frank Act. However, Republican control of the House of Representatives may mean that the SEC has fewer resources and a brighter spotlight on its activities:

Professor James Cox, a securities law professor at Duke University, said the SEC likely will receive substantially less funds than were authorized in Dodd-Frank Act. "This will likely starve the SEC's efforts to step up the size and experience of its staff to carry out inspections, which is frightening, considering the addition of thousands of investment advisers to the inspection mission of the SEC," Cox said.

While the prospects for any investor-friendly or pro-regulatory legislation are now "dead," Cox said, "It is unlikely that the House can push through reversals of any major legislation, including approval for proxy access." However, he said Congress may try to pass legislation to make "technical corrections" to the Dodd-Frank Act, and there may be some provisions that concern investors. Cox said House Republicans may await the outcome of the lawsuit filed by the U.S. Chamber of Commerce and the Business Roundtable before addressing proxy access.

There may be some uncertainty about the impact of the federal elections, but at least we know the results. Unlike the governor’s race in Minnesota, where we seem destined for an eternity of recounts. . . .

Useful Resource Analyzes Shareholder Preferences In the Frequency Vote

Nothing in the Dodd-Frank Act is currently raising more questions than the frequency vote, or “Say When on Pay.” Under the Act, at the first annual meeting on or after January 21, 2011, public companies must hold a separate non-binding vote in which shareholders will express their opinion on whether the Say-on-Pay vote should be held annually, biennially, or triennially. The frequency vote must be held at least once every six years. After their annual meetings, companies must disclose on Form 10-Q whether they will abide by the shareholders’ preference on frequency. Many public companies have asked me about the optimal frequency to recommend, as I addressed in this prior post.

One factor that companies should consider is the preferences expressed by their major shareholders. Phoenix Advisory Partners, a proxy solicitation firm, recently released a report entitled “Say on Pay Frequency: Annual, Biennial or Triennial – Considerations in Making Your Recommendation.” The most interesting thing about the report is that it is based on conversations with large institutional investors. For example, the report lists the names of a number of institutional investors who support annual Say-on-Pay: Walden Asset Management, AFCSME, etc. Phoenix also reports that the Council of Institutional Investors supports annual Say-on-Pay votes. On the other hand, T. Rowe Price has indicated that it may not take a blanket approach, but may tailor its recommendations based on the compensation practices of individual companies.


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