User:Barry Scudder-Davis/sandbox

I plan to edit the Dodd-Frank Act Wikipedia Page. This page lays out all of the rules and provisions set in place by the Dodd-Frank Act, but only has a small section dealing with the impact and reaction of the Act. I plan to add to this page by adding a section about corporate governance issues.

Link: Dodd-Frank Wall Street Reform and Consumer Protection Act

 Article Additions Below: 

Corporate Governance Issues and U.S. Public Corporations

The Dodd-Frank Act has several provisions that call upon the Securities and Exchange Commission (SEC) to implement several new rules and regulations that will affect corporate governance issues surrounding public corporations in the United States. Many of the provisions put in place by Dodd-Frank require the SEC to implement new regulations, but intentionally do not give specifics as to when regulations should be adopted or exactly what the regulations should be. This will allow the SEC to implement new regulations over several years and make adjustments as it analyzes the environment. Public companies will have to work to adopt new policies in order to adapt to the changing regulatory environment they will face over the coming years.

Section 951 of Dodd-Frank deals with executive compensation. The provisions require the SEC to implement rules that require proxy statements for shareholder meetings to include a vote for shareholders to approve executive compensation by voting on “say-on-pay” and “golden parachutes." SEC regulations require that at least once every three years shareholders have a non-binding say-on-pay vote on executive compensation.   While shareholder are required to have a say-on-pay vote at least every three years, they can also elect to vote annually, every two years, or every third year.  The regulations also require that shareholders have a vote at least every six years to decide how often they would like to have say-on-pay votes. In addition, companies are required to disclose any golden parachute compensation that may be paid out to executives in the case of a merger, acquisition, or sale of major assets. Proxy statements must also give shareholders the chance to cast a non-binding vote to approve golden parachute policies. Although these votes are non-binding and do not take precedence over the decisions of the board, failure to give the results of votes due consideration can cause negative shareholder reactions. Regulations covering these requirements were implemented in January of 2011 and took effect in April 2011.

Section 952 of Dodd-Frank deals with independent compensation committees as well as their advisors and legal teams. These provisions require the SEC to make national stock exchanges set standards for the compensation committees of publicly traded companies listed on these exchanges. Under these standards national stock exchanges are prohibited from listing public companies that do not have an independent compensation committee. To insure that compensation committees remain independent, the SEC is required to identify any areas that may create a potential conflict of interest and work to define exactly what requirements must be met for the committee to be considered independent. Some of the areas examined for conflicts of interest include other services provided by advisors, personal relationships between advisors and shareholders, advisor fees as a percentage of their company’s revenue, and advisors’ stock holdings. These provisions also cover advisors and legal teams serving compensation committees by requiring proxy statements to disclose any compensation consultants and include a review of each to ensure no conflicts of interest exist. Compensation committees are fully responsible for selecting advisors and determining their compensation. Final regulations covering issues surrounding compensation committees were implemented in June 2012 by the SEC and took effect in July 2012. Under these regulations the New Your Stock Exchange (NYSE) and NASDAQ also added their own rules regarding the retention of committee advisors. These regulations were approved by the SEC in 2013 and took full effect in early 2014.

Section 953 of Dodd-Frank deals with pay for performance policies to determine executive compensation. Provisions from this section require the SEC to make regulations regarding the disclosure of executive compensation as well as regulations on how executive compensation is determined. New regulations require that compensation paid to executives be directly linked to financial performance including consideration of any changes in the value of the company’s stock price or value of dividends paid out. The compensation of executives and the financial performance justifying it are both required to be disclosed. In addition, regulations require that CEO compensation be disclosed alongside the median employee compensation excluding CEO compensation, along with ratios comparing levels of compensation between the two. Regulations regarding pay for performance were proposed by the SEC in September 2013 and were adopted in August 2015.

Section 954 of Dodd-Frank deals with clawback of compensation policies, which work to ensure that executives do not profit from inaccurate financial reporting. These provisions require the SEC to create regulations that must be adopted by national stock exchanges, which in turn require publicly traded companies who wish to be listed on the exchange to have clawback policies. These policies require executives to return inappropriately awarded compensation, as set forth in section 953 regarding pay for performance, in the case of an accounting restatement due to noncompliance with reporting requirements. If an accounting restatement is made then the company must recover any compensation paid to current or former executives associated with the company the three years prior to the restatement. The SEC proposed regulations dealing with clawback of compensation in July 2015.

Section 955 of Dodd-Frank deals with employees’ and directors’ hedging practices. These provisions stipulate that the SEC must implement rules requiring public companies to disclose in proxy statements whether or not employees and directors of the company are permitted to hold a short position on any equity shares of the company. This applies to both employees and directors who are compensated with company stock as well as those who are simply owners of company stock. The SEC proposed rules regarding hedging in February 2015.

Section 957 deals with broker voting and relates to section 951 dealing with executive compensation. While section 951 requires say on pay and golden parachute votes from shareholders, section 957 requires national exchanges to prohibit brokers from voting on executive compensation. In addition, the provisions in this section prevent brokers from voting on any major corporate governance issue as determined by the SEC including the election of board members. This gives shareholders more influence on important issues since brokers tend to vote shares in favor of executives. Brokers may only vote shares if they are directly instructed to do so by shareholders associated with the shares. The SEC approved the listing rules set forth by the NYSE and NASDAQ regarding provisions from section 957 in September 2010.

Additional provisions set forth by Dodd-Frank in section 972 require public companies to disclose in proxy statements reasons for why the current CEO and chairman of the board hold their positions. The same rule applies to new appointments for CEO or chairman of the board. Public companies must find reasons supporting their decisions to retain an existing chairman of the board or CEO or reasons for selecting new ones to keep shareholders informed.

Provisions from Dodd-Frank found in section 922 also address whistle blower protection. Under new regulations any whistle blowers who voluntarily expose inappropriate behavior in public corporations can be rewarded with substantial compensation and will have their jobs protected. Regulations entitle whistle blowers to between ten and thirty percent of any monetary sanctions put on the corporation above one million dollars. These provisions also enact anti-retaliation rules that entitle whistle blowers the right to have a jury trial if they feel they have been wrongfully terminated as a result of whistle blowing. If the jury finds that whistle blowers have been wrongfully terminated, then they must be reinstated to their positions and receive compensation for any back-pay and legal fees. This rule also applies to any private subsidiaries of public corporations. The SEC put these regulations in place in May 2011.

Section 971 of Dodd-Frank deals with proxy access and shareholders’ ability to nominate candidates for director positions in public companies. Provisions in the section allow shareholders to use proxy materials to contact and form groups with other shareholders in order to nominate new potential directors. In the past, activist investors had to pay to have materials prepared and mailed to other investors in order to solicit their help on issues. Any shareholder group that has held at least three percent of voting shares for a period of at least three years is entitled to make director nominations. However, shareholder groups may not nominate more than twenty five percent of a company’s board and may always nominate at least one member even if that one nomination would represent over twenty fire percent of the board. If multiple shareholder groups make nominations then the nominations from groups with the most voting power will be considered first with additional nominations being considered up to the twenty fire percent cap.

 Sources: 

https://www2.deloitte.com/content/dam/Deloitte/us/Documents/risk/us_aers_strategies_for_going_public_1162014.pdf

http://dodd-frank.com/summary-of-corporate-governance-provisions-in-the-dodd-frank-act/

http://www.shearman.com/~/media/Files/NewsInsights/Publications/2010/12/Implications-of-the-DoddFrank-Act-on-Corporate-G__/Files/View-full-article-Implications-of-the-DoddFrank-__/FileAttachment/CM120310ImplicationsofDoddFrankonCorpGovforIPOIs__.pdf

http://whoswholegal.com/news/features/article/29010/corporate-governance-reform-impact-dodd-frank-act/

https://www.dlapiper.com/en/us/insights/publications/2013/12/doddfrank-affects-private-companies-too-practice__/

https://corpgov.law.harvard.edu/2015/10/28/the-sec-proposed-clawback-rule/

https://corpgov.law.harvard.edu/2014/04/17/executive-compensation-under-dodd-frank-an-update/

https://corpgov.law.harvard.edu/2015/08/14/sec-adopts-ceo-pay-ratio-disclosure-rule/

https://corpgov.law.harvard.edu/2015/02/16/aligning-the-interests-of-company-executives-and-directors-with-shareholders/