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Public Companies Subject to Far-Reaching Corporate Governance Reforms

On July 15, 2010, the Senate approved, and we expect President Barack Obama shortly will sign into law, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act or Act), which in addition to overhauling the financial services regulatory regime in the United States, advances the further federalization of corporate governance regulation. It does so by building on prior public policy embodied in the landmark Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley Act) enacted following the Enron and Worldcom corporate scandals. The measures corporate governance provisions are not limited to financial services sector companies, but apply generally to public companies traded in the United States. In summary, the Dodd-Frank Act imposes far-reaching substantive requirements many of which have been hotly debated among corporate, institutional and activist investor and corporate governance watch dog interest groups that would:

  • Provide shareholders with a periodic advisory vote on executive compensation and golden parachutes (Section 951),
  • Provide shareholders with proxy access rights to include shareholder nominees in company proxy statements (Section 971),
  • Add compensation committee reforms imposing enhanced independence criteria and procedural requirements relating to the retention of compensation consultants and advisors (Section 952),
  • Require companies to adopt clawback policies for erroneously awarded compensation (Section 954),
  • Mandate disclosure on company policies concerning employee and director hedging (Section 955),
  • Require enhanced pay-for-performance and pay equity related disclosures (Section 956),
  • Require companies to disclose the reasons why they have decided to separate or not to separate the position of chairman and chief executive officer (Section 972), and
  • Prohibit discretionary voting in director elections and on executive compensation by brokers that are members of any stock exchange (Section 957).

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