The Obama Administration unveiled a sweeping regulatory overhaul early this summer aimed at improving government oversight of banks and markets, supposedly to avert a repeat of the financial crisis. Meanwhile, Congress is moving forward with initiatives that would give more authority to shareholders, and the Securities and Exchange Commission is putting the finishing touches on its plan to give them proxy access.
"You don't get a sense that there's been a change of culture and behavior as a consequence of what has happened. And that's why the financial regulatory reform proposals that we put forward are so important," Obama said in a PBS interview in July.
Against this backdrop, it is widely accepted that an annual nonbinding advisory vote by shareholders on executive pay at all publicly traded companies will become the law of the land. The measure was approved by the House in August and is expected to be taken up in the Senate.
In addition, the SEC has issued two sets of proposals—now subject to public comment until September 15—that would require greater disclosure on several fronts and enhance proxy disclosure and solicitation. Specifically, the SEC proposals include:
Broader-based pay disclosures to provide more information about compensation policies beyond the named officers in the Compensation Disclosure & Analysis (CD&A). Disclosure on director qualifications, including the experience, attributes, or skills that qualify them to serve on the board or specific committees of the board. Greater explanation of the company’s leadership structure, including why it is best suited to the company and why the CEO and chairman’s roles are combined or split. More disclosure on the board’s role in risk management. Disclosure of fees paid to comp consultants and services other than compensation consulting for officers and directors.
If adopted, these rule changes would become effective for proxy filings for a fiscal year ending after December 15.
The SEC also voted to approve an NYSE proposal to eliminate broker discretionary voting for all elections of directors, whether contested or not. This rule change would apply to shareholder meetings held next year.
On Capitol Hill, the so-called Shareholder Bill of Rights introduced by senators Charles Schumer (D-NY) and Maria Cantwell (D-WA) incorporates proposals already proposed by the SEC, and then some. Its far-reaching provisions include say on pay, majority voting, and proxy access; annual director elections; splitting the role of the chairman and CEO; and the creation of a separate risk committee.
The Business Roundtable called the bill an "unnecessary intrusion into matters governed by state corporation law, the SEC, stock exchanges, and public company boards."
"All of these measures are well intended, but they are misguided," says Marc Rosenberg, a partner at law firm Cravath. He says they give more authority to shareholders, who don’t have a legal obligation to look out for the best interest of the company.
Others, including Thomas Quaadman of the U.S. Chamber of Commerce's Center for Capital Market Competitiveness, argue that federal legislation is not about improving the corporate governance of poorly run companies, but rather "liberalizes rules so that activist investors can avoid costly proxy fights and elect their own directors instead."