Financial Crisis News Center

SEC Amends Proxy Rules to Implement Dodd Amendment Say-on-Pay Mandate for TARP Companies

This story appeared in Jim Hamilton's World of Securities Regulation.

The SEC has amended the federal proxy rules to implement the requirement in Section 111(e)(1) of the Emergency Economic Stabilization Act (EESA) that TARP recipients provide a separate shareholder advisory vote to approve the compensation of executives. Release No. 34-61335. Under the amendments, this separate shareholder vote will be required when TARP recipients solicit proxies during the period in which any obligation arising from financial assistance provided under the TARP remains outstanding, and the solicitation relates to an annual meeting for which proxies will be solicited for the election of directors. The say-on-pay mandate for TARP recipients was added to EESA by the Dodd Amendment to the stimulus legislation.

Council of Institutional Investors Urges Senate Banking Committee to Craft Strong Corporate Governance Provisions

By James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter; and CCH Derivatives Regulation Law Reporter.

As the Senate Banking Committee moves toward mark up of a financial reform bill, the Council of Institutional Investors urged the two senators working on corporate governance to produce strong provisions favoring shareholder access to the election of directors, as well as other measures such as clawbacks of executive pay. In an effort to report a bi-partisan bill out of committee, Chair Christopher Dodd has paired off Republican and Democratic Senators to work on different titles of the Restoring American Financial Stability Act. Senator Chuck Schumer (D-NY) and Senator Michael Crapo (R-Idaho) are working on the corporate governance title. The Council’s letter to Senators Schumer and Crapo was informed and drew upon a report of the Investors Working Group, which is co-chaired by former SEC Chairs William Donaldson and Arthur Levitt, and includes former CFTC Chair Brooksley Born.

CCH White Paper Offers Closer Look at HR 4173

CCH Principal Analyst James Hamilton, J.D., LL.M., has authored a 40-page white paper titled, "House Passes Historic Securities, Derivatives and Systemic Risk Reforms: HR 4173." The paper offers a detailed look at the securities, derivatives, corporate governance, systemic risk and dissolution authority components of the legislation.

Download the white paper

SEC-Approved NYSE Governance Standards Take Effect January 1

This story appeared in Jim Hamilton's World of Securities Regulation.

Effective January 1, 2010, the SEC approved significant changes to the New York Stock Exchange corporate governance listing standards, in part to conform the standards to the requirements of Item 407 of Regulation S-K, which consolidates director independence and related corporate governance disclosure requirements under a single item, and in part to conform the listing standards to Form 8-K. Essentially, the changes eliminate each disclosure requirement currently included in the listing standards that is also required by Item 407 and incorporate directly into the standards the applicable disclosure requirement of Item 407. Release No. 34-61067.

SEC Enhances Proxy Disclosure, Adviser Custody Rules

This story appeared in Jim Hamilton's World of Securities Regulation.

The SEC adopted rule and form changes intended to enhance the information provided in proxy solicitations and in other forms filed with the SEC. Beginning in the upcoming annual reporting and proxy season, the new rules will improve corporate disclosure regarding risk, compensation and corporate governance matters when voting decisions are made. In addition, the SEC adopted rule changes designed to substantially increase the protections for investors who turn their money and securities over to investment advisers.

CCH Briefing Paper Examines House Legislation

The CCH Editorial Staff of banking and securities law analysts has authored a detailed overview titled, "House Passes Wall Street Reform Act." From the introduction:

On December 11, 2009, the U.S. House of Representatives passed legislation to restructure the financial services regulatory system, the Wall Street Reform and Consumer Protection Act of 2009 (HR 4173), by a vote of 223-202. As discussed below, the sweeping array of reforms includes the Financial Stability Improvement Act, which would create a systemic risk regulator, strengthen regulation of depository institutions and bank holding companies, improve the asset-backed securitization process, and provide for an enhanced dissolution authority. The legislation also would create a Consumer Financial Protection Agency, reform the over-the-counter derivatives market, subject hedge funds to stricter scrutiny, impose new corporate governance mandates, adopt heightened requirements for credit rating agencies and expand regulatory enforcement powers. Among other measures, the legislation features expansive consumer mortgage protections and creates a Federal Insurance Office.

Download the briefing paper

TARP Compensation, Corporate Governance Rules Corrected

This story appeared in Bank Digest.

The Treasury Department has issued two sets of corrections to interim final rules that were published June 15, 2009, relating to standards for compensation and corporate governance applicable to financial institutions receiving funds under the Troubled Assets Relief Program.

The first document contains corrections to the interim final rule’s preamble since as published, the preamble contains errors that may prove to be misleading.

The second document makes several technical amendments to that interim final rule.

Walker Report Recommends Creation of Board Risk Committee and Links Risk to Compensation

This story appeared in Jim Hamilton's World of Securities Regulation.

The Walker report on corporate governance and executive compensation contains far reaching and groundbreaking recommendations that very likely will be incorporated into UK legislation. The core principles of the Walker recommendations center on risk management, disclosure, and delinking excessive risk taking from compensation, including the creation of a board risk committee with real powers and a duty to provide meaningful information about risk in the company’s annual report.

At the same time, the Walker report supports the continued use of the comply or explain doctrine for corporate governance codes, as well as endorsing the unitary board structure. The report concluded that the two-tier model of separate executive and supervisory boards, such as in Germany, did not yield better outcomes than unitary boards in the crisis period.

Audit Committees Receive Guidance on Issues Arising from Financial Crisis

This story appeared in Jim Hamilton's World of Securities Regulation

As the financial crisis continues, audit committee are facing more and more challenges involving risk and uncertainties and valuing financial instruments. The UK Financial Reporting Council has issued guidelines to help audit committees navigate the issues. The FRC has oversight of corporate governance. In 2003, the FRC set up an independent group to clarify the role and responsibilities of audit committees, which culminated in the Smith Guidance for Audit Committees within the overall corporate governance code.

Chamber of Commece Opposes Waters Amendment on Shareholder Access

By James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter; and CCH Derivatives Regulation Law Reporter.

Legislation passed by the House Financial Services Committee would authorize the SEC to implement shareholder access to management’s proxy card to nominate directors for election to the board. The Waters Amendment to the Investor Protection Act would authorize the SEC to implement rules and procedures granting shareholders the opportunity to nominate at least one director to a corporation’s board of directors, a right known as proxy access. In the view of Rep. Waters, the amendment was needed because, without it, the SEC would have most likely faced a lawsuit from corporations and their industry groups alleging that the Commission lacked the authority to grant shareholders this right. The SEC proposes allowing shareholders to include their nominees for director in the company's proxy materials if they have been shareholders of the company for at least one year and satisfy a minimum holdings test based on the company’s market value.

In a letter to Committee Chair Barney Frank, the US Chamber of Commerce criticized the Waters Amendment as federalizing corporate law with a one-size-fits-all approach when what is needed is a flexible state-based approach that allows shareholders and the board to choose a governance structure that works best for the company. Delaware has enacted legislation clarifying the authority of companies and their shareholders to adopt proxy access and proxy reimbursement bylaws, noted the Chamber, and an American Bar Association committee is addressing similar amendments to the Model Business Corporation Act on which 30 state corporate statutes are based. Coming at this time, said the Chamber, the Waters Amendment would deprive shareholders of existing rights and weaken existing corporate governance structures. Moreover, the Waters Amendment would disenfranchise individual investors and empower special interests.