Kara MacCullough and Laurie L. Green are partners in our Fort Lauderdale office.
On March 15, 2010, Senator Dodd introduced the Restoring American Financial Stability Act of 2010 (the "2010 Bill"). Like the prior bill released in November 2009 (the "2009 Bill"), the 2010 Bill attempts to regulate financial institutions and their products and also includes several corporate governance and executive compensation provisions that would apply to companies listed on securities exchanges. The 2010 Bill provides that the SEC is required to adopt rules that would, within one year after the date of enactment, prohibit the listing of any public companies that do not comply with these provisions. The 2010 Bill generally includes the same provisions as the 2009 Bill, with some significant revisions.
The corporate governance provisions would require:
Mandatory Proxy Access: In a change from the 2009 Bill, the 2010 Bill provides that the SEC may adopt rules requiring companies that are subject to the SEC's proxy rules to include shareholder nominees for the board in the company's proxy statement on terms determined by the SEC. The 2009 Bill required the SEC to adopt such rules.
Mandatory Majority Voting: Companies would be required to adopt a majority voting standard in uncontested elections. Any directors that do not receive a majority vote would be required to resign. The board must accept the resignation or vote unanimously to reject it and disclose the reasons for the rejection.
Disclosure of Separation of Chairman and CEO: Companies would be required to disclose in their annual proxy statements the reasons they have chosen to either have a single CEO and chairman, or have separated the CEO and chairman positions.
No Prohibition on Staggered Boards: The 2010 Bill eliminated the prohibition in the 2009 Bill on companies listed on securities exchanges from having a staggered board unless approved by shareholders.
The executive compensation provisions would require:
Say on Pay: Companies would be required to have an annual advisory vote on executive compensation. In a change from the 2009 Bill, companies would not be required to have an advisory vote on golden parachutes.
Compensation Committee Independence: Compensation committee members of companies listed on securities exchanges would need to satisfy independence standards established by the national securities exchanges. In addition, the SEC would be required to adopt rules ensuring that any compensation consultant, legal counsel, or other advisor to the compensation committee was "independent" (as defined by the SEC).
Enhanced Proxy Disclosure: Companies would be required to include proxy disclosure of the relationship between executive compensation and financial performance, taking into account any change in the value of stock and dividends and any distributions, which may, but is not required to, include a pictorial comparison.
Clawback Policy: Companies would need to develop and implement a clawback policy that would require recovery of all incentive-based compensation from all executive officers (both current and former) in the event of a financial restatement, for the three-year period preceding the restatement in excess of what they would have been paid under the restatement.
Employee Hedging: Companies would be required to disclose whether their employees are permitted to engage in hedging activities that are designed to hedge or offset market declines affecting compensatory equity awards.
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