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House Approves Financial Reform Legislation

The U.S. House of Representatives voted 223-202 today to approve the ?The Wall Street Reform and Consumer Protection Act of 2009.? The wide-ranging bill includes an annual ?say on pay? mandate and authorization for the SEC to issue a proxy access rule.

The bill would authorize the SEC to exempt small companies from the advisory vote requirement while calling for separate shareholder votes on ?golden parachute? arrangements. The bill would authorize regulators to ban inappropriate or imprudently risky compensation practices, and it would require financial firms to disclose incentive-based compensation structures.

The legislation also would increase the resources for the SEC, regulate derivatives, and require hedge fund advisers to register with the SEC. The bill creates a new Consumer Financial Protection Agency as well as a Financial Stability Council to identify large, interconnected firms that could put the financial system at risk.

The bill was carried to passage by the House?s Democratic majority; 175 House Republicans and 27 Democrats voted against the bill.

However, the bill includes a permanent exemption for small issuers (those with less than $75 million in market cap) from the outside auditor attestation requirements of the Sarbanes-Oxley Act. SEC officials and investor advocates have opposed this exemption. The House voted 271-153 against an amendment offered by Rep. Paul Kanjorski to remove that provision.

The House bill will have to be reconciled with any financial reform legislation that emerges from the U.S. Senate. Senator Christopher Dodd has introduced a reform bill, which includes an advisory vote on compensation mandate, proxy access, and more far-reaching governance provisions, but his legislation encountered opposition and remains in the Banking Committee.

Full post as published by Institutional Shareholder Services -- Corporate Governance Blog on December 11, 2009 (boomark / email).