Corporate Governance

How the Wall Street Reform Act Impacts Smaller Businesses: Corporate Governance Changes

By J Robert Brown Jr.

The Act amends Section 6(b) of the 1934 Act to require national securities exchanges to prohibit proxy voting by a broker in connection with the election of directors (other than a vote with respect to the uncontested election of a member of the board of any registered investment company), executive compensation or any other significant matter, as determined by the SEC, unless the beneficial owner of the security has specifically instructed the broker to vote in such way.(24) Broker discretionary voting was eliminated by the New York Stock Exchange ('NYSE') Rule 452 for director elections starting in the 2010 proxy season. The Act extends the prohibition of broker discretionary voting to say-on-pay votes, among other matters.

The Act also provides that the SEC may adopt provisions for 'proxy access,' allowing shareholders who want to propose a slate of directors to include their slate in the company's proxy statement that also includes the slate proposed by the board.(25) Currently, unless companies voluntarily provide proxy access to their shareholders, shareholders must mount their own (usually quite expensive) proxy campaign if they desire to nominate even a single director in opposition to the company slate. If implemented, it will become easier for dissident shareholders to present their director nominees to the shareholders for consideration because the company will have to include the relevant information in its own proxy statement.

Implementation of 'proxy access' provisions may require statutory amendments as was the case when (in 2009) Delaware added § 112 to the Delaware General Corporation Law.  The Act also requires the SEC to adopt rules requiring an issuer to disclose in its proxy statement why the issuer has chosen the same person to serve as chairman and CEO (if that is the case) or, conversely, why the issuer has chosen different persons to serve in those roles.(26) The Act requires the SEC to adopt these rules within 180 days.

Herrick K. Lidstone, Jr., Burns Figa & Will, PC

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24 Section 957 of the Dodd-Frank Act, amending § 6(b) of the 1934 Act.
25 Section 971 of the Act, adding § 14(a)(2) to the 1934 Act.
26 Section 972 of the Act, adding § 14B to the 1934 Act.

Full post as published by The Race to the Bottom on July 28, 2010 (boomark / email).