Corporate & Securities Law

By Jim Hamilton

Key Senators to Offer Amendments during Markup of Revised Draft of Financial Reform Bill

With almost 400 amendments filed to the Senate Banking Committee?s revised draft of the financial reform bill, a number of key Senators plan to offer significant amendments during the bill?s mark up.

Senator Charles Schumer intends to offer amendments enhancing the corporate governance provisions of the draft. The revised draft currently gives shareholders an advisory non-binding vote on executive pay. The Schumer amendments would require a shareholder vote on a company?s golden parachute policies. The original draft provided for a separate shareholder advisory vote for golden parachute agreements in connection with a takeover. Similarly, the House reform bill passed on December 11, 2009, requires a shareholder advisory vote on golden parachutes.

The revised draft authorizes the SEC to grant shareholders proxy access to nominate directors. The Schumer amendments would require the SEC to adopt shareholder proxy access regulations within one year of enactment. The original draft required that, within, 180 days of enactment, the SEC must issue rules permitting the use by shareholders of management proxy solicitation materials for the purpose of nominating individuals to the board of directors, under such terms and conditions as the Commission determines are in the interest of shareholders and the protection of investors. The House legislation authorizes the SEC to issue proxy access regulations regarding the nomination of directors by shareholders to serve on a company?s board of directors.

The revised draft also requires directors to win by a majority vote in uncontested elections, which should help shift management?s focus from short-term profits to long-term growth and stability. If a director fails to win a majority of the vote in uncontested election, the directors must tender his or her resignation to the board. If the board declines to accept the resignation, the board must disclose the specific reasons why it decided not to accept the resignation and why that decision was in the best interest of the company and its shareholders. The Schumer amendments would eliminate the ability of a board of directors to reject a director?s resignation following the director?s failure to receive a majority of votes cast in an uncontested election.

Committee Chair Thomas Dodd will offer an amendments requiring two GAO studies. The first will require a GAO study and recommendations on the potential for conflicts of interest between securities underwriting and the securities analysis function within a financial firm. The second study will require GAO to study the accounting for off-balance sheet finance. Another Dodd amendment would require the establishment of minimum underwriting standards.

An amendment to be offered by Ranking Member Richard Shelby would exclude the auditors of introducing brokers from the requirement that the auditors of broker-dealers register with the PCAOB. Another Shelby amendment would require municipal advisors to register with the SEC rather than the MSRB. In another amendment, Sen. Shelby would require the SEC and CFTC to merger into a single regulator.

An amendment by Senator Bob Corker would add accounting standards to the items to be examined in the Financial Stability Oversight Council?s Review of financial institutions. Sen. Corker would also include GSEs in the definition of financial company and establish a Financial Company Resolution Court, outright prohibit the securitization of subprime mortgages, and order a study on securitization.

Full post as published by Jim Hamilton's World of Securities Regulation on March 21, 2010 (boomark / email).