Financial Reform Bulletin

 
As we enter the final stages of the 2010 proxy season, many companies have successfully navigated significant change over past shareholder meeting processes.  These include the loss of broker discretionary voting in uncontested director elections, Say on Pay proposals (required of all TARP recipients and “voluntarily” adopted by dozens of additional companies), and expanded proxy statement disclosures.
 
But don’t relax (or even blink), as more fundamental change is imminent. 
On May 20, the Senate approved S.3217:  Restoring American Financial Stability Act of 2010 (the “Dodd bill”).  This follows the December 2, 2009 House of Representatives approval of H.R. 4173: The Wall Street Reform and Consumer Protection Act of 2009 (the “Frank bill”).
 
These bills will now be reconciled in conference, with the possibility of a compromise bill ready for President Obama’s signature by the July 4 holiday.  Major elements addressed in both bills and likely to emerge are Proxy Access and mandatory Say on Pay. Other issues which may be addressed include derivatives trading, other proprietary trading that does not benefit clients (the Volcker Rule), consumer and investor protections (including further regulation of compensation), and “too big to fail” and the specter of future taxpayer bailouts.
 
Considering that this reconciliation process will occur during the run-up to a hotly contested mid-term election season, amidst intense financial industry lobbying, with regulators fighting for turf or even survival and the May 6 “Flash Crash” fresh in our memories, the potential for the seemingly inevitable “unintended consequences” is very high.
 
How can companies and their advisors best prepare for this impending change?
Financial institutions clearly are reviewing their existing business models and practices to see how much they will have to change to meet the new requirements.  The more their business models change, the more they should expect their investor bases to change as well, causing these companies to have to embrace a new set of investors. All companies will have to adapt to ever-increasing investor expectations in governance, transparency and disclosure. And speaking of investors, many have been salivating for years at the prospect of adding Proxy Access to their activist toolkit.

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