No doubt you know that the Dodd-Frank Wall Street Reform and Consumer Protection Act has been signed into law, with at least some ramifications for every public company. Space here doesn’t permit an overview, and in any event you’ve probably already received highlights of the new law from one or more advisory firms. Among the more interesting aspects of new requirements is how the authority of corporate shareholders has risen, in a number of significant ways:
- Say on pay: Shareholders now will get to vote on whether they’re satisfied with executive compensation. And the same holds for so called “golden parachutes” related to such transactions as sales or mergers of the company. While these are only non-binding advisory votes, compensation committees and full boards will certainly think twice before continuing with compensation voted down by the company’s owners – which parties also vote on whether sitting directors should be re-elected going forward. As such, we can expect to see boards more receptive to views of shareholders, especially major ones, on executive compensation programs.
- Additional executive compensation disclosures: Public companies also will need to provide more detail about how executives pay relates to the company’s financial performance. Additionally, disclosure will be required of the ratio of the CEO’s total compensation to the average of all other workers’ median total pay. There’s little doubt that shareholders will be focusing closely on this information and reacting to it in the voting process.
- Elimination of broker discretionary voting: Now stock exchanges will extend beyond the current NYSE rules, to now prohibit discretionary broker voting in board elections as well as executive compensation and other significant matters. Because brokers typically voted in favor of company initiatives, shareholders will have more say in what transpires.
- Proxy access: Perhaps most significant, the SEC is authorized to allow shareholders to use proxy materials to nominate their own directors. While we don’t know exactly what the SEC will do in this regard, we can expect that shareholders will have a greater say in who sits in the boardroom.
These of course are just some of the elements of the new law, which impact ultimately will be determined by numerous studies to be undertaken and regulations to be issued. One thing, however, is clear. Shareholder authority continues to grow, and companies and their boards will continue the trend of opening channels of communication with shareholders.
© Steinberg Governance Advisors, Inc. 2010. The information presented here does not constitute legal or any other type of professional advice. Companies are encouraged to consult legal counsel concerning their responsibilities for legal and regulatory compliance.