Restoring American Financial Stability Act of 2010

By Cydney Posner

Senator Dodd has introduced the ‘‘Restoring American Financial Stability Act of 2010,'' logging in at 1336 pages. The much briefer fact sheet can be found online.

While, as its title suggests, most of the bill is devoted to measures directed toward increased financial stability, there are a number of disclosure- and corporate governance-related measures that apply generally to companies outside of the financial services industry, including the following:

• Requires the SEC to direct the SROs to prohibit (with appropriate exemptions) listing of companies that do not require majority voting in uncontested elections of directors. A director would be required to submit a resignation if he or she received less than a majority and the board would be required to accept the resignation and make the effective date public or, with a unanimous vote, decline to accept the resignation and make public the relevant analysis of that decision.
• Authorizes the SEC to require proxy access for shareholder nominees to the board.
• Requires the SEC to mandate proxy disclosure regarding the reasons why the issuer has one person serving as combined CEO/Chair or two persons serving in those roles. (I guess the Banking Committee is not all that up to date with current SEC rules.)
• Mandatory nonbinding shareholder say on pay.
• SROs to be directed to require listed companies to maintain independent compensation committees. <br>• Compensation committees must "take into consideration" identified independence factors in selecting consultants, counsel and other advisors, the provision of other services, relative amount of fees for other services, procedures to prevent conflicts, stock ownership and personal relationships. <br>• Proxy disclosure of consultant conflicts.
• Proxy disclosure of executive pay versus corporate performance.
• Recovery from current or former executives of erroneously awarded compensation as a result of an accounting restatement due to the material noncompliance of the issuer with any financial reporting requirement under the securities laws.
• Disclosure of whether employee or director hedging is permitted.

There are lots of committees established and studies and reports mandated:

• Establishes an Investor Advisory Committee at the SEC to advise and consult with the SEC on regulatory priorities, regulation of securities products, the effectiveness of disclosure and initiatives to protect investor interests.
• Establishes an Office of the Investor Advocate, among other things, to assist retail investors in resolving significant problems investors may have with the SEC or with SROs, to identify areas in which investors would benefit from changes in the regulations of the SEC or SROs and to propose changes that may be appropriate to mitigate problems.
• Requires the SEC to conduct a study to identify the existing level of financial literacy among retail investors and methods to improve disclosure.

The provisions for a shareholder vote on golden parachutes and on classified boards that were in earlier drafts do not appear to be in the current version of the bill.

The bill also allows the SEC to designate certain securities issued under 4(2) not to be "covered securities" (for federal preemption purposes) because the offering of those securities is not of sufficient size or scope.