Dodd-Frank ramps up workload in first year
Governance and legal experts look back at the impact of regulation signed
into law 12 months ago today
It’s the first anniversary of the Dodd-Frank Wall Street Reform and Consumer
Protection Act. Since Congress passed it, IR officers have become painfully
aware of how the legislation reaches far beyond financial services
The complex legislation – the Senate’s
runs to 16 pages – included significant requirements in executive
compensation and corporate governance for all.
Even with mandatory majority voting for directors having been dropped from
early versions of the legislation, the requirements have still been onerous.
‘It could be a 10 percent to 20 percent increase in workload, though not
hitting all IROs equally throughout the year,’ says Ron Schneider, senior
vice president of proxy solicitation and corporate governance consultancy
Phoenix Advisory Partners. ‘And it’s not all done yet. They’re still working
on finalizing about half of that ambitious agenda.’
What is in place can be tough enough. ‘The area where it’s created the most
work is around the say-on-pay vote,’ says Michael Littenberg, a partner at
law firm Schulte Roth & Zabel, who adds that this affects both the first
compensation round and the frequency votes.
‘For many companies, the [frequency] vote will be annual. That means
executive pay practices are going to be even more front and center for IROs
than they have been in the past.’
Although IROs may think that – as with most new regulatory structures – the
worst is over after the first year, that may not be the case. According to
Littenberg, there are three groups developing among corporations: those that
had an overwhelmingly affirmative vote on compensation, those that got
passage but with a much lower margin, and those rebuked with a ‘no’.
The last group is tiny. The first is reasonably large and probably safe.
It’s the middle group that could feel pain. ‘Fluctuation and increased
shareholder activism could see the vote go negative or be on the margin next
year,’ Littenberg says.
‘Given executive compensation and some of the massive failures that have
occurred, some shareholders think directors are not fully in charge,’ says
Sanjay Shirodkar, of counsel to DLA Piper’s public company and corporate
governance group and a former special counsel with the SEC. ‘I believe there
will be activists who will watch what happens this year and then target
And then there are the parts not yet in place: direct proxy access is only
temporarily at bay because of court action taken by some corporations. Some
other potential provisions include independent compensation committees and
required clawbacks for compensation based on inaccurate financial
The bigger burden may be an indirect one. Corporations that are nervous
about Dodd-Frank and what might come in the future want better
communications with investors, and that means IR department involvement.
During the year, some companies have done a roadshow or a
fifth analyst call
just to address compensation issues.
‘And in this environment, you’re asked to do more – but not given more
resources to do it,’ Schneider says.
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