Dodd-Frank

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5/25 Whistleblower Meeting Confirmed

As was rumored, the SEC has announced that it will hold an open meeting at 9:30 a.m. EDT on May 25, 2011 to consider the adoption of final rules implementing the Dodd-Frank whistleblower provisions. The SEC’s announcement is here.  We’ll be focusing on the open meeting with great interest.

Our memo from last November on the proposed rules is here. Our webcast on the proposed rules is here.
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The Impact of the Elimination of Broker Discretionary Votes on Executive Compensation

When the SEC decided to eliminate the ability of brokers to vote on a discretionary basis without specific client instruction for director elections in July 2009, many predicted that it would seriously affect the ability of directors to obtain majority support.  The concern proved to be a false alarm.  As a result, when the Dodd-Frank Act required the elimination of broker discretionary voting for executive compensation matters, including say-on-pay, there wasn’t nearly the same chatter.

But it turns out that given the closeness of many of the failed say-on-pay votes, the reported broker non-votes would have made a real difference.  We calculated that 7 of the 21 companies reporting failed votes so far would have passed, in some cases by a decent margin, if the non-votes had actually been counted as “for” say-on-pay, which is not an unreasonable assumption given these discretionary votes generally favored management. 
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Whistleblower Debate Grinds Slowly

The debate on the Dodd-Frank whistleblower provisions is continuing on several fronts, with the SEC rumored to be close to finalizing its rule proposals and Congress considering proposals to address some of the (perhaps) unintended consequences of the original legislation.  A link to this week’s House hearings is here.  At this stage of the legislative debate the parties seem mostly to be staking out extreme positions, from the Chamber of Commerce on one side to the AFL-CIO on the other.  Our memo from last November on the SEC proposal is here. Our webcast is here.  If you’d like to order a genuine Davis Polk whistle, well, you’re out of luck.
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Barney Frank Says Regulators Can Take their Time to Implement Dodd-Frank

Perhaps the onset of warmer weather has made us aware of the approach of July 21st, an auspicious date representing the one-year anniversary of the Dodd-Frank Act and also the statutory deadline for hundreds of provisions in the Act. The SEC doesn’t seem concerned, as it has announced a delay until August for final rulemaking on conflict minerals, resource extraction and mining disclosure, although those rules were required to be issued this month. The deadline to issue whistleblower rules also passed recently with Chairman Schapiro indicating that it’s coming soon. Now Congressman Barney Frank, the Act’s co-author, has publicly stated that the deadlines are not set in stone.
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Legislation to Repeal Disclosure of Pay Ratio, and Expected Reactions

There continue to be multiple areas of legislative activity to repeal or amend certain provisions of Dodd-Frank, including draft legislation to require employees to communicate internally before making whistleblower claims to the SEC. In March House Republicans announced a bill to eliminate the provision to disclose the ratio between the CEO’s compensation and the median annual total of all employees. Recently the AFL-CIO denounced this attempt to “water-down” Dodd-Frank, expressing their belief that this disclosure would have a “profound impact.” on executive compensation. According to their data, the average total compensation for S&P 500 CEOs is now about 343 times that of the average American worker, up from 42 times in 1980.
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House Bill Raises Hopes (some) for Eliminating Pay Ratio Disclosure

Last week House Republicans announced that they are drafting five bills to eliminate or change parts of the Dodd-Frank Act.  One of the five is the elimination of the provision to disclose the ratio between the CEO’s compensation and the median annual total of all employees.  Could this possibly come to fruition?  Unlikely given the hurdles of getting any kind action out of Congress lately, but it’s a space to watch.  The latest SEC timeline aims for proposing and adopting final rules on the pay ratio disclosure in the August-December timeframe.
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SEC Proposal Clarifies No Change to “Beneficial Ownership” Rules for Swaps

The SEC just issued a proposal to clarify that there will be no changes to the “beneficial ownership” rules for security-based swaps.  The concern was that language in the Dodd-Frank Act implied that if the SEC failed to enact new beneficial ownership rules for reporting security-based swaps by July 16, 2011, the SEC’s existing rules relating to derivatives reporting would no longer apply.  Yesterday’s proposal will dispel that notion (assuming the rule is made effective before July 16) by preserving the status quo for now.  Although this clarification is intended as a stopgap measure— the SEC is under pressure to reexamine its sections 13 and 16 rules in light of perceived abuses— I expect any rethink of sections 13 and 16 will be delayed by the overwhelming rule-making agenda arising out of Dodd-Frank. 
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