March 16, 2010

The Dodd Bill: Weighing In at a Portly Six Pounds

Given the heft of the 1300-plus pages of Sen. Dodd’s reform bill that was released yesterday, I was inclined to first read the 11-page summary. Unfortunately, the summary is a pretty high-level document and I was forced into the abyss. Yesterday’s draft differs quite a bit from Dodd’s bill released in November – and substantially different from legislation passed by the House in December (and the exec comp provisions differ from Sen. Menendez’s bill that I blogged about on Friday). [We’ll be posting the inevitable onslaught of memos in our “Regulatory Reform” Practice Area.]

As could be expected from such a comprehensive bill, there is a lot of ground covered. Here are most of the highlights that pertain to our community:

– The Table of Contents omits Title IX, Subtitle E “Accountability and Executive Compensation” and Subtitle F “Improvements to SEC’s Management” (ie. Sections 951-966 on pages 868-895) for some reason. Wishful thinking?

– Investor Advisory Committee made permanent (Section 911, pages 760-766)

– SEC clearly authorized to gather investor feedback (Section 912, pages 766-767)

– SEC’s Office of Investor Advocate created (Section 914, pages 776-782)

– SEC required to approve SRO proposals faster (Section 915, pages 782-790)

– SEC able to reward whistleblowers for reporting fraud (Section 922, pages 795-811)

– State regulator authority over Reg D offerings (Section 926, pages 816-819)

– Whistleblower protections apply to subsidiaries (Section 929A, page 820)

– Non-binding say-on-pay (Section 951, pages 868-869)

– Compensation Committee independence and consultant/lawyers independence (including authority to hire and “reasonable” of their compensation)(Section 952, pages 869-876)

– Disclosure of executive pay vs. performance (Section 953, pages 876-877)

– Clawbacks (Section 954, pages 877-878)

– Disclosure of executive and director hedging (Section 955, page 879)

– Excessive compensation paid by financial holding companies (Section 956, pages 879-880)

– SEC required to adopt majority voting rules (Section 971, pages 895-898)

– SEC allowed to adopt proxy access, but not mandated to do so (Section 972, pages 898-899)

– Disclose whether chair and CEO roles split; something SEC has already done (Section 973, pages 899-900)

– SEC self-funded (Section 991, pages 980-996)

Note that the Dodd bill does not include an exemption for non-accelerated filers from Section 404(b) of Sarbanes-Oxley. The bill also no longer includes provisions to require a separate shareholder vote on severance arrangements nor shareholder ratification of classified boards.

The Dodd Bill: How’s the Road Ahead?

Here’s what to expect going forward from Sonnenschein: Chairman Dodd plans to have the Committee begin its markup of his revised bill on Monday, March 22 at 4:00 p.m., and to continue as necessary with the goal of completing the markup by the end of the week. Emphasizing that he wants the Senate to “move quickly” to pass financial regulatory reform, Senate Majority Leader Harry Reid (D-NV) indicated that he wants to bring the bill to a vote on the Senate floor before the Memorial Day recess at the end of May.

If this goal is met, the hope is that a conference committee will reconcile the House and Senate bills by the July 4 recess. Because the House and Senate bills are expected to be considerably different, a difficult conference is anticipated. Signaling his intention to protect the House bill, House Financial Services Committee Chairman Barney Frank (D-MA) stated that he wants all conference committee deliberations to be televised on C-SPAN.

Suspending ’34 Act Reporting Obligations: Corp Fin Issues Staff Legal Bulletin

Yesterday, Corp Fin issued Staff Legal Bulletin No. 18 regarding Rule 12h-3 and when companies can suspend their Section 15(d) reporting obligations. This guidance should dramatically reduce the number of no-action requests that the Staff must process – as it’s an increasingly common scenario (the Staff posted two responses just yesterday, including this one) – as the SLB notes:

Because of the routine nature of these requests, the large body of no-action precedent and the guidance in this legal bulletin, the Division is of the view that, on a going-forward basis, an issuer that fits within either of the two situations identified above and satisfies the conditions set forth in this legal bulletin does not need a no-action response from the Division before filing a Form 15 to suspend its Section 15(d) reporting obligation in reliance on Rule 12h-3.

And of course, this relief from seeking no-action relief will reduce the legal bills for the type of companies that probably need it most…

– Broc Romanek