Proposed Corporate Governance Changes Applicable to Public Companies

In response to the severe and prolonged recession, a major financial crisis, the near collapse of our banking system, and increased corporate and financial scrutiny by regulators and the public, both houses of Congress have undertaken the ambitious goal of sweeping financial reform. On December 12, 2009, the U.S. House of Representatives passed the Wall Street Reform and Consumer Protection Act of 2009, and on May 20, 2010, the U.S. Senate passed the Restoring American Financial Stability Act of 2010. The bills are in the process of reconciliation by a House-Senate conference committee. On June 10, 2010, Senate Banking Committee Chairman Chris Dodd presented a working draft of the conference committee’s compromise bill, modeled primarily on the Senate bill. A final bill is expected to be presented to President Obama by July 4, 2010.

As a vehicle to reform not only financial services firms but also most public companies, the June 10 compromise bill focuses on systemic regulation, creation of a financial stability oversight council, enhanced resolution authority, and increased regulation. In addition, the bill also has provisions relating to executive compensation and corporate governance that would, if enacted, directly and significantly affect executives, directors, companies, and shareholders, and continue the federalization of corporate governance that largely began with Sarbanes-Oxley. Our May 27, 2010 LawFlash focused on the House and Senate bills’ key provisions relating to executive compensation. Below, we discuss the corporate governance implications of the compromise bill.

For the full story, please view the PDF.