Call it a political casualty. With the release of the Dodd-Frank Wall Street Reform and Consumer Protection Act earlier this week, we finally are face-to-face with the long debated and discussed “governance reform” that has been a topic of boardroom banter for the past two years.
Interestingly enough, the requirement for majority voting was dropped from the long list of governance provisions and is not part of the final bill. In basketball terms, majority voting was a lay-up; for you golfers out there, a “gimme.”
According to our surveys, 47 percent of companies have already adopted some form of majority voting on their own, without the need for course-correcting legislation. Both sides can debate the need for much of what is included in the reform bill, but the governance provisions included in the original draft have remained relatively consistent throughout the years of debate.
Rumor Has It…
The bill started with rumors and predictions, but the political machine quickly took over. The rumors turned into proposed legislation, which quickly morphed into campaign promises, which then turned into multiple pieces of proposed legislation, debate, new proposed legislation, House passage, more debate, lobbying by all sides, last minute changes suggested by the White House, deals struck, and finally we have a bill. The House passed it on June 30, and it will go to the Senate and then on to President Obama following the Fourth of July Recess.
For those of us positioned firmly inside the Beltway, this bill has been a loooong time coming—not because we were hoping for some magical one-size-fits all legislation on board governance, but because of the non-stop media coverage and the fact that it seemed to be going around and around Capitol Hill like some sort of rollercoaster car on a legislative track.
What We Don’t Know
The major provisions of the bill related to financial reform dwarf the governance reforms included under the investor protections section of the 2,300 page bill. However, there are still a lot of unknowns out there.
The bill gave the SEC the authority to implement proxy access, but we don’t know how that will happen yet. We also don’t know how many of the enhanced disclosure provisions will be implemented and whether they will achieve their intended result. The “clawback” of executive compensation sounds pretty ominous, but we’ve had clawbacks under Sarbanes-Oxley, and I can’t recall many, if any, actually being executed.
So, with all the contentious governance provisions in the bill, why did our legislators drop the generally accepted majority voting provision? I don’t have an answer, but I’m guessing it was deemed a “gimme” by a Senator who was willing to trade it up on a piece of the financial reform that was more hotly contested as both sides wrestled with the legislation. A political casualty indeed.