Can boards expect fewer Dodd-Frank rules in the future, or more? It depends on who wins in November. Democrats revere the law and want to expand its reach. Republicans want to repeal it—at least in part.
In his State of the Union address this year, President Obama characterized the Dodd-Frank Wall Street Reform and Consumer Protection Act as entrepreneurial and family-friendly: “The new rules we passed restore what should be any financial system’s core purpose: getting funding to entrepreneurs with the best ideas, and getting loans to responsible families who want to buy a home, start a business or send a kid to college.”
By contrast, in his Illinois primary victory speech last spring, presidential candidate Mitt Romney called the law a “behemoth that’s going to be followed by thousands and thousands of pages of new regulations.” Members of the 112th Congress are using similar rhetoric this fall on the job and on the campaign trail.
At stake for boards are the dozen governance provisions in Dodd-Frank—some of them already implemented and some awaiting rules. Of Dodd-Frank’s 90 provisions requiring rulemaking from the Securities and Exchange Commission, one-fourth have not yet resulted in a proposal. The same rate of progress applies to the law’s key governance provisions.
For the boards of some financial institutions, one final rule imposes director and officer pay clawbacks, and a proposed one would mandate risk committees (See “Keeping Count,” NACD Directorship, July/August 2012). Of the general governance provisions, seven have final rules: board leadership, proxy access, shareholder say on pay, whistleblower bounties, no votes for brokers, independence of compensation committees and advisors, and, most recently, conflict minerals. Still undeveloped are rules on executive pay clawbacks, pay for performance and median pay disclosures, and director and broker hedging disclosures.
The current Congress has introduced 46 bills seeking to repeal all or part of Dodd- Frank or, on the contrary, to expand its reach.
House Republicans have introduced 32 bills that would cut back on various aspects of the law—or in one case (Rep. Michelle Bachmann, R-MN) to repeal it entirely. Partial repeals and exemptions have been proposed by Reps. Spencer Bachus (RAL), Stephen Fincher (R-TN), Connie Mack (R-FL), Michael Grimm (R-NY), Nan Hayworth (R-NY) and Steve Stivers (R-OH), among others. The Fincher bill, dubbed Jumpstart Our Business Startups, combined several exemption bills into one; it passed the House and Senate and is now law. One of Rep. Grimm’s bills would repeal the controversial Dodd- Frank whistleblowing bounty rule, passed by the SEC; that rule set marching orders for an Office of the Whistleblower on the rise. (It has paid its first bounty and plans to double staff in the next fiscal year.) Rep. Hayworth’s Burdensome Data Collection Relief Act would repeal the median compensation provision required under Dodd-Frank. Twenty-three organizations, including the Business Roundtable and the U.S. Chamber of Commerce, have cosigned a letter of support for the Hayworth bill.
Conversely, House Democrats have tried to expand the reach of the law through bills proposed by representatives including Dodd-Frank co-sponsor Barney Frank (D-MA), Maurice Hinchey (D-NY) and Nydia Velazquez (D-NY). A bill proposed by Frank strikes directly at corporate executives: the Executive Compensation Clawback Full Enforcement Act would prohibit individuals from insuring against possible losses resulting from the repayment of “illegally received” compensation or from having to pay civil penalties.
In the Senate, Republicans have sponsored six bills seeking to reduce the scope of Dodd-Frank or otherwise curb its consequences. Bills to fully repeal Dodd-Frank have been proposed by Sen. Jim Demint (RSC) and Sen. Richard Shelby (R-AL). Five Democrat-sponsored bills seek to expand its reach, including ones by Sens. Ed Markey (D-MA) and Robert Menendez (D-NJ).
So what lies ahead? Currently, power is tilted toward more regulations with a Republican House, a Democrat Senate and a Democrat as president. If Democrats win the White House, House and Senate, the trend will lean more strongly to regulation. If Republicans sweep Washington, many of the repeal provisions now under consideration could be revived, so current rules could be blunted or negated, and pending rules could be taken off the table altogether.
Whatever happens in November, directors can hope that future laws and regulations will help rather than hinder the economic recovery both parties desire.