The landmark Dodd-Frank Wall Street Reform and Consumer Protection Act arrived into the world on July 21, 2010. Hailed as the new model for our economic system, it contained many new changes for corporate boardrooms. These changes were long sought by the shareholder community. Although this new law is still in its infancy, I can’t help but think that some of its corporate governance provisions are already in critical condition.
The Act’s prognosis was good; the bill had a strong supporter in the SEC and two branches of the Federal government backing its provisions. But, as always, things change. Within weeks, the U.S. Chamber of Commerce filed a lawsuit challenging proxy access. Then in November, the Republicans won control of the House of Representatives for the next two years. And finally, the SEC recently announced that they will not be able to fund the whistleblower office, thus hindering the rule. These three incidents amount to a broadside against the Act and could potentially halt its implementation in Corporate America.
On the other hand, the Act is not completely dead. Though the law has strong forces acting against it, all are in flux. The Chamber’s legal challenge is no guarantee and may likely fail in the courts. The House Republicans have made it clear that they plan to attack the Dodd-Frank Act but they have only promised “a significant amount of oversight.” Their attention will mostly be directed at minimizing the health care law. Additionally, amendments and any legislative changes to the bill will almost certainly face Senate rejection and/or a veto by President Obama. As for the SEC, their budget shortfall may only be temporary, and responsibilities for the whistleblower’s office will be carried out by the current SEC staff.
Will some provisions of Dodd-Frank ultimately meet their doom? Short answer: maybe. Two of the most important provisions of the Act—proxy access and whistleblower protections—are in question, but others, such as say-on-pay, will be in place for 2011. Sadly, the lack of certainty on some provisions will directly affect the governance of our public companies and the director community.
Corporate directors cannot relax as they wait and see what provisions will actually become reality. Even if some of these provisions ultimately fail, shareholders will surely not give up on them. Shareholders will still pursue proxy access and the SEC will surely concoct new disclosures for your board to prepare. The only option a board has is to prepare. Preparation means speaking with large shareholders, examining board composition, and reviewing executive compensation structures.
As we wait for the SEC to implement more key provisions of Dodd-Frank, many factors are at play. Whether the provisions thrive or their plugs get pulled, the coming year promises much drama.