Picking a symbol to convey the complexity of the 2010 Proxy Season was an arduous task. The candidates for the Twenty-Ten season were numerous, but most proved problematic. A Letterman-style Top Ten List? Chat show host Dave is radioactive due to fallout from his well-publicized workplace problems. Ten rounds of boxing? Too bloody—especially in light of anticipated moves toward greater issuer-investor engagement. The Ten Commandments? Preaching and governance do not mix. (I learned this lesson the hard way several years ago when I delivered my Seven Deadly Sins of Executive Compensation presentation to a room filled with blueberry muffin-armed pay panel chairs.)
The search was stymied until I attended a conference where the previous evening’s social event had been bowling. As I mentally slipped on my rented shoes and imagined the large overhead electronic scorecard, the ten-frames format hit me like the thunderous crash of a bowling ball knocking down ten pins.
Beyond mere calendar-scorecard confluence, however, bowling may be the perfect vehicle to channel the 2010 proxy season’s likely ups and downs. Believe it or not, there are around six quintillion (that’s six billion billion for those directors who do not qualify as audit committee financial experts) possible outcomes in your typical ten-frame game of bowling. Considering all the moving parts in the current governance environment, the possible outcomes for the upcoming proxy season may be just as numerous.
Legislation/Regulation
To comprehend the complexity of the upcoming season, take a quick glance around the noisy Beltway Lanes venue. If the alley appears both familiar and crowded, it should. For the second straight season, all eyes will be on Washington, D.C., where members of Congress, staffers from the Securities and Exchange Commission (SEC) and Obama Administration appointees will be looking to make marks in every frame.
The legislative train has already left the station. On Dec. 11, 2009, the U.S. House of Representatives voted 223-202 to approve the Wall Street Reform and Consumer Protection Act of 2009, sponsored by U.S. Rep. Barney Frank (D-Mass.), chairman of the Financial Services Committee. The wide-ranging bill, which includes an annual say-on-pay mandate and authorization for the SEC to promulgate proxy- access rules, was pushed to passage solely by the Democrat’s House majority; 175 Republicans and 27 Democrats voted against the bill.
Chairman Frank’s bill will have to be reconciled with any financial-reform legislation that emerges from the U.S. Senate. There, Banking Committee Chairman Christopher Dodd (D-Conn.) backs a somewhat beefier banking reform initiative that includes most of the same governance goodies as Frank’s bill, plus an activist wish list that, among other things, would mandate majority voting in director elections and also force snap votes on retaining classified board structures.
Dodd’s bill has encountered stiff opposition and remains mired before his panel, but governance issues are the least of his concerns. While Frank and Dodd, who recently announced that he will skip a tough re-election campaign this year, will likely fuss over many aspects of the revamp of the regulatory oversight of the financial-services sector, there will be a love fest when it comes to governance. The resulting legislation—half-Frank/ half-Dodd or “FRA-DO”—could do to members of boardroom pay and nominating panels what Sarbanes-Oxley (SOX) did to their audit- panel brethren.
Just a few days after passage of Frank’s bill, the SEC voted 4-1 to finalize a set of new proxy-disclosure rules. “By adopting these rules, we will improve the disclosure around risk, compensation, and corporate governance, thereby increasing accountability and directly benefiting investors,” SEC Chair Mary Schapiro said during the Dec. 16, 2009 open meeting. The SEC made sure that its 129-page set of rules will take effect in time to apply to most issuers during the 2010 proxy season.