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March 15, 2010
Draft Financial Reform Bill Includes Provisions for Shareowner Rights
    by Robert Kropp

Proposed bill will strengthen corporate governance by providing shareowners with proxy access and annual votes on executive compensation.

Acknowledging that efforts at a bipartisan financial reform bill have failed, Senator Christopher Dodd of Connecticut, the Chairman of the Senate Banking Committee, has introduced proposed legislation that, he says, will be voted out of committee this month.

None of the Republicans on the Committee are expected to support the bill.

The draft bill includes important provisions for enhanced shareowner rights, introduced by Senator Charles Schumer in a Shareholder Bill of Rights Act of 2009, that are likely to increase effective corporate governance.

As recently as last week, it was reported that many of the proposals in Schumer’s proposed legislation have been dropped by the Committee in its deliberations, and a letter sent to Senator Dodd by Lisa Woll, CEO of the Social Investment Forum (SIF), urged him to retain essential components of corporate governance in the draft legislation.

Stating that "Incentives for short-term gains…created incentives for executives to take big risks with excess leverage, threatening the stability of their companies and the economy as a whole," the draft bill gives shareowners the right to an annual vote on executive compensation, as well as on golden parachutes in cases of corporate takeover. The draft bill also provides shareowners with proxy access by allowing them to nominate candidates to corporate boards of directors.

"Providing shareholders a greater role in choosing directors can help shift management's focus from short-term profits to long-term growth and stability," a summary of the draft bill states.

In a press release, Senator Dodd stated, "Because public companies are owned by their shareholders, we will give those shareholders a greater say in how those companies are run, including how executives are compensated."

Other provisions include requirements that compensation committees include only independent directors, and that corporate policies mandate taking back executive compensation if it is based on inaccurate financial statements. The draft bill also directs the Securities and Exchange Commission (SEC) to require companies to compare executive compensation with stock performance over a five-year period.

Citing the Madoff scandal, the draft bill asserts, "The SEC has failed to perform aggressive oversight," and eliminates different standards for broker-dealers and investment advisers. It also provides for self-funding of the SEC, thereby ending the Commission's subjection to an annual appropriations process.

The bill will create an independent Consumer Financial Protection Agency, an Agency for Financial Stability, and a Financial Institutions Regulatory Administration. The bill will also require regulation of over-the-counter derivatives, and registration with the SEC of hedge funds worth over $100 million.


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