In recent weeks, regulators and lawmakers have proposed a dizzying array of reforms that, if implemented, would exacerbate short-termism, undercut directorial discretion, further empower shareholder activists, and impose unnecessary and potentially costly burdens on public companies. Few of the proposed reforms are truly new and nearly all are ill-conceived. They appear to proceed in part from a misguided impulse on the part of regulators and lawmakers to be seen as “doing something” about the current recession—though hardly any of the proposed reforms have even a remote connection to the origins of the credit crisis that precipitated the economic downturn—and in part from an opportunistic desire to use the financial crisis as an excuse to enact an activist “wish list” of reforms.
Overview
Members of Congress, the Department of the Treasury and the Securities and Exchange Commission (SEC) are all currently engaged in putting forth corporate governance initiatives. The proposed reforms include shareholder proxy access rules, corporate governance proxy disclosure requirements, executive compensation proxy disclosure requirements, requirements as to the structure, composition and election of the board of directors, executive compensation clawbacks, say-on-pay and independence requirements for compensation committees and their outside consultants, and mandatory majority voting. Pending federal legislation includes the Shareholder Bill of Rights Act of 2009 (Bill of Rights Act),1 sponsored by Senators Charles Schumer and Maria Cantwell, the Shareholder Empowerment Act of 2009 (Empowerment Act),2 sponsored by a group of Representatives, the Excessive Pay Shareholder Approval Act (Excessive Pay Approval Act),3 sponsored by Senator Richard Durbin, and the Treasury’s Investor Protection Act of 2009 (Investor Protection Act).4
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