1. The Dodd-Frank Act’s Status on Proxy Access
President Obama signed the Dodd–Frank Wall Street Reform and Consumer Protection Act into law on July 21, 2010. The Dodd-Frank Act approved the SEC proxy access rule by explicitly stating “A requirement that a solicitation of proxy, consent, or authorization by (or on behalf of) an issuer include a nominee submitted by a shareholder to serve on the board of directors of the issuer.”
The Dodd-Frank Act also grants the SEC the explicit authority to issue shareholder proxy access rules and signaling Congress’s support for such rules by stating “The Commission may issue rules permitting the use by a shareholder of proxy solicitation materials supplied by an issuer of securities for the purpose of nominating individuals to membership on the board of directors of the issuer, under such terms and conditions as the Commission determines are in the interests of shareholders and for the protection of investors.”
Since the SEC had been doubted for a long time that whether they had the authority to promulgate proxy access rules, especially the doubts arose by the filing of the Business Roundtable complaint , the Dodd-Frank Act’s providing of such statutory authority to the SEC was necessary to erase such doubts. And the SEC has already taken advantages of such authority and approved a rule that allows shareholders with at least 3% of a company’s stock to include nominees for up to 25% of the directorial positions.
2. Events related to evolution of the Dodd-Frank Act
In the evolution of the Dodd-Frank Wall Street Reform and Consumer Protection Act, there were two events that influenced the characteristics of the proxy access rules that the SEC ultimately passed.
The first event is that Senator Ch...
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...han two years. Research by David Larcker et al of Stanford Business School shows that stock prices react negatively to proxy access regulations.
Notes:
1. Frank, Barney. "Dodd-Frank Wall Street Reform and Consumer Protection Act." The Library of Congress, July. Vol. 21. 2010.
2. Cohn, Jonathan, Stuart Gillan, and Jay Hartzell. "On enhancing shareholder control: A (Dodd-) frank assessment of proxy access." Available at SSRN 1742506 (2012).
3. Sharfman, Bernard S. "Why proxy access is harmful to corporate governance." Journal of Corporation Law 37.2 (2012): 387-413.
4. Becker, Bo, Daniel Bergstresser, and Guhan Subramanian. Does shareholder proxy access improve firm value? Evidence from the business roundtable challenge. No. w17797. National Bureau of Economic Research, 2012.
5. Fisch, Jill E. "Destructive Ambiguity of Federal Proxy Access" Emory LJ61 (2011): 435.
The Dodd-Frank Wall Street Reform and Consumer Protection Act’s policies haven’t really been implemented to the extent that regulators would have liked. Although the legislation takes many steps in addressing systematic risks in the United States financial system and improving coordination among regulators, some critics believe that alternative options might have been more effective. The coming years will give us a better understanding of how well the Dodd-Frank Act addressed these concerns.
Blair, Margaret M. (1995) Ownership and Control: Rethinking Corporate Governance for the Twenty-First Century. Washington, DC: Brookings.
Retrieved April 6, 2005 from the World Wide Web: A Guide To The Sarbanes-Oxley Act, 2002. http://www.soxlaw.com/
One of the major unintended impacts of the Dodd-Frank Act has been on credit unions and community banks. These banks weathered the credit crisis and lost only 6% of their share of banking assets between 2006 and mid-2010. A recent Harvard study indicates that this decline accelerated to 12% since the passage of the Dodd-Frank in July 2010. [a] While the community banks’ earnings increased by 12% to $5.3 billion by mid 2015 the number of these banks had declined according to Federal Deposit Insurance Corporation. The number of banks with assets under $1 billion has declined from around 7500 in 2010 to less than 6000 since Dodd-Frank came into effect. [b] Increased compliance costs due hiring of new personnel to interpret the new regulations compelled these banks to cut down on customer service amongst other things. The law hurt them disproportionately and forced them to consolidate. Regulatory economies of scale drive the process of consolidation. A larger bank is often more equipped at handling increased regulatory burdens
To protect investors, Section 302 of the SOX Act required chief executive officers and chief financial officers of publicly traded companies to certify the accuracy of their company’s financial records. This component of the act was included in the bill to ensure that company heads were actively involved in the financial components of their companies. Reports and results also needed to be communicated to management in a timely matter. The
Mackay, Tim. "The Ethics Of The Wolf Of Wall Street." Charter 85.2 (2014): 67.Web. 23 Mar. 2014.
Section 19 of the Act allows a company to act in its own capacity, distinct from the personal capacity of its directors and shareholders. This principle creates a metaphorical veil that separates and protects the shareholder and director, acting in his/her capacity as such, from personal responsibility for the company’s obligations and liabilities.
Huy, D. T. N., 2012. The Backbone of International Corporate Governance Standards : Case Studies and Analysis. s.l.:Lulu.com.
Bibliography: Turnbull, S. (1997). Corporate governance: its scope, concerns and theories. Corporate Governance: An International Review, 5 (4), pp. 180--205.
Lazonick, W., & O'Sullivan, M. (2000). Maximizing shareholder value: a new ideology for corporate governance. Economy and Society, 29(1), 13-35. Retrieved from http://www.uml.edu/centers/cic/Research/Lazonick_Research/Older_Research/Business_Institutions/maximizing shareholder value.pdf
Tsui, J., & Gul, F. A. (2002). Consultancy on a Survey on the Corporate Governance Regimes in Other Jurisdictions in Connection with the Corporate Governance Review. Hong Kong: CityU Professional Services Ltd.
Solomon, J (2013). Corporate Governance and Accountability. 4th ed. Sussex: John Wiley & Sons Ltd. p.7, p9, p10, p15, p58, p60, p253.
When a company gets to be enlisted at the securities stock market, high profile qualified board members can be attracted to the company since the listed status provides a genuine liquid incentive plan.
Corporate Governance deals with the ways especially in the “publicly traded firm, a separation exists between capital providers and those who manage the capital. This separation creates the demand for corporate governance structures.” (Gillan, S. L., 2006).
According to Shleifer and Vishny in The Journal of Finance, “corporate governance deals with the ways in which suppliers of finance to corporations assure themselves of getting a return on their investment.”