Corporate Governance Landscape Changes Again

March 19, 2010

The corporate governance landscape has changed once again with the release of the Dodd draft bill on March 15, 2010. Like the discussion draft, the draft bill, which has not yet been introduced, addresses several corporate governance topics, but with some revisions from the discussion draft. The changes are:

  • Independent Compensation Consultants. The draft bill no longer requires any compensation consultant retained to be independent. It now requires only that the compensation committee consider factors relating to the independence of the consultant when making a decision about retaining the consultant. These factors include other services provided by the consultant, fees received by the consultant, conflicts of interest policies, business or personal relationships, and issuer stock owned by the consultant. The provision also applies to the compensation committee’s selection of legal counsel and other advisors.
  • Recovery of Erroneously Awarded Compensation Policy (previously the Clawback Policy). In addition to changing the name of the policy, the draft bill requires an issuer to develop and implement a policy for providing disclosure of its policy on incentive-based compensation that is based on financial information required to be reported under securities laws.
  • Hedging Disclosure. Hedging disclosure will now cover members of the board of directors in addition to employees. The disclosure will also cover equity securities held, directly or indirectly, by employees or directors in addition to equity securities granted to employees or directors by the issuer as part of compensation.
  • Majority Voting. Majority voting continues to be a requirement under the draft bill. However under a new provision, if a board of directors declines to accept the resignation of a director who did not receive a majority vote in an uncontested election, the board will now be required to make public a discussion of the analysis used in reaching this conclusion, in addition to the reasons why the resignation was not accepted that was included in the discussion draft.
  • Deletions. The non-binding shareholder vote to approve golden parachutes and shareholder ratification of staggered terms for directors have been removed from the draft bill.

Another bill on executive compensation has also been introduced in the Senate. On Feb. 26, 2010, Sen. Menendez introduced the Corporate Executive Accountability Act of 2010 that covers (1) say-on-pay, (2) approval of golden parachutes, (3) executive compensation disclosure, (4) Clawback Policy, (5) severance agreements tied to performance, and (6) limitations on equity compensation of executive officers.

We have updated the 2009-2010 Corporate Governance Reforms Chart to reflect changes in the Dodd draft bill and to include Sen. Menendez’s bill. McGuireWoods LLP regularly assists clients in complying with their corporate governance and public reporting obligations, and we actively monitor developments related to the issues discussed above. We are ready to assist you in preparing to respond to any changes in the area of corporate governance.