What Issuers Should Know About Dodd-Frank for the 2017 Proxy Season

Seven years after its initial implementation, the Dodd-Frank Wall Street Reform and Consumer Protection Act is in the spotlight once again.

On February 3, the President signed an executive order that will initiate a review of Dodd-Frank and its provisions. Many expect that this order will result in a scaling-back of the act, supporting the administration’s overall goal to decrease financial regulations.

No matter how much of Dodd-Frank is set to be overturned, changes won’t be implemented with the stroke of a pen. Such complex legislation took time to put into action, and will conversely take time to overturn.

While the current changes to Dodd-Frank are a work in progress, the act as it stands now does affect companies this year, especially during proxy season. One provision that will impact many companies this year is the requirement for a say-on-pay frequency vote, which must be refreshed at least every six years.

Review of Dodd-Frank Act

Dodd-Frank was passed under President Obama in 2010 as a response to the financial crisis of 2007-2008, with a goal of decreasing risks in the U.S. financial system by preventing collapse of major financial institutions and protecting consumers from abusive practices. The act established hundreds of rules across thousands of pages, targeting large banks, insurance companies, and more. Out of Dodd-Frank grew agencies such as the Financial Stability Oversight Council and regulations such as the Volcker Rule.

Even prior to its passing, Dodd-Frank was controversial—too lenient to some and too strict to others. Under the new administration, a magnifying glass has been placed over Dodd-Frank in order to determine which provisions need to be changed and/or overturned. The goal is to promote growth and innovation in the financial sector, though there is partisan disagreement on how best to do so. Dodd-Frank will continue to be in the spotlight as these changes are discussed.

Dodd-Frank’s Effect on Corporate Issuers

The existing rules of Dodd-Frank affect many levels of the marketplace, from banks to consumers to corporate issuers. According to the Wall Street Journal, “The SEC has written and adopted nearly 80% of the Dodd-Frank rules mandated by Congress.”

One such rule, enacted by the SEC in 2011, is a provision to Section 14A that covers “say-on-pay.” This rule requires issuers to establish two votes:

  • The Say-on-Pay Vote: an advisory vote for shareholders to approve compensation of the company’s executive officers
  • The Frequency Vote: a separate vote for shareholders to determine how frequently to hold the Say-on-Pay Vote

After this provision was enacted in 2011, many companies opted to hold the say-on-pay vote annually, as favored by many shareholders. But even if a company already holds a say-on-pay vote annually, they must still adhere to the frequency vote requirement. The rules state that the frequency vote must be held in the sixth calendar year after the preceding vote, which means that the 2017 proxy season, for those issuers who held their first frequency vote in 2011, is required to include a frequency vote.

Corporate issuers holding their frequency votes this proxy season must provide shareholders with voting choices on their proxy card in accordance with the SEC’s regulations, and disclose the results after the annual meeting. If the frequency vote is not held, consequences could vary depending on regulators, but it will certainly be a costly mistake.


Check out our 2017 Annual Proxy Guide and Annual Meeting Planning page for more information on how to be ready for this year’s proxy season.


 

What’s Next for Dodd-Frank

It remains to be seen what the current administration will do to the Dodd-Frank act. President Trump has stated that he aims to cut out a lot of Dodd-Frank, along with other regulations like the fiduciary rule. Undoing these complex regulations will take time and input from many parties before anything is set in stone.

There are many predictions out there about the future of Dodd-Frank. What we do know for sure is that the current stipulations of the rule are affecting companies during this proxy season. Are you prepared?