Legislative & Regulatory Reform Impacting Corporations and Activist Investors

Federal and State legislators have teamed up with financial regulators in an attempt to advance shareholders rights, improve corporate and investment management transparency, reduce systemic financial risk, and better align executive compensation with shareholder expectations.

Below, Hedge Fund Solutions provides a comprehensive summary, with references, of the status of the various legislative and regulatory developments that will affect corporations during 2010 - and will likely make activist investing a more efficient process in the future.

Issue	Brief Description	Status	Comment
Proxy Access
Federal Legislation	SEC proposed to allow certain shareholders to nominate director candidates, and include nominees in the company’s proxy materials.	SEC promulgated draft regulations, and received over 500 comment letters. SEC has postponed final ruling until it has reviewed all comments thoroughly, with action likely in early 2010.
	Rep. Waters proposed language affirming that the SEC will have the authority to promulgate rules and regulations concerning proxy access.	House Committee on Financial Services approved language, and sent H.R. 3817 to full House on November 4, 2009.	Terms allow SEC rules and regulations to preempt state corporation law on proxy access.
State Legislation (Delaware)	Legislature amended DGCL to allow corporations to amend their bylaws to provide proxy access to shareholders, and to reimburse shareholders for board election expenses.	Governor Markell signed the bill into law in April 2009. HealthSouth became the first Delaware corporation to amend bylaws pursuant to the DGCL amendments.	See blog post for comments about the DGCL amendments.
Say-on-Pay
Legislation & Regulatory Impact to Banks	SEC proposed that TARP recipients must allow shareholders to approve executive compensation.	SEC promulgated draft regulations, and received approximately 80 comment letters. SEC has not indicated when it will issue final regulations.
Legislation Impact to Corporations	Rep. Barney Frank proposed a comprehensive say-on-pay law applying to all US public companies.	H.R. 3269 passed House of Representatives in July 2009, referred to Senate Banking Committee. Senate has not indicated when it will schedule hearings or debate.	Several corporations, including Microsoft, have amended bylaws to provide for say-on-pay.
	Sen. Dick Durbin proposed a law requiring supermajority approval of excessive executive compensation	S. 1006 introduced in Senate in May 2009, referred to Senate Banking Committee. Senate has not indicated when it will schedule hearings or debate.
	Sen. Christopher Dodd proposed legislation including comprehensive say-on-pay provisions	Sen. Dodd has not yet introduced bill into Senate.	Similar to H.R. 2861
	Rep. Gary Peters proposed the “Shareholder Empowerment Act of 2009” with various say-on-pay provisions	Rep. Peters introduced H.R. 2861 in June 2009, referred to House Committee on Financial Services.	Similar to Sen. Dodd’s proposed bill
Broker Voting
Regulatory Impact to Corporations	SEC amended rules about how corporations can count votes from brokers holding shares in Street Name.	SEC approved the final rule in July 2009, effective January 2010.	Director elections will change, particularly for Companies with high proportion of "retail" investors.
Compensation & Governance Disclosure
Regulatory Impact to Corporations	SEC has proposed more detailed compensation disclosures, and clarified some recent issues about proxy solicitation.	SEC promulgated draft regulations, and received approximately 150 comment letters. SEC has indicated it will issue final regulations in time for annual meetings in 2010.
Legislation Impact to Corporations	Sen. Charles Schumer proposed a comprehensive law called the Shareholder Bill of Rights addressing executive compensation, proxy access, and board of director governance and elections.	S. 1074 introduced in Senate in May 2009, referred to Senate Banking Committee. Senate has not indicated when it will schedule hearings or debate.	See blog post for comments about the proposals.
CEO Succession; Risk Management
Regulatory Impact to Corporations	SEC will no longer automatically issue “no action” letters in conjunction with shareholder proposals relating to risk management and CEO succession planning	See SEC Staff Legal Bulletin 14E, issued October 27, 2009.	See blog post for comments about the change in the SEC’s policy
Electronic Proxy Solicitation
Regulatory Impact to Corporations	SEC has proposed updated rules on electronic proxy solicitation.	Comments are due to the SEC by November 20, 2009.