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BNY Mellon on Dodd-Frank Financial Reform Bill

BNY Mellon on Dodd-Frank Financial Reform Bill

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Published by Zach Kouwe
BNY Mellon (Bank of New York) discusses the particulars of the financial reform, or Dodd-Frank act. Topics include: shareholder rights, revenue recapture, executive compensation, corporate governance
BNY Mellon (Bank of New York) discusses the particulars of the financial reform, or Dodd-Frank act. Topics include: shareholder rights, revenue recapture, executive compensation, corporate governance

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Categories:Business/Law, Finance
Published by: Zach Kouwe on Feb 05, 2011
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02/17/2011

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August 2010
CONTENTS
Autumn 2010
A BNY MellonShareowner ServicesWhite Paper
Compliance, Complexity and Cost Challenges:The Impact of Regulatory Reform onCorporate Issuers
 Whether or not the economy has begun a sustainable recovery is still a matter o debateamong business leaders, economists and public oicials. However one act is beyonddispute, we are in a “bull market” or new regulations. In its eorts to prevent the nextinancial disaster, Congress passed the Dodd-Frank Act, considered to be the mostsweeping regulatory overhaul since the Great Depression. he SEC has weighed in withinitiatives relating to market structure, investor protection and corporate governance. Atthe same time, ederal and state governments have enacted regulations aimed at pluggingrevenue gaps caused by the economic downturn.he conluence o the Dodd-Frank Act, the SEC initiatives and government revenue-enhancement measures will have a proound eect on the way most companies conducttheir business. (It has been estimated that Dodd-Frank alone will result in the creation o more than 200 new rules.) However, the ull impact o some o these measures will notbe known or some time; many provisions o Dodd-Frank, or example, are still subjectto rule-making by the SEC. But, even though many aspects o the new regulations areunresolved, there is little doubt that compliance is about to become more burdensome,complex and costly.Equity issuers, in particular, will ind the regulatory changes will have a ar-reachingimpact on their business. Aected areas include the way proxies are voted, the right o shareholders to propose board nominees, the approval o executive compensation plans,the reporting and collection o taxes on securities, and the manner in which unclaimedproperty is treated by the states.Given the broad-ranging impact o these changes – and the unresolved status o many o the new rules – it is critical that equity issuers careully scrutinize the regulations andseek the assistance o partners with the specialized expertise and extensive resources todevelop solutions to the compliance and cost challenges. As one o the largest providerso corporate equity solutions, serving more than 2,100 institutional clients representing35 million shareowner accounts worldwide, BNY Mellon Shareowner Services hasexamined the regulations and provisions that are most likely to aect our clients.
 
Table of Contents
Corporate Governance 1Executive Compensation 2Communications with Shareholders 2Revenue Recapture 3Considerations 4
 
1
Corporate Governance
For equity issuers, many o the most signicant changes in the Dodd-Frank Act occur in thearea o corporate governance. SEC Chairman Mary L. Schapiro said in remarks at StanordUniversity Law School, “…the Commission’s job is to ensure that our rules supporteective communication and accountability among the triad o governance participants:shareholders, as the owners o the company; directors, whom the owners elect to overseemanagement; and executives, who manage the company day to day.”Here are just some o the provisions o the Dodd-Frank Act aecting equity issuers:
Increased Proxy Access
Te Act grants the SEC the authority to require issuers to include in the proxy ballotshareholders’ nominees to the board o directors. Te SEC acted quickly on proxy access, anissue they have been considering since 2003.On August 25th, the Commission voted 3-2 to allow shareholders to use the issuer’s proxy solicitation materials or this purpose. Tis rule change will be eective or meetings on orabout March 1, 2011.
Prohibition on Broker Voting
National securities exchanges are required to prohibit broker discretionary voting onthe election o directors, executive compensation, and other signicant matters to bedetermined by the SEC. Te NYSE already precludes broker discretionary voting onelection o directors, but this provision extends the restriction to other exchanges andproxy matters.Te eect o these provisions will be to make it easier or shareowners to nominatedirector candidates, and companies will no longer be able to rely on the broker vote topass management’s proposals. Tis makes it essential that issuers learn as much as possibleabout their shareowners’ voting records – and particularly any tendency toward activism by institutional investors.Proxy solicitors and advisory rms can assist the board and management in this regard by providing a voting history or key shareowners. Such rms also have analytical tools thatenable them to predict how certain categories o shareowners may vote on various proxy proposals. Additionally, the ability o equity issuers to communicate eectively with theirowners in contested situations will be critical, requiring a close working partnership withthe rm responsible or the design and delivery o proxy materials that can help investors tomake inormed decisions.
“…the Commission’s job is toensure that our rules supporteffective communicationand accountability amongthe triad of governanceparticipants: shareholders, asthe owners of the company;directors, whom the ownerselect to oversee management;and executives, who managethe company day to day.”
— Mary L. SchapiroSEC Chairman

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