Moderator: This is the LexisNexis Corporate and Securities Law Community Podcast presentations and interviews with leading attorneys and industry professionals. On this edition Stan Keller of Edwards Angell Palmer & Dodge and Hugh Makens of Warner Norcross & Judd discuss provisions of the Dodd-Frank Act.
Moderator: The opinions expressed by guests interviewed on LexisNexis Legal Podcast do not necessarily reflect those of Reed Elsevier Incorporated, LexisNexis, subsidiary company shareholders, employees or customers and should not be considered legal advice. Stanley Keller of Edwards Angell Palmer & Dodge is a nationally recognized corporate and securities lawyer. During his many years of practice, Mr. Keller has advised clients ranging from emerging companies to industry leaders. While this practice has encompassed most areas of corporate and securities laws Mr. Keller is focused on public and private securities offerings and other corporate financings advising publicly traded companies on compliance with SEC rules, public disclosure requirements and best practices, the Sarbanes-Oxley Act of 2002 and other securities laws and stock exchange requirements, mergers and acquisitions and corporate governance including advising on best practices, addressing institutional stockholder activism and acting as special counsel to board of directors and their committees. Hugh Makens of Warner Norcross & Judd has been involved in the securities industry for more than 35 years as an attorney, regulator and advisor. He was a director at the Michigan Corporation and Securities bureau for the Michigan Department of Commerce and was a trial attorney with the US Securities and Exchange Commission. For more than 25 years he's represented broker- dealers investment advisors, issuers, regulatory authorities and industry professionals in conjunction with compliance and securities regulatory requirements, investigations and regulatory proceedings. He is the former chair of the firm's broker-dealer investment advisor's practice group.
Stan: Hi. This is Stan Keller from Edwards Angell Palmer & Dodge. With me is Hugh Makens from Warner Norcross. We're going to talk today about the Dodd-Frank Act provisions that relate to executive compensation, corporate governance, private placement and other capital raising issues and try to cover them as succinctly as we can by identifying what are the new provisions, when are they effective and what should people be thinking about now, recognizing that in many cases we need to look to SEC rule making to really flush things out, deal with ambiguities that exist in the statute and what-have-you. We don't have a complete base of information, although some things are effective now. It certainly become a cliché; to say that the Dodd-Frank, Wall Street Reform and Consumer Protection Act, someone needs to come up with an acronym for that but I think it'll be known as Dodd-Frank of the Dodd-Frank Act.
Hugh: Then we would consider chaos.
Stan: Chaos. (Chuckle) That it is the most significant financial regulatory legislation since the new deal. I don't think we can quite put it on those terms regarding the provisions we're going to talk about but certainly there is significant changes and I would describe it as the most significant since the Sarbanes-Oxley Act in terms of the federal encroachment if you will and to corporate governance and expansion of disclosure requirements and other directions of provisions related to the SEC.
Let me begin by identifying, talking about some of the executive compensation, provisions and the corporate governance provisions. Hugh will interject. Hugh is going to cover impact on private placements and some other provisions that are of note. We're going to focus on the provisions that are applicable to corporations, generally, and not those related specifically to financial services industry.
Beginning with executive compensation, I guess, most significantly, the provisions relating to say-on-pay. There's general say-on-pay and say-on-pay and golden parachutes. Public companies will be required beginning with their first annual meeting after January 21, 2011, to have a non-binding shareholder vote on the compensation of their executives. That vote is to take place either, one, two or three-year intervals depending upon what the shareholders choose. On the first go-around, there will be two votes, how often do you want to take this vote and now let's begin by taking this vote. If it's a non-binding vote, it doesn't affect the decision of the directors regarding compensation, although a negative vote certainly can have an impact on what the board does in the future and indeed could result in withheld votes for directors, which can end up having consequences particularly of corporation as majority voting. What should companies be doing? I think it's appropriate to revisit both the compensation policies and the disclosure that's been made of those policies in light of this new say-on-pay requirement. Some companies have already had a say-on-pay but that's been limited. There needs to be a new way of thinking about this and shareholders will have an opportunity to express their views. I think companies also should consider ... be thinking about communicating with their key shareholders to get them on board with the approaches to compensation, so that hopefully they'll be able to get affirmative votes from those key shareholders. Finally, companies should be thinking about whether or not they want to take a position regarding the interval which these votes take place and either communicate, lobby with key shareholders or express views when the time comes to their shareholders about what the company's recommendation is and of course, monitor SEC rulemaking. Hugh, I'll pause in case you want to add anything.
Hugh: Yes, a couple of observations. I think it's going to change, perhaps the tenor of the discussion of compensation. The companies are obviously going to want to diffuse the issue very, very early on. That's likely to mean, I think, improved disclosure for some companies and the compensation committee report as well regarding the rationale for the level of compensation that's being provided. I suspect we're going to see more information about some of the consultants and what they're expressing to the committee or to the board because there's going to be need-to-be a strong underlying foundation to undercut the desire of a lot of people to immediately go to one year and question compensation. Particularly, when we see the value of stock going down on the market, when we see losses in a company or underperformance, and management compensation is continuing to escalate.
Stan: Yes. The other say-on-pay vote is the transactional vote which is in connection with the shareholder approval of an acquisition transaction in which any executive officer's compensation is related to that transaction, so think of golden parachute's changing control agreements. There will be a non-binding shareholder vote, which incidentally will be a separate item from the vote on the transaction itself on that compensation arrangement, and there's a requirement that will be accompanied by disclosure of what those compensation arrangements are. Again, this will be effective for shareholder meetings beginning January 21, 2011. One planning tool is get your approvals beforehand for any acquisitions that you have on the table, but I'm going to assume that's not going to be the driver on timing, but something else companies can think about in addition to seeing what SEC rulemaking takes place is to have agreements in place in advance since the vote on the golden parachute in connection with the transaction applies only if it hasn't been subjected to say-on-pay vote before. If you have agreements in place in advance that have been subjected to the more general say-on-pay vote, then presumably it won't have to be voted on again at the time of the transaction which might work to facilitate things.
Hugh: The complicating factor there will be, of course, to the extent that there are any last minute changes or amendments to the plan based on negotiations as part of the merger transaction, you may end up being tossed right back into the vote.
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Stanley Keller of Edwards Angell Palmer & Dodge is a nationally recognized corporate and securities lawyer. During his many years of practice, Mr. Keller has advised clients ranging from emerging companies to industry leaders. While this practice has encompassed most areas of corporate and securities laws Mr. Keller is focused on public and private securities offerings and other corporate financings advising publicly traded companies on compliance with SEC rules, public disclosure requirements and best practices, the Sarbanes-Oxley Act of 2002 and other securities laws and stock exchange requirements, mergers and acquisitions and corporate governance including advising on best practices, addressing institutional stockholder activism and acting as special counsel to board of directors and their committees.
Hugh Makens of Warner Norcross & Judd has been involved in the securities industry for more than 35 years as an attorney, regulator and advisor. He was a director at the Michigan Corporation and Securities bureau for the Michigan Department of Commerce and was a trial attorney with the US Securities and Exchange Commission. For more than 25 years he's represented broker- dealers investment advisors, issuers, regulatory authorities and industry professionals in conjunction with compliance and securities regulatory requirements, investigations and regulatory proceedings. He is the former chair of the firm's broker-dealer investment advisor's practice group.
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