Dodd-Frank Act Progress Report: Summer 2012 (with a JOBS Act Update for Good Measure)
Public Company Forum: Summer 2012
July 26, 2012
The Dodd-Frank Act, which was signed into law on July 21, 2010, requires regulators from 21 agencies to issue 398 final rules. Through July 18, 2012, 123 rules are finalized and regulators missed deadlines for 136 rules. Regarding these missed deadlines, regulators have proposed rules for all but 19 rules.
New Compensation Committee Rules
On June 20, 2012, the Commission adopted rules directing the national securities exchanges to adopt certain listing standards relating to public company compensation committees and the compensation consultants they retain, as required by Section 952 of the Dodd-Frank Act. The rules direct the exchanges to require compensation committees to be composed entirely of independent directors and that compensation committees be given the explicit authority to retain a compensation consultant. Public companies are now required to appropriately fund a compensation committee’s use of a consultant. The rule also directs compensation committees to consider certain factors related to the consultant’s independence before selecting a compensation consultant. We anticipate that these changes will have minimal practical impact, as most public companies’ compensation committees are either entirely independent or contain a majority of independent directors. The national securities exchanges have 90 days following effectiveness of the rules to implement these listing standards.
Additionally, the SEC adopted a rule relating to a public company’s proxy disclosures. Registrants are already required to disclose information about their use of compensation consultants, including the fees paid to consultants. Under these new rules, registrants must disclose in their proxy statement the nature of any conflict of interest and how the conflict is being addressed by the company. These rule changes do not require selection of a disinterested compensation consultant; rather they only require disclosure of the conflict. This rule change will be in effect for the 2013 proxy season.
August is going to be a huge month! Well maybe…
On July 2, 2012, the Commission provided notice that it will hold an Open Meeting on Wednesday, August 22, 2012 to discuss the following agenda items:
- Conflict Minerals: The Commission will consider whether to adopt rules regarding disclosure and reporting obligations with respect to the use of conflict minerals.
- Natural Resource Extraction: The Commission will consider whether to adopt rules regarding disclosure and reporting obligations with respect to payments to governments made by resource extraction issuers.
- JOBS Act: The Commission will consider rules to eliminate the prohibition against general solicitation and general advertising in securities offerings conducted pursuant to Rule 506 of Regulation D under the Securities Act and Rule 144A under the Securities Act, as mandated by the Jumpstart Our Business Startups Act.
The SEC’s scheduling of these items, which have languished on everyone’s “missed deadline” list, is encouraging; however, with every step forward, the SEC’s rule-making effort seemingly takes one step back. Recently, the SEC discontinued its practice of updating its rule-making timeline because of the frequent revisions needed in light of missed deadlines. Rather than repeatedly revise the anticipated dates for final rules, the timeline was removed and all proposed rules are now labeled as “Pending Actions.”