The Dodd-Frank Act may be one of the most important acts signed into law in recent years. While many see it as a bill aimed at banking regulations, Dodd-Frank includes a number of less publicized rules and regulations that will bring sweeping changes to everyone from Main Street to Wall Street.
The bill, signed into law by President Obama on July 21, will affect banks, mortgage brokers, credit card companies, insurance companies, brokerage firms, public reporting companies, and consumers. New federal agencies will be established, including the Consumer Financial Protection Bureau and Federal Office of Insurance, according to #b#Mary Mullany#/b#, an attorney with the firm of Ballard Spahr in Cherry Hill.
“As with any large piece of legislation there are a lot of bits and pieces in it,” Mullany says. The act is 2,300 pages long. New regulations in the act include provisions for certain types of investment, such as hedge funds, and additional requirements for executive compensation, among other items.
Mullany will discuss the Dodd-Frank Act as a part of the NJICLE Education program on Thursday, October 28, at 9 a.m. at the Pines Manor in Edison. Cost: $189. Visit www.njicle.com.
The panel discussion will be moderated by #b#Gary Michael#/b#, first vice president and senior attorney at Valley National Bank in Edison. Other panel members include attorneys #b#Michael Horn#/b# of McCarter & English in Newark and #b#Alan Kaplinsky#/b# of Ballard Spahr. The group will discuss the history and evolution of the act and give an overview of mortgage reform and predatory lending.
The act is divided into two main sections. The first deals with financial institutions and regulations designed to provide protection to residential mortgage holders. The second (and lesser known) part of the act deals with compensation for corporate executives.
#b#Say On Pay#/b#. Possibly the provision in the Dodd-Frank Act that will have the most direct effect on public corporations is the “Say On Pay” regulation, says Mullany. This is a requirement that shareholders in all publicly traded companies have the right to an advisory vote on the salaries and compensation packages of corporate executives.
“The vote is advisory, meaning that the board does not necessarily have to follow the recommendation of the shareholders, but I do believe that if any corporation receives a large negative vote on a compensation package that it should lead to a prompt dialogue with the shareholders,” says Mullany.
The regulation is based on a similar rule that has been in effect in the United Kingdom for the last six or seven years. Institutional Shareholder Services (ISS) is an organization that publishes “corporate report cards” on most publicly traded companies. “Many investors, particularly institutional investors, follow their lead,” says Mullany. “If shareholders see that a company has a poor report, I anticipate the shareholders could vote against a compensation package.”
#b#Proxy access#/b#. A second provision of particular importance to public corporate executives and their shareholders is the new proxy access regulation. This new rule states that if a shareholder who holds enough stock and who has held it for a long enough period of time wishes to nominate a person on the ballot, the corporation must put that information on its proxy card and in the materials that are sent to all shareholders. Shareholders must hold at least three percent of the stock and have held it for at least three years.
Prior to the act, while shareholders could nominate a person to the board, they were required to fill out all of the papers themselves and mail that information to all of the other shareholders. This required time, effort, and money, Mullany notes, making it difficult for many shareholders to actually make an effective nomination.
#b#Challenges to the act#/b#. No challenges have been made in court to the “Say On Pay” provision of the Act, says Mullany, which means that it will take effect in 2011. However, the U.S. Chamber of Commerce and the Business Roundtable have challenged the constitutionality of the provision.
The case will be heard in the U.S. District Court for Washington D.C. It will be interesting to watch as the regulation moves through the courts. The outcome could mean major changes in the way in which board members are elected to a public corporation.
Mullany concentrates her practice in the areas of securities, mergers and acquisitions, public and private corporate financing, executive compensation, corporate governance, and other areas of business law. Her client base includes large, multinational public companies, public and private regionally based companies in a variety of industries, insurance holding companies, life science companies, and start-up entities.
At Ballard Spahr, Mullany is a partner in the business and finance department. She received her bachelor’s in nursing from the University of Pennsylvania in 1979 and an MSN from Widener in 1988. Before becoming an attorney, she worked as a registered nurse and has experience in critical care and risk management. She returned to school and received her J.D. from Villanova in 1993.