Numerous law firms and at least one stock exchange are telling their clients and issuers to prepare for new corporate governance rules as early as this summer and do what they can to shore up communications with shareholders. “Everybody knows it’s [proxy access] coming; we just don’t know what it will look like,” David Huntingdon, a partner with Paul, Weiss, Rifkind, Wharton & Garrison LLP, said during Corporate Board Member’s This Week in the Boardroom Webcast last week. “We’ll just have to wait until later this summer when the SEC takes action.” [To view Board Member Webcast, click here.] Scott Cutler, executive vice president and head of listings, Americas for NYSE Euronext, expects the SEC to unveil its proxy access rules as soon as the financial regulatory reform bills get through conference in the next four weeks. “The exchanges will put in to place rules that mirror what will be in place [once the financial regulatory reform is finalized],” Cutler said during the Webcast. “It’s a certainty that the SEC will do something on proxy access. We’re looking for considerable changes for what will be next year’s proxy season.” The Senate version of the financial regulatory reform, which was approved late last month, and the House version, which passed late last year, will be reconciled under the aegis of Rep. Barney Frank and Sen. Chris Dodd. The corporate governance measures include:

• Give shareholders an advisory vote on executive pay
• Give shareholders proxy access to nominate directors
• Call for majority vote in uncontested elections (not included in House version)
• Require companies to disclose chair and CEO structure
• Establish standards calling for independent compensation consultants
• Establish clawback language for executive compensation based on inaccurate financial statements.

Shareholder communications

The other theme in many of the law firm client memos that I perused following the Memorial Day weekend is the need for improved shareholder (shareowner) communications as companies prepare to address the new rules. Holly Gregory, a partner in Weil, Gotshal & Manges, wrote in her regular corporate governance column in the June issue of Practical Law, “Governing under the new regulatory scheme will require boards and senior management to attend to more effective communication and engagement with shareholders.” She expects board composition and executive compensation to come under even more intense scrutiny if the proxy access and Say on Pay provisions are left intact. Foley & Lardner, in a client memo last week, made the point that “it seems likely that many, if not most, of the provisions contained in the Senate bill relating to the corporate governance matters described in this alert will survive conference and be part of the final law.”  The firm goes on to say, “…it is likely the SEC will have sufficient time to promulgate rules such that the provisions would be applicable for the 2011 annual meetings and proxy statements.” With that said, I would like to offer the following client memos and articles on financial regulatory reform that I believe are worth reading…

• Financial Reforms: Influencing a ‘New Normal’ in Corporate Governance, Holly Gregory, Weil, Gotshal & Manges LLP, Practical Law, June 2010. www.weil.com/files/Publication/7375e0d1-30c1-41dc-a223-2fbceb428efa/Presentation/PublicationAttachment/3b1c434b-abed-4cd0-a232-3294cb89d580/June2010_Opinion_copyright.pdf. Summary: Decisions by individual companies whether to adopt these governance practices will be replaced by strict federal mandate, operating through SEC regulation and the listing rules of national securities exchanges like the New York Stock Exchange and NASDAQ. The governance reform provisions that appear in the Frank and Dodd Bills were narrowed down from the various proposals that appeared in about a dozen bills introduced in Congress in 2009 and 2010 that sought to impose significant governance regulations on pub­lic companies.

• Senate Passes Financial Regulatory Reform Bill Impacting Corporate Governance, Legal News Alert, (Transactional & Securities), Foley & Lardner LLP, May 2010. www.foley.com/abc.aspx?Publication=7153. Summary: Congressional leaders have indicated that they would like to see a final bill on the president’s desk by July 4, 2010. In the interim, the debate will move on to conference, and both the House and the Senate will need to vote again on a final reconciled bill. Nevertheless, the likely impacts of this latest legislative effort on corporate governance are beginning to crystallize. It seems likely that many, if not most, of the provisions contained in the  Senate bill relating to the corporate governance matters described in this alert will survive conference and be part of the final law.
• Summary of the Restoring American Financial Stability Act, Passed by the Senate on May 20, 2010, Davis Polk & Wardwell LLP, May 2010. www.davispolk.com/files/Publication/fc30f0b3-3db4-4181-a44e-3b3e54853b6f/Preview/PublicationAttachment/19c8367f-0467-4f3d-8492-010c9692578c/052210_Davis_Polk_Senate_Bill_as_Passed_Summary.pdf Summary: On May 20, 2010, the Senate passed the Restoring American Financial Stability Act of 2010 (the “Senate bill” or the “bill”) by a vote of 59 to 39. Four Republicans voted with the Democrats in support of the bill,and two Democrats voted against it. The Senate and the House of Representatives are expected to begin a conference shortly to resolve the differences between the Senate bill and the bill passed by the House on December 11, 2009, as described in this Davis Polk memorandum. They reportedly aim to present a final bill to the President before the July 4 weekend.