Senator Dodd finally introduced his bill. I’m sure it will get a massive coverage and comment. I will have little to add. Find a quick overview at The Corporate Library (Dodd’s Bill, 3/15/10). The Dodd Bill: Weighing In at a Portly Six Pounds, by Broc Romanek at TheCorporateCounsel.net/Blog provides the best guide I’ve seen.
However, I would also draw your attention to Restoring American Financial Stability Act of 2010: Reforming the Independent Director Standard and Federalizing Executive Compensation and other posts by J. Robert Brown at theRacetotheBottom.org, 3/16/10. Brown brings to our attention a couple of good “sleeper” provisions that may help override provisions now controlled by exchanges and Delaware. However, he also points with disappointment to a requirement for listed companies that directors be elected by majority vote in uncontested elections.
The legislation would merely require directors not receiving a majority to resign. The board would then have the discretion to reject or accept the letter. As RiskMetrics has noted, somewhere around 100 directors in 2009 did not receive a majority vote and none of them lost their position because of this failure.
In many cases, companies did not have a majority vote provisions in place. But where they did (Axcelis and Pulte), the companies did not accept the letters of resignation. In other words, these provisions do not provide shareholders with any additional rights or protections. Directors lose but the board doesn’t remove them. The provisions are, therefore, a myth.
I hope CII and others will take up this issue. Brown writes, “Real reform would provide that directors who do not receive a majority lose and cannot take office.” I’m willing to concede there may be circumstances where that could create a problem. However, if a board doesn’t accept a resignation, they should be required to immediately find a replacement and do so within six months.