In addition to significant reforms specific to the financial services industry, the Financial Reform Bill is likely to contain a number of significant provisions that would affect corporate governance and executive compensation at public companies, as well as Regulation D private placements, whistleblowers and beneficial ownership reporting.

We address the reforms contained in the Senate-adopted “Restoring American Financial Stability Act of 2010″ and compare to the House-adopted “Wall Street Reform and Consumer Protection Act of 2009.”  As the Senate and House are now proceeding to the reconciliation phase, it is difficult to predict what changes, if any, will be made to the final legislation.

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Some of the more important provisions of the Act are the following:

Corporate Governance Requirements

Majority Voting for Directors. Within one year of enactment, stock exchanges would adopt rules prohibiting the listing of companies that fail to comply with the following voting standards:

• election of directors by a majority of votes cast, in uncontested elections, and by a plurality of shares represented and entitled to vote, in contested elections
• if a director receives less than a majority of votes cast in an uncontested election, the director would tender his or her resignation, and the board would either:
  • accept the resignation, determine when it will take effect and publicly disclose the date, generally within a reasonable period of time, as established by the SEC, or
  • upon a unanimous vote, decline to accept the resignation and, within 30 days (or such shorter period as the SEC may establish), publicly disclose its reasons for the decision and why it was in the best interests of the company and its shareholders.

The SEC would be permitted to exempt companies from these requirements, based on their size, market capitalization, number of record holders or other factors. The House Bill does not contain a comparable provision.

Authorization of Proxy Access Rules. The Act would authorize the SEC to adopt rules that would (1) require proxy or consent solicitations to include a director nominee submitted by a shareholder, and (2) require companies to follow certain procedures relating to such a solicitation. Like the House Bill, the Act authorizes, but does not require, the SEC to adopt such rules.

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