Corporate Governance

How the Wall Street Reform Act Impacts Smaller Businesses: A Couple of Provisions that Did Not Make the Final Act

By J Robert Brown Jr.

There are several provisions that were included in either the House or Senate bills that did not survive the Conference Committee.  Gustafson not overturned.

As adopted, the Act does not include a proposed amendment that would have effectively overturned the Supreme Court's 1995 decision in Gustafson v. Alloyd Co., Inc., 513 U.S. 561 (1995). The amendment, which received publicity due to its implications for liability in connection with private placements of securities, would have created prospectus liability under the 1933 Act for offering memoranda issued in connection with private placements.

No majority voting for director elections.

In a compromise with the House version of the financial reform bill, the requirement for all public companies to adopt majority voting has been eliminated. Under the Senate version of the bill, companies would have been required to accept the resignation of any director who receives less than a majority vote in an uncontested election, unless the board unanimously declined to accept the resignation. Notwithstanding the elimination of the majority voting requirements from the Act, companies should continue to evaluate whether this standard is appropriate for their boards because majority voting will remain on the wish lists for shareholders and corporate governance activists. Shareholder proposals requesting companies to adopt majority voting continue to be among the top corporate governance shareholder proposals submitted in 2010 and will likely continue until there is significant adoption of majority voting across all public companies. Currently, majority voting is the predominant standard at larger companies. According to ISS data, approximately 70 percent of the S&P 500 (as compared to approximately 37 percent of the S&P 1500) have a majority voting standard.

Continuing Federal Preemption for Rule 506 Offerings

At the urging of the North American Securities Administrators Association, the House bill originally included a provision that would restrict and effectively eliminate the federal preemption over state regulation of Rule 506 offerings found in § 18 of the 1933 Act. That provision was not included in the Senate bill and was not addressed in the House-Senate conference.

Herrick K. Lidstone, Jr., Burns Figa & Will, PC

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96 The Act, § 913(g), adding § 15(k) to the 1934 Act and 211(g) to the Advisers Act.
97 Colorado regulates investment advisers as a result of 1995 amendments to the Colorado Securities Act, found at C.R.S. §§ 11-51-101 through 11-51-908.
98 The Act, § 410, amending § 203A(a) of the Advisers Act by adding a new subsection (2).

Full post as published by The Race to the Bottom on August 02, 2010 (boomark / email).