The Ever-changing Corporate BoardroomAdded by Hawley Troxell in Articles & Publications, Business Law on January 1, 2010
Over the past decade, the corporate boardroom has undergone various changes, specifically concerning the manner in which a board must be governed. Under ten years ago, such changes were spurred by Enron, WorldCom, Tyco, and such other corporate failures. Today, due to the financial crisis of 2008-09, the New York Stock Exchange, NASDAQ, the Securities and Exchange Commission, and Congress have made or are currently addressing additional significant changes to corporate governance regulations. While those corporate governance changes being addressed by the above mentioned entities, will initially affect only public companies, such changes will eventually trickle down to large and small privately held companies.
Some new corporate governance rules and regulations have been adopted, like the TARP, and others, like “The Shareholder Empowerment Act of 2009”, the “Shareholder Bill of Rights Act of 2009”, and the “Ending Excessive Corporate Deductions of Stock Options Act” are still being debated at a congressional level. Additionally, countless other “Acts” are bound to be proposed in the near future in answer to or addition to the foregoing Acts or due to future fall-out as we continue through the current financial crisis.
As just one example of recent changes affecting the corporate boardroom, on July 1, 2009, the Securities and Exchange Commission approved an amendment to the New York Stock Exchange Rule 452, which amendment eliminates the ability of brokers who hold stock in “street name” for their customers to vote those shares in uncontested director elections. Prior to the amendment, brokers could vote their customers shares in uncontested director elections-and management usually relied on such fact in order to (i) have a quorum at annual and special shareholders meetings and (ii) obtain enough votes for management’s slate of proposed directors. However, under the newly amended Rule 452, brokers will no longer be able to vote in favor of management’s proposed directors without direct instruction from their customers. This new rule-which will be effective for the 2010 proxy season-will make it increasingly difficult for public companies to get their “uncontested” directors elected. Public companies with a substantial percentage of shares held in street name may no longer count on those shares routinely being voted in favor of management’s slate of proposed directors by the brokers. Without being able to rely on the brokers’ votes, boards will have to develop new strategies to “get out the vote” and assure continuity in the boardroom.
It is believed that while the changes to the boardroom will evolve slowly-they will evolve, the question is how, and maybe more importantly, how much will they evolve. Stay tuned!
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