The SEC, TARP, and the Expanded Role in the Corporate Governance Process

Section 111 of TARP (as amended by the Stimulus Bill) mandated say on pay for all TARP recipients.  The Obama Administration has indicated that it intends to make say on pay mandatory for all companies.

At the open meeting held on July 1, 2009, the Commission proposed Rule 14a-20 in an effort to implement say on pay.  The proposed rule was remarkably short.  The operative language provided:

• the registrant shall provide a separate shareholder vote to approve the compensation of executives, as disclosed pursuant to Item 402 of Regulation S-K (§ 229.402 of this chapter), including the compensation discussion and analysis, the compensation tables, and any related material.

What is truly remarkable about these events is that it is the Commission that decides what will be approved by shareholders through its control over Item 402.  In other words, Congress mandated the "say" but left to the Commission the authority to determine the "pay."  Slowly but surely, the SEC is being given oversight of the corporate governance process. Remember, it was only in the 1990s in the Business Roundtable decision that the DC Circuit more or less said that the Exchange Act provided no role for the Commission in the governance process other than disclosure.  Those days, if they ever really existed, are long gone.

This creeping federalization (that started in earnest with SOX) reflects a legislative dissatisfaction with role of Delaware (particularly the courts) in the governance process.  Look for this process to continue.