As the House-Senate Conference Committee gets closer to an agreement for financial regulatory reform, directors and chief executives are wondering how the voluminous legislation will affect the governance of their companies. How the proposed law plays out in boardrooms depends on what the SEC does. According to Commissioner Troy A. Paredes, a guest speaker at an executive compensation roundtable hosted by The Conference Board’s Directors Institute and the Weinberg Center for Corporate Governance at the University of Delaware Monday night, there’s most likely going to be anywhere up to 50 or 60 new rules coming out of the agency over the next six months. Since the legislation will dictate how long the SEC has to write the new rules (in most cases 180 days after the bill is effective), it’s looking more and more like the 2011 proxy season as the target date for most of the rules. Paredes, who was appointed by President George W. Bush in 2008, wouldn’t give exact timetable. However, he is concerned with all the burdens that will be placed on the agency and its staff. Two of his biggest worries are that the legislation could “limit access to capital markets” and possibly “stunt economic growth.” One particular part of the legislation that he is not in favor of is the creation of a risk oversight council. He believes such a council could usurp the oversight powers of many boards, which would start governing their companies based on the decisions of the council. In a panel at the executive compensation conference held at the Weinberg Center (“Setting Compensation in the New Environment: A How-To Primer for Board Members”) John W. White, a partner at Cravath, Swaine & Moore LLP and former director of the SEC’s division of corporation finance, presented a list of what some of those proposed SEC rules would cover (based on the latest Conference Committee report):

• Disclosure of “pay vs. performance” (executive compensation paid vs. performance of company’s stock)
• Disclosure of the amount of and ratio between annual total CEO pay and the median of the annual total compensation of all other employees
• Disclosure whether employees and directors are permitted to hedge declines in employer equity securities
• Requirement that institutional investors disclose their voting practices on certain compensation matters
• Adoption of proxy access rules with some limitations on what the SEC can impose.

The following are listing standards of the major stock markets that would be required under the legislation and what the SEC must sign off on:

• All compensation committee members must be independent (already required by some)
• New SEC rules must define “independence” based on consulting and advisory fees and whether a director is affiliated with a company
• Compensation committees would be authorized to hire and oversee independent compensation consultants and legal counsel (similar to auditor/audit committee model)
• All public companies would have to impose clawback rules for all current and former executives when a material restatement is made.

The one corporate governance-related part of the financial regulatory reform bill that may not survive the Conference Committee is majority voting for directors, according to White and other corporate governance attorneys at Tuesday’s conference. While it is technically still included in the legislation, there has been no mention of it during recent committee reports. Speaking of the committee’s reports, Sen. Chris Dodd and Rep. Barney Frank issued joint press releases Monday that spells out some of the progress on the bill. [Read the Frank release here.] As for the committee’s timetable, Dodd and Frank released a schedule today that calls for meetings tomorrow and Thursday. The conference will deal with “pending offers and counter-offers, prudential regulation-title 6 and derivatives-title 7 and miscellaneous” during those meetings. According to Monday’s Conference Committee report, [Read the full release] the following corporate governance items have been agreed to:

• Independent Compensation Committees: Standards for listing on an exchange will require that compensation committees include only independent directors and have authority to hire compensation consultants in order to strengthen their independence from the executives they are rewarding or punishing.
• No Compensation for Lies: Requires that public companies set policies to take back executive compensation if it was based on inaccurate financial statements that don’t comply with accounting standards.
• SEC Review: Directs the SEC to clarify disclosures relating to compensation, including requiring companies to provide charts that compare their executive compensation with stock performance over a five-year period.