Like Usha, I attended the SEALS conference, and have just recently returned. I moderated the discussion session regarding Dodd-Frank's anniversary. Although it included a roundtable-like discussion with many conference attendees such as Usha and Fred Tung, the discussion group began with comments from a group of roundtable participants who gave their thoughts on Dodd-Frank as it enters its second year. The roundtable participants were Robert Brown, Ann Graham, Michael Guttentag, Joan Heminway, Renee Jones, Wulf Kaal, Jena Martin Amerson, Minor Myers, Dale Oesterle, James Park, Jeff Schwartz, Omari Simmons, Maurice Stucke, and Constance Wagner. As you can imagine, the participants offered a wide range of views covering a variety of topics from systemic risk and contingent capital to executive compensation. However, I thought I would highlight some common themes/questions that emerged from the participants and the related discussion.
1. Is Dodd-Frank too big to work? Dodd-Frank, with its 2,000 plus pages, sought to address and respond to a variety of different issues and problems, and there were a number of comments suggesting that Dodd-Frank had fallen short in many areas. Of course, those comments could have just been acknowledging the reality that Dodd-Frank may have taken on more than it could successfully achieve.
2. Did Dodd-Frank miss an opportunity to address the short-comings of our disclosure system? Many people noted that our disclosure system may be out-dated, and thus questioned the purpose and utility of disclosure as well as those provisions in Dodd-Frank that relied on disclosure. There was some debate about whether disclosure was useful and whether disclosure could be harmful. While we did not reach any agreement on these questions, there was some agreement that disclosure could trigger unintended consequences and as a result, Dodd-Frank's reliance on disclosure could prove problematic.
3. Does Dodd-Frank appropriately consider the way in which our markets and exchanges work? Most who considered this question answered it in the negative. That is, notwithstanding the attempt to take financial innovation and technology into account, provisions in Dodd-Frank nevertheless reflect a failure to fully appreciate the workings of the markets and exchanges--and this failure could impact the Act's ability to be effective.
4. What will be the impact of Dodd-Frank's executive compensation provisions? It was noted that there were only four provisions in Dodd-Frank that focused specifically on executive compensation, and yet the issue has captured the attention of regulators, corporations, and the public. Some thought that while the provisions were not earth-shattering, they might have an impact. Others expressed concern that the provisions were mainly symbolic, and thus would have no impact on outsized compensation packages or corporate behavior. Still others opined that the provisions could have unintended and negative consequences, while some worried that the focus on executive compensation did and would continue to distract from provisions that might actually have a positive impact on our financial system. In the end, it was probably the case that we also spent too much time on executive compensation, particularly in light of the many other reforms covered by Dodd-Frank.
5. What are the consequences of shifting power to shareholders? Many have questioned those provisions of Dodd-Frank such as say on pay and proxy access that appear to shift power away from corporate managers and into the hands of shareholders. Participants expressed a similar concern about that shift and its repercussions for corporate governance.
6. Does Dodd-Frank effectively grapple with issues pertaining to risk? Obviously this could take up pages. . .
7. Does Dodd-Frank reflect a new willingness to rely on international models and experiences? Dodd-Frank, through provisions like say on pay and its directive to study contingent capital, does rely to some extent on international models and experiences, which led to a discussion about whether the Act reflects a greater openness to such reliance.
8. What is and should be the role of courts? That is, will courts facilitate or impede the implementation of Dodd-Frank? In light of the recent proxy access decision, as well as the 11th Circuit's decision suggesting that Dodd-Frank did not reflect any change in federal preemption doctrine, some expressed concern that courts may be too willing to confirm/revert back to, the status quo, or otherwise too willing to suggest that Dodd-Frank does not impact core principles.
9. Did Dodd-Frank place too much responsibility in the hands of regulators? There was considerable discussion about Dodd-Frank's reliance on regulators and the extent to which such reliance was prudent, particularly in light of the fact that implementation by regulators raises its own issues such as agency capture, and competency and resource concerns. It was noted that, as of July 22, 2011, some 80% of Dodd-Frank rulemaking deadlines have been missed, suggesting that (for whatever reasons), regulators have found it difficult to comply with the rulemaking mandates under Dodd-Frank. What does that say about the effectiveness of the Act?
As this suggests, we covered a lot of different topics--and could have covered many more. And I am sure I have not done justice to all of the issues that were discussed. Thankfully, many of the participants are planning to publish papers on the issues they discussed, and hence you will be able to see those issues more fully vetted, and in their own words. . .
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