The Harvard Business Law Review is pleased to announce a special online edition to commemorate the one-year anniversary of the signing of the Dodd-Frank Act. Starting on July 21, 2011, we will be featuring a variety of articles on the Act and the changes it has brought about during its first year. . . .
The Harvard Business Law Review is pleased to announce the publication of its inaugural issue. By focusing on specific aspects of the Dodd-Frank Wall Street Reform and Consumer Protection Act, each of the following scholars helps to illuminate the merits and missteps of this century’s most sweeping financial reform. It features articles from leading authorities such as Lynn Stout, Charles . . .
Mohsen Manesh: Despite much academic debate, it is now well settled that in Delaware at least, corporate law differs from unincorporated alternative entity law in one fundamental respect. Under Delaware corporate law, fiduciary duties are mandatory. These duties, owed by the managers of a corporation to the shareholders of the firm, in general cannot be waived or modified by contract. Under Delaware law governing limited liability companies (LLCs) and limited partnerships (LPs), however, fiduciary duties are merely default duties. Although managers of these alternative entity firms owe fiduciary duties, these duties may be modified or even wholly eliminated by the terms of the alternative entity governing agreement.
Recently however, the Chief Justice of the Delaware Supreme Court, Myron Steele, has sparked a new debate. In his article “Freedom of Contract and Default Contractual Duties in Delaware Limited Partnerships and Limited Liability Companies,” the Chief Justice makes the provocative assertion that fiduciary duties should not apply, even as a default, under Delaware alternative entity law
Celia R. Taylor: Dodd-Frank’s conflict minerals provision is framed as a disclosure requirement and thus seemingly falls within the purview of the SEC. However, the provision in fact is a back-end run around which indirectly imposes a trade embargo on the DRC and an attempt to require action, through SEC regulation, that Congress has previously refused to authorize. As such, the conflict minerals provision as proposed exceeds the mandate of the SEC and the intent behind disclosure requirements of the securities laws. If the aim is to block the trade of conflict minerals, there are more appropriate mechanisms to do so. If the provision is revised sufficiently, it may be a useful disclosure tool and could serve as the model for future requirements aimed at improving corporate social responsibility.
...continue reading: Conflict Minerals and SEC Disclosure Regulation
Elizabeth Pagel Serebransky, Michael P. Harrell, Jonathan F. Lewis and Charity Brunson Wyatt: While private equity professionals have been keenly aware in recent years of proposed changes to the U.S. tax code that could impact the taxation of carried interest, few in the industry have focused on the possibility that bonus or carried interest payments made to private equity professionals could become subject to limitations or other regulation under U.S. law. Yet, that scenario could develop if proposed rules from a range of federal agencies are adopted in their proposed form. Commenters have pointed out, however, the important distinctions between compensation practices at private equity firms, on the one hand, and at banks and other financial institutions, on the other, and have urged that the rules be modified before final adoption so that they are not inappropriately applied to private equity firms.
...continue reading: Proposed SEC Rules Could Limit Carried Interest and Incentive Compensation Paid by Private Equity Firms
J. Robert Brown, Jr.: The Dodd-Frank Act sought to correct some of the abuses believed to have contributed to the financial crisis of 2008-2009. Executive compensation was one of them. Formulas used to determine compensation were thought to promote a short-term perspective that encouraged excessive risk taking. As a result, financial regulators were given the authority to review compensation practices for risk. Likewise, the Act sought to strengthen the integrity of the compensation approval process and to increase clawbacks of performance-based compensation following certain restatements.
...continue reading: Dodd-Frank, Compensation Ratios, and the Expanding Role of Shareholders in the Governance Process
Edward F. Greene: Dodd-Frank represents the most sweeping changes to the financial regulatory environment in the United States since the Great Depression. While its enactment was important, the Act is seriously flawed. It does not deal with regulatory fragmentation, sidesteps international coordination, and is overly optimistic in dealing with too-big-to-fail. Going first doesn’t mean you get it right.
To consider my criticisms, we must put Dodd-Frank in context. Major changes to financial institution regulation have been called for by the G-20 on a coordinated basis. Given the reality that major financial institutions increasingly conduct significant portions of their business in many different countries, consistency and cooperation are essential, especially between the US and the EU. Dodd-Frank is not a good example of the necessary paradigm. I will first review the international response and recommendations, the US response, and then highlight some key differences in other markets.
...continue reading: Dodd-Frank and the Future of Financial Regulation
Jeff Schwartz: Eleven months after Dodd-Frank was signed into law, the SEC issued final rules pertaining to Title IV of the Act, which calls for the registration of advisers to hedge funds and similar private investment vehicles. This brief essay looks at the legislation and the rulemaking that followed from a procedural perspective. Namely, I focus on how much discretion Congress delegated to the SEC in shaping the final rules and the SEC’s use of that discretion. I find that the legislation granted a great deal of rulemaking authority to the SEC—authority that extended to the central elements of the regulatory scheme—and that the Commission used this power to extend federal oversight to a wide swath of the private-fund marketplace.
...continue reading: The Crystallization of Hedge-Fund Regulation
David Mader: The Dodd-Frank Wall Street Reform and Consumer Protection Act is ambitious and complex legislation designed to significantly transform the way the financial system operates. Yet in a year’s time, the rule-making and regulatory process has not yet delivered the kind of detail or clarity anyone expected. A big reason: The sheer scale of the law—more than 2,300 pages, requiring more than 290 new regulations and 13 new agencies.
This is the kind of systemic challenge strategy consultants face frequently. We typically stand on the periphery of a complex and often conflicted system. From that position, we help public and private sector clients bring clarity, definition, and potential solutions to the key players who otherwise are focused on meeting daily challenges. We are able to help key players visualize the emerging regulatory universe, raise questions about intended and unforeseen consequences, and help all players understand their greatest priorities and how to achieve desired outcomes.
...continue reading: A Consultant’s View of Dodd-Frank
Kenneth W. Muller, Jay G. Baris, and Seth Chertok: The Title IV of the Dodd-Frank Act substantially changes the registration regime under the Investment Advisers Act. Investment advisers that previously did not have to register may now have to, while investment advisers that previously registered may now be unable to. Many non-U.S. investment advisers that were previously exempt may now have to register as well. Furthermore, registration and exemption issues will affect compliance obligations.
...continue reading: The SEC’s New Dodd-Frank Advisers Act Rulemaking: An Analysis of the SEC’s Implementation of Title IV of the Dodd-Frank Act
J.C. Boggs, Melissa Foxman, and Kathleen Nahill: In the year since Dodd-Frank was enacted, Republicans have launched countless attacks against it, claiming that it is too costly and unnecessarily increases the size of government. They have argued that the Volcker rule and derivative regulations harm U.S. competitiveness overseas, that regulatory agencies are overfunded, and that the Consumer Financial Protection Bureau and Office of Financial Research have too much power and are not subject to enough oversight. Republicans, especially those in the House, have introduced bills to repeal Dodd-Frank in its entirety or scale back, defund, delay or otherwise prevent regulators from implementing individual provisions.
...continue reading: Dodd-Frank at One Year: Growing Pains
Nathalie Martin: While the CFPB has been controversial with politicians, its approval rating is high among every-day Americans. Conversely, as every public referendum on the subject shows, high interest loans like title loans and payday loans are very unpopular with Americans. This is understandable, given that such loans take advantage of society’s most needy, costing them money they cannot afford to lose. Lenders who make these loans charge interest rates and fees so high that when they hear the details, most Americans insist that the loans must be illegal.
...continue reading: Regulating Payday Loans: Why This Should Make the CFPB’S Short List
We are pleased to announce our partnership with the Harvard Law School Program on Corporate Governance. The Program and its director, Professor Lucian Bebchuk, collaborate with the Review in the selection of articles and organization of symposia. More information on the Program can be found here.
Harvard Business Law Review (HBLR) © 2012. All Rights Reserved.