Boards seek Dodd-Frank tweaks, not repeal, study suggests
As the Trump administration starts to assess which parts of the post-financial regulatory landscape to change, new research suggests that few board directors believe the Dodd-Frank Act should be left alone – but many would prefer a facelift to wholesale repeal.
Just 9 percent of respondents to a survey by consultancy Spencer Stuart and NYSE Governance Services believe the 2010 law should be left alone. But while 58 percent say some provisions should be tweaked, they also say Dodd-Frank shouldn’t be dismantled: only one third of directors polled want the legislation to be completely repealed.
‘Despite the divergence of opinions, our survey shows that the great majority of public directors share one uniform sentiment: a strong preference for the abatement of what many perceive as onerous regulations said to be stifling corporate growth and profitability,’ the report authors write.
The House Financial Services Committee voted on May 4 to approve the Financial Choice Act, the Republicans’ Dodd-Frank replacement legislation. It will now move to the full House. In the meantime, a group of major US institutional investors have likened the removal of Dodd-Frank as ‘akin to removing seat belts from cars’.
Meanwhile, the research finds that the vast majority of respondents are either very confident (61 percent) or somewhat confident (36 percent) their board has the right mix of experience, skills and talent to fulfill its duties. Most of the directors polled do not see a link between long boardroom tenure and a lack of objectivity or autonomy. Forty-six percent say tenure does not affect objectivity at all, while a further 26 percent say objectivity issues arise only after 15 years or more on one board.
‘Many observers hold that long-tenured directors tend to challenge management more effectively than newer directors and that challenging directors for the sake of refreshing a board on a specific time schedule is counterproductive to board effectiveness,’ the authors note.
According to the report, nearly 80 percent of respondents say diversity of perspective is the most important element to board effectiveness but that board composition should not be imposed by regulation. When asked whether there should be a limit to the number of boards on which directors can serve, 76 percent say companies or their boards should have the discretion to impose such caps. A further 16 percent say there shouldn’t be any limits at all, while only 8 percent are in favor of federal regulation of overboarding.
The survey further reveals that boards are playing an active role in – and are actively concerned about – shareholder relationships. Eight out of 10 agree that meeting with shareholders is a governance best practice that helps gain shareholder support.
Sixty-six percent also discuss potential vulnerabilities to shareholder activists regularly, either at every board meeting or throughout the year. This is consistent with a recent survey from Deloitte and the Society for Corporate Governance, which finds that a rise in shareholder activism incidents is on the minds of corporate boards.
Boards are most likely to discuss strategic planning, both long term and short term, and financial performance with shareholders, the survey finds. Accordingly, the three risk-management topics that are most frequently discussed in the boardroom are strategy, regulatory compliance and capital allocation.