The investment community is split by size over Republican plans to replace the Dodd-Frank Act, according to new research.
Forty-three percent of respondents polled by Rivel Research Group oppose plans to scale back the post-financial crisis reforms, 39 percent are unsure and 18 percent support the proposals. Rivel Research polled the proxy voters at 75 institutional investors around the world.
If approved, the Financial Choice Act (FCA) passed by the Republican-led House on June 8, would remove or weaken a number of post-financial crisis regulations aimed at reigning in and increasing the safety of banks and other financial institutions. The FCA also includes a series of corporate governance reforms.
The bill is expected to face opposition in the Senate, but in the meantime it has been criticized by a coalition of state officials charged with managing more than $1 tn in assets and by the Council of Institutional Investors. The latter is concerned about plans in the FCA to limit the number of shareholders that can add a proposal to the ballot ahead of an annual meeting.
The difference of opinion among asset managers polled by Rivel Research is more apparent when different sized institutions are compared. Almost two thirds (59 percent) of managers with more than $10 bn in assets under management oppose efforts to pare back, with 30 percent being uncertain and only 11 percent supporting such a move.
In stark contrast, 50 percent of those with less than $1 bn in assets under management support undermining Dodd-Frank; 30 percent are uncertain and 20 percent oppose it. Meanwhile, 63 percent of the institutions in the $1 bn to $10 bn assets-under-management range are uncertain, 21 percent oppose a roll back and 16 percent support it.
Do you support of oppose efforts to pare back Dodd-Frank? (by assets under management)
| Oppose | Uncertain | Support | |
|---|---|---|---|
| More than $10 bn | 59 percent | 30 percent | 11 percent |
| $1 billion to $10 bn | 21 percent | 63 percent | 16 percent |
| Less than $1 bn | 20 percent | 30 percent | 50 percent |
Source: Rivel Research Group
Changing minds
The FCA would, among other things, require shareholders to have owned at least 1 percent of company stock for at least three years before they can pose a resolution. Under existing rules, a shareholder that owns $2,000 of stock for more than a year can propose a resolution.
Issuers that were previously in favor of this amendment are beginning to change their minds, according to Brendan Sheehan, managing director at Rivel Research. ‘Many of the folks in the issuer community who are public supporters [of changing holding requirements] are starting to step back from it,’ he said during a recent KPMG webinar. ‘Many of the large institutional investors are saying that if you marginalize the smaller investors, they will be forced to take up the mantle. It’s much easier as a public issuer to dismiss a proposal from a small investor than it is from a State Street or a BlackRock.’
Sixty-nine percent of the investors surveyed believe public companies should voluntarily comply with Dodd-Frank’s disclosure requirements if the regulation is pared back. One quarter believe issuers should report in line with any changes to disclosure requirements. Almost half of the institutions surveyed (49 percent) also say they will be proactive in their outreach to issuers on governance issues if Dodd-Frank is watered down. Only 4 percent say they would be less proactive, while the rest are uncertain.
Of the governance issues that could be affected by the FCA, four of the top five issues investors are concerned about relate to disclosures:
- 81 percent oppose any repeal of board diversity disclosure mandates
- 79 percent oppose any repeal of political spending disclosure mandates
- 74 percent oppose any repeal of a separation of chair/CEO disclosure rules
- 68 percent oppose limiting say-on-pay votes to material changes only
- 66 percent oppose any repeal of CEO pay ratio disclosure requirements.
