Earlier today, the U.S. Senate voted 73-26 to approve legislation that would exempt newly public companies from say-on-pay votes and various accounting and disclosure rules. Investor advocates and regulators have criticized the bill for weakening essential shareholder protections.
Twenty-five Democrats and one independent voted against the bill, which was dubbed the “Jump-start Our Business Startups (JOBS) Act.” Twenty-six Democrats joined Senate Republicans in supporting the legislation, according to news reports. A similar bill already has passed the House of Representatives, and President Obama likely will sign the final legislation.
Senator Richard Durbin, the second-ranking Democrat in the Senate, was one of the lawmakers who spoke against the bill. He argued that it would reverse many of the reforms that were adopted following the 2008 global financial crisis.
“The bill’s supporters have characterized it as a jobs bill, but this bill is really designed to change disclosure, accounting and auditing standards and to exempt many firms and corporations from the Securities and Exchange Commission oversight,” Durbin said, according to TheHill.com.
The JOBS Act would create a new category of newly public issuers, “emerging growth companies,” that would be exempt from say-on-pay votes; golden parachute votes; and various audit, disclosure, and initial offering requirements for five years or until they reach $1 billion in annual revenues or $750 million in market capitalization. It is estimated that more than 90 percent of new issuers would qualify as "emerging" companies. The bill also would excuse these firms from Section 953(b) of the Dodd-Frank Act, which would require disclosure of the ratio between a CEO's total compensation and that of the firm's median employee. These companies also would be spared from the Sarbanes-Oxley Act's requirement to hire an outside auditor to attest to the sufficiency of their internal financial controls.
Earlier this week, Democratic Senators Jack Reed, Mary Landrieu, and Carl Levin offered an amendment that would have lowered the threshold for these “emerging” companies to $350 million in annual revenues, and made other revisions to the bill. The Council of Institutional Investors, labor funds, and other activist investors urged the Senate to support this amendment. However, Senate Republicans opposed this measure, and it failed to win the 60 votes necessary for passage under Senate rules.
The Senate did approve an amendment that would impose stricter reporting requirements on companies that seek to raise funds from investors through "crowd funding" over the Internet.