It’s official now, the Dodd-Frank Wall Street Reform and Consumer Protection Act (“DFA” in many accounts) became Public Law 111-203 on July 21.

So, what does it mean for activist investors?

1. •Investors have something new to vote on, but little specifically to do.
   

2. •Fund managers need to disclose how they vote on executive compensation.
   

3. •Investors can expect some new corporate disclosures and protections against abuses.
   

The new vote does give activists an interesting tool to assess investor support of management. And, investors can expect proxy access rules from the SEC in time for 2011 annual meetings.

Earlier we alerted investors as to significant changes in the then-proposed legislation, and later to a summary of the then-passed bill. Below we recap the earlier alerts, and elaborate on the new law.

Almost all of the changes in DFA that interest activists involve executive compensation. So, “say-on-pay” means investors will vote on pay as soon as 2011. It’s only an advisory vote, but portfolio managers should obviously prepare to analyze pay packages as part of their fiduciary duty. Managers that file Form 13F will then need to disclose how they vote.

And, investors will have additional information to work with in analyzing pay. DFA adds even more disclosure to the current elaborate pay tables, including how executive pay compares to company averages, and disclosure of how executives hedge their equity pay. This means more work for corporations, and more information for investors.

DFA adds some additional safeguards related to compensation. It requires board compensation committees to consist entirely of independent directors, and allows these committees to hire their own advisors. It also requires corporations to adopt clawback policies related to financial restatements. Again, more work for corporations, a bit better protection for investors.

The new compensation vote does provide an interesting opportunity for activists to assess investor sentiment at a portfolio company. Suppose an activist wants to estimate prospective support for a board slate, or for one or another shareholder resolution. Today, such an investor has only rough measures, such as past votes on board candidates, shareholder resolutions, or routine other matters. Each suffers from flaws:

1. •Most board elections allow only an investor to either support or withhold votes for incumbents, with very few having a contested election in a given year.
   

2. •Relatively few companies have shareholder resolutions in a given year.
   

3. •Other matters, such as approval of equity pay structures or the external auditor, only rarely receive opposing votes, and seldom reveal the true extent of support for management.
   

Of course, the executive compensation vote also has flaws, in particular its advisory nature. Yet, it does provide another opportunity for activists to gauge investor sentiment.

Finally, DFA does require the SEC to promulgate regulations on proxy access. The SEC has already done most of the heavy lifting, and will likely issue final regulations relatively quickly, in time for 2011 annual meetings. There’s much more for investors to do with respect to proxy access, though, so we’ll post separately on the entire subject in short order.