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Dodd-Frank and Board Governance: New Political-Legal Risks to Monetary Policy and Business Judgments?

Banking & Financial Services Policy Report, Forthcoming

FSU College of Law, Law, Business & Economics Paper No. 10-12

20 Pages Posted: 3 Oct 2010  

Dino Falaschetti

U.S. House of Representatives

Fred Karlinsky

Colodny, Fass, Talenfeld, Karlinsky & Abate, P.A.

Rich Fidei

Colodny, Fass, Talenfeld, Karlinsky, and Abate, P.A.

Date Written: October 1, 2010

Abstract

While Dodd-Frank promises to better govern U.S. financial markets, it also creates new political-legal risks. We consider a particular set of risks here, and their implications for legal, financial, and business strategy.

1. By weakening the voice of inflation-averse commercial bankers in nominating Federal Reserve District Bank presidents, Dodd-Frank risks shifting the center-of-gravity in monetary policy meetings toward a more accommodative stance.

2. Through theoretically related channels, the Act’s weakening of “director primacy” in corporate governance may favor shareholders at the expense of other stakeholders, shrinking corporate wealth to benefit one interest over others (rather than reducing agency costs to improve business performance more generally).

In short, increased accountability risks tipping policy toward stakeholders who benefit more from negative-sum redistributions than increased productivity. Appreciating how this common risk can impact seemingly unrelated dimensions of governance should, we think, help professionals in organizational planning, risk management, and proxy advising more consistently succeed in the new institutional setting that Dodd-Frank created, as well as others that will likely evolve from administrative and case law developments.

Keywords: Dodd-Frank, financial regulation, director accountability, Federal Reserve, corporate governance, political-legal risk, non-market strategy

Suggested Citation

Falaschetti, Dino and Karlinsky, Fred and Fidei, Rich, Dodd-Frank and Board Governance: New Political-Legal Risks to Monetary Policy and Business Judgments? (October 1, 2010). Banking & Financial Services Policy Report, Forthcoming; FSU College of Law, Law, Business & Economics Paper No. 10-12. Available at SSRN: https://ssrn.com/abstract=1686030

Dino Falaschetti (Contact Author)

U.S. House of Representatives ( email )

Committee on Financial Services
2129 Rayburn House Office Building
Washington, DC District of Columbia 20515
United States

Fred Karlinsky

Colodny, Fass, Talenfeld, Karlinsky & Abate, P.A. ( email )

100 SE Third Avenue
23rd Floor
Fort Lauderdale, FL 33394
United States

Rich Fidei

Colodny, Fass, Talenfeld, Karlinsky, and Abate, P.A. ( email )

Ft. Lauderdale, FL
United States

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