Dodd-Frank Act

Definition

The Dodd-Frank Act is a comprehensive financial reform legislation enacted in 2010 aimed at preventing the excessive risk-taking that led to the financial crisis of 2007-2008. It establishes stricter regulations for financial institutions and aims to promote accountability and transparency in the financial system. The act has significant implications for corporate governance by requiring greater disclosure and oversight, particularly regarding human rights practices in supply chains, ensuring that companies operate ethically and responsibly.

5 Must Know Facts For Your Next Test

1. The Dodd-Frank Act was signed into law by President Barack Obama on July 21, 2010, as a response to the 2008 financial crisis.
2. It introduced significant reforms such as the Volcker Rule, which restricts banks from making certain types of speculative investments.
3. The act mandates that publicly traded companies disclose information about their governance practices, including executive compensation and board diversity.
4. Dodd-Frank requires companies to report on their supply chain practices, particularly concerning human rights and ethical sourcing, impacting how businesses manage their suppliers.
5. The act also aims to prevent discriminatory practices in lending and provide consumers with greater protection against abusive financial services.

Review Questions

• How does the Dodd-Frank Act impact corporate governance structures in companies?
  • The Dodd-Frank Act impacts corporate governance structures by imposing stricter disclosure requirements for publicly traded companies. This includes mandates for transparency in executive compensation, board diversity, and overall risk management practices. These changes promote accountability and ensure that shareholders are better informed about how companies are governed and operate within ethical frameworks.
• In what ways does the Dodd-Frank Act address human rights concerns within supply chains?
  • The Dodd-Frank Act addresses human rights concerns through provisions like the Conflict Minerals Rule, which requires companies to disclose their sourcing of minerals that may finance armed conflict. This rule encourages businesses to ensure that their supply chains do not contribute to human rights abuses. By promoting responsible sourcing practices, the act compels companies to take an active role in monitoring and managing their suppliers for ethical compliance.
• Evaluate how the Dodd-Frank Act's regulations on financial institutions might influence corporate responsibility regarding human rights in supply chain management.
  • The regulations imposed by the Dodd-Frank Act on financial institutions foster a culture of corporate responsibility regarding human rights in supply chain management. By enforcing transparency and accountability measures, businesses are compelled to examine their supply chains closely, ensuring they do not engage with suppliers involved in unethical practices. This holistic approach not only mitigates legal risks but also enhances brand reputation and consumer trust, ultimately promoting ethical business practices across industries.

Related terms

Financial Stability Oversight Council (FSOC): A committee of the U.S. government that was established by the Dodd-Frank Act to identify risks to the financial stability of the United States and respond to emerging threats.

Consumer Financial Protection Bureau (CFPB): A regulatory agency created under the Dodd-Frank Act designed to protect consumers in the financial sector by overseeing financial products and services.

Conflict Minerals Rule: A provision of the Dodd-Frank Act requiring companies to disclose their use of certain minerals that may fund armed conflict in the Democratic Republic of the Congo, aimed at promoting ethical sourcing.