During this period leading up to the proxy season, directors should be engaging in some form of self-evaluation to understand what their vulnerabilities are—do shareholders have concerns about executive compensation, the capabilities of the current board of directors or other governance issues? 

Nazareth reminded the participants that “investor protections has been a focus of the SEC and one way of ensuring protection is good corporate governance.”  

Directors should “consider ways to enhance shareholder communication so that you’re not in the position of your 3% shareholders feeling that they need to nominate their own directors because they are not being represented appropriately by the current board.”

Directors, do you have a shareholder engagement program? Have you reviewed and assessed the board capacity for shareholder communication and dialogue?  Have you discussed how you will handle increased dialogue and interaction with shareholders?

The board world has changed.  Shareholders have greater power to influence board composition and executive pay based on the provisions of Dodd-Frank for proxy access, say on pay, limits on broker discretionary voting.

By remaining silent, boards increase the power of proxy advisors as the only independent guidance to shareholders on how to vote.  Boards increasingly need to engage with key shareholders, initiating communication and dialogue.

Get started now.

The context for this change is the “new normal”, a term coined by economists that characterizes an environment of high unemployment, slow growth, consumer distress, overly careful investors and long-term owners who will seek growth where they can find it. This is a challenging environment in which to serve as a director.

Millstein sees the changes wrought by the Dodd-Frank Act as tectonic, making Sarbanes-Oxley look like child’s play. 

But directors shouldn’t wait until the final rules of the Act are written.  Rather, they should engage with their shareholders now.  He cited the fulsome letter that the Prudential board wrote in the proxy, introducing their thoughts on compensation. While Millstein believes directors should know what their shareholders think, he doesn’t believe that they have to agree with them.  “Explain why the board has a different view.  That seems to me perfectly rational.”

He noted that there was a huge amount to do in communication with shareholders and boards should get ready to engage. Now.

Hurd and his predecessor, Carly Fiorina, who was also fired by the board, brought new meaning to the HP Way.  Certainly, it was a different company than when brilliant engineers and founders William Hewlett and David Packard were at work in the company. Their instinctive style of “managing by walking around” would be almost impossible to replicate. Fiorina, ambitious and eager to make her mark aggressively drove the Compaq merger while a subplot revealed that the HP board had its own problems as chairwoman Patricia Dunn stepped down facing felony charges. After the scandal, Hurd’s success was welcomed even if he took a cost-cutting and execution style approach to management.

With Hurd occupying both the Chairman and CEO role, Robert Ryan has served as lead director since 2008.  But it has been Mark Andreessen handling the Hurd resignation.  As the founder of another storied company, Andreessen has the gravitas to insist on a leader that not only performs well but behaves well.

Andreessen is given to greater transparency as well as sensitivity to culture and a larger group of stakeholders including investors, employees and the larger public given that he is an under-40 wildly successful entrepreneur now leading a company that provides a platform for social networking websites.

Andreessen is the spark that HP needs at this time, setting the tone and communicating what the board is doing on behalf of shareholders and stakeholders.

Gregory made these remarks on a National Association of Corporate Directors and Weil Gotshal webinar attended by hundreds of directors on Friday as boards try to gain a better understanding of the requirements that the new legislation that President Barack Obama signed into law on July 21, 2010.

“I want to emphasize that the theme within the legislation is that boards are the problem,” said Gregory.

Boards are well advised to recognize that the implementation of the legislation will fundamentally change their interactions with shareholders.  For directors who have eschewed any contact with shareholders, they must engage with shareholders in meaningful ways to elicit their support.  The sooner and more intelligently that they begin this dialogue, the better for them.

“I’d hate to think that the U.S. corporate world will become as dysfunctional as the U.S. Senate,” he said, referring to “this monstrosity ” of legislation.  His questions to his fellow panel members reflected his belief that new regulations were going to stifle performance.  ”This is meant to encourage dialogue with shareholders, which is an important principle of the legislation,” the panelist replied.

It turns out the moderating director has  the  educational and legal experience that boards seek.  But he’s 70 years old.  He has served on his current board since 1977.  The other director who joined the board with him is 86 and a third director, who is 83, joined the board in 1959.  There are younger board members–74, 62, 52 and 46.  But clearly, this is a board that needs to renew itself.

The world has changed.  Board work has changed.  It requires recognition of the important role that shareholders play in governance.  The director may be an esteemed professional but he has missed the last ten years of shareholder activism, brought about because boards turned a deaf ear to shareholders.

“Enterprise risk management is not limited to crisis situations.  Establishing governance best practices to anticipate threats is a critical part of the challenges facing boards,” he writes. And further, “To fulfill fiduciary responsibilities, questions and preparation both strengthen a company’s ability to respond to unforeseen events.”

Levine, a veteran board member and author of such best-selling business books as “Cut to the Chase” notes the need for board-level conversations and processes that review performance, risk and ethics.

What’s still important:  having a crisis plan. It can be as simple as a flow chart:  How will you marshal your resources? Do you have a crisis webpage ready to go live when the crisis hits? Do you have well-defined process, a central point of contact for responding and making decisions?

Begin by developing a set of principles.  Live by them.  Then, listen, engage and move forward with transparency.

While you want to be flexible about engaging and solving the problem, a number of key elements should already be in place:  Do you have contacts lined up at the key stakeholders and influencer groups expected to be impacted in your crisis scenarios? And more important, do you have relationships with these stakeholders so that you can reach out to them early in the crisis to get input and help? Do you have internal contacts to proactively manage those relationships? Has your company/organization moved to a stance of engaging with key audiences early in resolving a crisis instead of facing off under old-school confrontational approach?

Scenario planning is invaluable.  One of the best guides remains “Shell Global Scenarios to 2025:  The future business environment: trends, trade-offs and choices.”

Ask for help.  Form new alliances.  Let your customers, employees, suppliers and community members tell you what’s important.

You won’t do everything right, but if you move forward guided by principles, you will be regarded as a decent member of the community.

Even with the containment cap placed over the ruptured oil well a mile deep in the gulf, the live camera feed of the spewing oil creates a disturbing visual representing the ineptitude of BP and Tony Hayward himself.  Earnest Hayward, promising to “make it right,” has become fodder for late night comedy.

Beyond stopping the leak from the well, what does Tony Hayward need to do to save BP’s reputation and his own?

The gruesome images from the Gulf Shores, combined with the nearly incomprehensible size and scale of the disaster, only magnifies the extreme lack of control faced by BP in managing this PR nightmare.

Hayward’s biggest fault is not seeing the explosion and gushing well deep below the ocean’s surface as an epic, global crisis. If Hayward had chosen to move beyond the legalese offered by counsel and his network of advisors, was there anything he could have done or said that would improve his standing with the public? Did he have any good choices?

BP has been innovative in asking the public to help solve the problem, a laudable effort largely unrecognized. BP has received more than 20,000 ideas on how to stop the flow of oil or contain the oil spill. However, the promise to clean up every drop of oil and “restore the shoreline to its original state” appears as futile as the booms bobbing on the Gulf barely containing the oil. As globs of oil foul the wetlands and the beaches, the company’s commitment to meeting all of its responsibilities seems impossible to achieve.

The other media star of this drama, President Barack Obama sought first to maintain distance between BP’s gusher and his presidency.  Reading the downward drift of the polls on his own leadership, he paraded his concern on Larry King Live, in a third visit to Louisiana, and in political briefings and radio addresses. Obama also promoted new regulations and ordered an investigation into BP’s behavior.

What can each man have done differently—and do differently going forward—to gain credibility and respect? What positive developments can come out of the BP oil spill?

1. Hayward and Obama need to forge a new business/government relationship that stops the name-calling and blame-laying—and instead conveys to a concerned public their shared dedication to solve the problem. On their own, they are each appealing for votes or applause or vindication, which the public finds insulting.
2. They must create a way for the public to participate in the solution. What programs can be put in place to engage the public in volunteerism related to the crisis? This type of work is cathartic for individuals who are grieving the loss of pristine coastlines and shorebirds. What’s more, images of volunteer crews would supply positive, inspirational images to replace the current onslaught of disturbing images.
3. Obama must appoint an unassailable environmental leader—such as Bill Ruckelshaus—to  develop energy policy that is green and business neutral. This individual must find innovative ways to invite participation and dialogue.
4. Invite the nations of the world to join together to create an environmental prize, based on solving or making progress in solving the world’s greatest environmental problem—an environmental Nobel.
5. Create a new meaning for the British and U.S. relationship for the Fourth of July. Tony Hayward and BP should develop a unique participatory event for Americans on July 4^th. Think big.

Corporate leaders need to be strategic. “They need to get the big ideas right.” For Petraeus, the big idea that the US military got right was a surge not just in troops but  in ideas to change the war the U.S. was in danger of losing in Iraq.  The second requirement is to educate and communicate the big ideas or the strategies to those in your command—the troops or the workers.   One of the things Petraeus expected of his troops down to the private on the street was to respect the rights of the Iraqi citizens, even those under arrest.  This “live your values” approach was part of the critical task of securing the population.  The third lesson is to oversee the implementation of the big ideas by utilizing effective feedback mechanisms.  And the fourth lesson is not to micromanage. Within that is the requirement to capture the best practices and kill the bad practices.

This four-star general, a Ranger, a Ph.D. from Princeton’s Woodrow Wilson School whose doctoral thesis challenged not only the conventional thinking on the Vietnam war but the prevailing strategies about war itself.  “This is not a ‘take the hill, plant the flag’ kind of war,” Petraeus said.

Communication is at the core of his leadership style.  “Be first with the truth,” he says.  He is quick to distil leadership lessons and write about them as he did listing 14 lessons learned in training the Iraqi army.

Petraeus showed two slides in his presentation—one was a chart that graphed the number of violent incidents in Iraq on a weekly basis, a dramatic visual of how bad it was and how the violence has subsided.  The second was a photograph of a re-enlistment ceremony—thousands of young Americans re-enlisting after hard campaigns.  “I want to close by thanking you for your support of our troopers.  It’s critical.  They re-enlisted not only because they believe it’s right and they’re making a difference but because you appreciate what they’re doing.”

Americans are lucky that David Petraeus is Commander of CentCom and the most admired military thinker in the world today.

It’s the Lake Wobegon syndrome where 95 percent of directors think they’re doing a good job. CEOs see it differently.  According to work by Heidrick & Struggles, CEOs “almost universally confide” that they have one or two directors who provide wide counsel, offer advice on key issues and contribute both formally and informally to the enterprise.  That means that 80 percent of the directors are seen as not being very effective by the CEO.

The fictional town of Lake Wobegon, where “all the women are strong, all the men are good looking, and all the children are above average,” has been used to describe a real and pervasive human tendency to overestimate one’s achievements and capabilities.

CEOs need to see their boards as providing a competitive advantage to them and their enterprise. If board members are less effective, the board needs to replace them.  Without outside help, CEOs and other directors find it hard to ask less effective directors to leave.

CEOs need to ask, are they giving their boards the right tools to be effective.  Is management teeing up information for decision, providing the context and the why for the company considering it. Or, do boards get a firehose of information or worse yet, only the information that management want them to see? Are boards spending their time on the right issues?  Do boards have access to tools and advisors to make them more effective?

Boards are working harder than ever.  CEOs need to see to it that the board has the resources it needs to create strong work groups.

While the news is full of reports about shareholder concerns over the value their elected representative, the board of directors, bring to the enterprise, it turns out that CEOs have questions too.

It’s the Lake Wobegon syndrome where 95 percent of directors think they’re doing a good job. CEOs see it differently.  According to Heidrick & Struggles, CEOs “almost universally confide” that they have one or two directors who provide wide counsel, offer advice on key issues and contribute both formally and informally

If that’s where shareholders and the larger public are today on corporate governance issues, directors should take notice. A top-down standard setting enforcement process of the 1970s isn’t going to fix the more complex issues today. He concludes that “people affected by change have to be deeply involved in crafting of solutions” and “we have to get better at both involving people in the process of change and providing them with enough information to make that involvement useful and worthwhile.”

While he’s talking about environmental issues, couldn’t that be applied to boards and shareholders?

As Bonnie Hill has observed in her years as a director engaging with shareholders, “We have learned so much from our interaction with shareholders. It has made us better directors.”

The world has changed.  We can’t fight the last war or use yesterday’s solutions to solve today’s problems. The new tools are more direct engagement with shareholders, not to pacify them but to involve them in the long-term investment of our companies.

Of course, there’s much more to being the Investor Relations Officer than supporting the CFO or making presentations at major financial conferences or even the daily routine of interacting with analysts and shareholders. Many IROs provide analysis and information to management about who is buying and selling the company’s stock. They may hire a surveillance firm to assist, but they are front-line analysts, interpreting aggregated information and making strategic recommendations.

Amid increased shareholder activism as well as regulatory and congressional proposals, boards increasingly want access to this information as well.  Such requests offer the IRO a unique opportunity not just to respond to the board but help them take the next step in achieving greater effectiveness with shareholders.

In this new era of transparency and disclosure, boards need to understand the quality of shareholder interactions and ensure that the company provides transparent, effective shareholder communication across multiple audiences-including investors, brokers, owner research groups, employees, customers, and the community and public at large. As a member of management, the IRO can provide intelligence on stock and investment strategies to the board; however, the larger issues of governance communication best practices requires the perspective of an outsider. To preserve its oversight function, boards need an independent communication advisor to help them think through their communication practices.

The board-shareholder communication discussion begins in executive session. How will the work of shareholder communication be handled? Will it be a subcommittee of an existing committee? Is it naturally the role for the lead director or independent chair?  Has she or he had media training?  Does the rest of the board know how to handle telephone calls and other information requests by referring the inquiry to the designated board member? What kind of standard does the board want to establish in communicating with shareholders?

An independent communications advisor with governance expertise can facilitate the board’s work in this area, bringing a unique skill set as well as an outside perspective. The consultant’s corporate experience recognizes management’s communication resources and expertise, balancing message consistency with the board’s responsibility for oversight.

How would the board handle a corporate governance challenge?  Advance planning is the key to avoiding or minimizing negative impact.  The board needs to preserve its independence by deciding how it will engage with shareholders and the public—constituencies that have in some cases lost faith in the board’s ability to provide oversight. In other words, decisions about board-shareholder communication must emanate from the board.

The IROs who see that the tide has turned in favor of empowered shareholders—shareholders who want and expect unfettered access to the board they elect—will recognize the importance of communication expertise for the board. By anticipating and meeting the board’s need for communication help amid cynicism and increased scrutiny, they engage a powerful ally in the company’s reputation. As the board utilizes communication opportunities and begins to develop shareholder loyalty, the IRO helps to build a base of shareholders who embrace longer-term investing.

The Financial Times concludes, “The [note] is an implicit admission that Goldman’s long-held strategy of giving short shrift to criticism of its behavior and pay policies during the crisis has done little to quell the public backlash against the Wall Street bank.”

After such a mea culpa, how will Goldman Sachs handle its annual meeting?  Will it be a kabucki show or will Chairman and CEO Lloyd  Blankfein lead his directors in a sincere effort to engage with shareholders?  Blankfein has a chance to demonstrate that he’s committed to minimizing reputation risk by making the meeting a true opportunity for shareholders to question and receive genuine responses from him and the board of directors.

It’s a dramatic change and they should be preparing now.

Proposals being submitted for inclusion in upcoming company proxies include

• The right to call a special meeting
• Independent board chairman
• The end of the supermajority vote requirement
• Say-on-pay
• Review/report on political spending

Over 60 boards have proactively adopted “say on pay” in addition to those institutions that are required to offer shareholders an advisory vote on compensation by virtue of the TARP funds they received.  How involved is the board in writing and reviewing the proxies?  What do they know about the sentiment of their shareholders on these issues?

In the current environment, boards should be actively engaging with shareholders.

Not only does Prudential Financial prove that the proxy can serve as an effective communication vehicle to shareholders while fulfilling its legal requirement, but the company has added a number of innovations that set a new standard for others.

It begins with the Letter from the Board of Directors to our Shareholders: “As stewards of the Company, we are committed to governing Prudential in an an effective and transparent manner.  We hold ourselves to high standards with respect to governance “best practices” and we believe that communicating with you on significant matters is an important part of our obligation to align governance and management with the best interests of shareholders.”

The letter summarizes the way the board has been responsive to shareholders, items that will be explained in depth in the proxy but the letter enables the board to highlight its shareholder-friendly approach, from the advisory vote on executive compensation, the special financial award to 15,000 employees, clawbacks, the board’s active engagement in succession planning and how it has approached risk oversight.

It also invites shareholders to write to the board providing an email address for independent directors as well as a website for feedback on executive compensation. How simple and effective.

The proxy does a nice job of describing the current board and their qualificationsas well as a process for selecting directors including an explanation of how shareholders can recommend director candidates. The board explains its process and philosophy for compensation.

Best of all, it’s in plain English, clear, readable and understandable.

An investor network comprised of public pension funds, labor funds, asset managers, and representatives of public companies formed a working group and spent almost three years studying the ramifications of a say on pay vote.  The companies on this working group including Intel, Prudential Financial, and most recently Colgate have enacted some form of say on pay.

“Our intention is to hold the board’s feet to the fire, so that they are asking management questions on our behalf to protect our interests,” said Anne Sheehan Director of Corporate Governance of CalSTRS.  “There is a shift in communication responsibility, board members should talk to shareholders.”

She recognizes that such dialogue with shareholders could be time consuming.  Certainly boards should have some kind of mechanism to talk to their ten largest shareholders, she said.  But smaller shareholders should have some kind of unfiltered access to the board, through a website or other method.

To the many boards that have been reluctant to adopt an advisory vote, Timothy Smith, Senior Vice President of Walden Asset Management says that the advisory vote has become a more normalized response to the executive compensation issue and is not the fringe idea it was considered several years ago.  “There’s a strong business case to adopt say on pay,” says Smith.  “It’s a good defensive strategy and removes the potential for a conflict with shareholders.”

To the boards that counter that such a vote doesn’t tell the board anything, Smith responds:  “Yes, an advisory vote is a simple yes or no. But you should know where your shareholders stand on your compensation issues.  You should never be caught not knowing what your shareholders think. You should know that before the vote.”

Engaging with shareholders on key issues is what boards should be doing anyway.

But if shareholder voting on the election of directors is viewed as a critical component of good governance, how do you get registered shareholders to vote?

The SEC has launched an investor-focused Web site to help consumers invest wisely and avoid fraud. The site, www.Investor.gov provides tools and information, a way to ask questions, research brokers and even the mission of the SEC in ensuring fairness in the markets.   There’s a tab for proxy issues where the SEC explains “Your right to vote”, “Voting Your Shares”, “What You Should Do” and “How to Vote.”

Some companies see the opportunity to engage with shareholders.  Peggy Foran of Prudential Financial and has taken a creative approach, offering retail shareholders who vote their proxies an environmentally correct tote with the Prudential logo.  Or, the proxy-voting shareholder can also opt for a donation to a charity.

Not only will such a move encourage shareholders to vote but it signals the company’s true desire to engage with shareholders.

Navigating this proxy season will not be easy but companies that find creative ways to engage with their shareholders will improve their position and set the stage for the future.

As boards take a hard look at their risk oversight process, they naturally turn to the risk element of the company’s strategy.  The SEC’s proxy disclosure rules will require boards to take a good hard look at how they oversee risk.  “If there isn’t a clear framework in place, that’s probably job number one” according to the roundtable report.

As boards engage in risk discussions, they are becoming more insistent that management provide alternatives and choices regarding the company’s strategy, as opposed to the “review and concur” approach of the past. In this way, some boards are helping to develop and determine the company’s risk appetite.

As one director said, “It takes time, effort and calories to do this right, but digging into the strategy is the only way to really understand what risks the company should or shouldn’t be taking.”

Smart CEOs look to the board in the strategy process.

In his opinion article in AgendaWeek, Richard Koppes discusses the ways directors can rebuild trust.  Because Koppes has served for 30 years in highly regarded expert in corporate governance, his words should reassure directors, especially those who began their service ten years ago.

In an article ”Giving Boards Their Voice”  in  the new Korn Ferry International Briefings on Talent,  I discuss  the shift–from behind-the-scenes advisors to highly accountable public figures. It  is a profound transformation that boards are only beginning to grasp.  The article discusses the importance of board-shareholder communication.  By establishing independent communication, boards and their companies may succeed in quieting dissenting shareholders and even winning the confidence of investors enabling companies to operate in the interests of the long term.

Jack Krol is cited for his role in helping Ed Breen to restore Tyco after the Kozlowski debacle, Ralph Whitworth is lauded for the ways he restored governance to Waste Management and Michele Hooper for her leadership in changing board culture and spreading those changes to multiple boards.

“Drawing on her early experience on Target’s now legendary board beginning in the 1990s, Michele Hooper, a financial expert with a University of Chicago MBA, has brought those lessons to Warner Music Group, PPG Industries, AstraZeneca, UnitedHealth Group, Seagram and DaVita.  Hooper learned from Target the value of having “a boardroom that allows for open and collegial discussion around the table without people getting upset or having a CEO who is going to put the kibosh on conversations.”

Michele has modeled excellence and has been generous about sharing what she’s learned.  As the president of the Chicago chapter of the National Association of Corporate Directors, she volunteers her time to lead one of the strongest chapters of NACD, distinguished by its highly highly effective seminar programs. A board member of the national NACD, she facilitates training sessions for directors. In her day job, she is president and CEO of the Directors’ Council, which finds candidates for boards.

By highlighting the impact of directors like Michele, the critics Gillespie and Zweig demonstrate that boards of directors are still our best hope for providing oversight to our management system.

It’s clear that strong effective boards are in everyone’s interest.  Directors who offer a strategic sounding board for management, and bring to bear their wisdom and experience as the company encounters challenges, are to be highly prized.

It will take more than just committed directors to improve corporate governance.  CEOs, whether they hold the title of chairman or not, need to make the investments in effective boards. In addition to their personal commitment to make the relationship work, they need to provide the resources and support to help directors be effective.

Charles Elson, the corporate governance expert at the University of Delaware, traces the origins of  shareholder activism to the anger shareholders were feeling that they were being ignored.

The truth is that there are strong energized boards and business leadership dedicated to delivering durable long-term value through sustained economic performance, sound risk management and high integrity and through meaningful consultation with shareholders.  But the new book paints a dark picture because so little was known about corporate governance until the financial collapse.

Good directors should be concerned about ”Money for Nothing.”  If they thought the legislative changes were merely grandstanding efforts by politicians, they are wrong. Actions by the SEC and Congress reflect the general concern that governance isn’t being carried out effectively.

Good boards are stepping up to the new environment to demonstrate that they can make corporate governance more effective to serve the company, its shareholders and stakeholders.  It will take reevaluation and rededication.

In this era of transparency, everyone will be watching.  The public won’t settle for less than effective oversight.

Smart CEOs and boards will see this as an important opportunity to use the current proxy season as a way to reach out to shareholders in a credible way.  By drafting CD&As in plain English that are designed to explain the board’s philosophy in devising pay programs that reward performance rather than failure.

The InterimCEO is a worldwide network of interim, contract and project executives.  Their website has posted my comments on board leadership on their home page. The InterimCEO network serves as a rich resource for executives and companies that are looking for assistance.

In his Wall Street Journal opinion article Bogle quotes Leo Strine, vice chairman of the Delaware Court that “no longer are the equity holders of public corporations diffuse and weak.. (they represent a new and powerful form of agency.”

In the 2010 proxy season, boards of directors who develop programs of shareholder communication and active engagement with their owners will see better outcomes.

Directors need to know what people are thinking and saying and why.  The results from the first survey create a baseline drawn from “Main Street” — journalists, policymakers, analysts, members of the C-Suite including CEOs and directors and more importantly teachers, laborers, policymakers, doctors, students and community leaders.

Let’s begin with the credibility of board directors and CEOs.  While less than half, 43 percent, said board and CEO credibility was poor, 39 percent said it was only adequate and only 17 percent said it was good with only 1 percent said credibility of boards is outstanding today.

To the question of how boards performed their role of oversight during the economic crisis, a whopping 57 percent said poor with another 29 percent calling their performance adequate. A mere 1 percent gave boards an outstanding rating and 13 percent said good. 

What can directors do about these low ratings?  The Directorship article suggests that directors communicate.  Directors should be willing to engage in a role that helps shape public opinion says Korn Ferry’s Steve Mader.

Kenneth Feinberg managed to create a program that persuaded 98 percent of the 3,000 victims’ families of 9/11 to stay out of court and instead apply to his fund while dispensing the $7 billion that seemed to satisfy almost everyone. Then, last year, he took on the job of administering pay for the executives of the failed businesses bailed out by taxpayers.  Not only did he create a credible template but injected common sense in the way that executives are paid. 

Directors could take a lesson.

Who but Warren Buffett could describe the current practice of a fictional greedy CEO engineering the approval of his rich pay package  by engaging the compensation firm of “Ratchet , Ratchet and Bingo” to prove to the board that he is worth it?  Buffett,  the Chairman and CEO of Berkshire Hathaway  , takes $100,000 in pay and say he would pay the company to do the job.  “It’s a great job!”  However, while he’s been running Berkshire Hathaway, the ratio of top pay to average pay at public companies has multiplied roughtly 11 times, from 24:1 to 275:1.

As Steven Brill conveys in his excellent profile of Feinberg in the New York Times Magazine, Feinberg shows himself to be a straight shooter, independent and fair.

That’s what most shareholders are asking directors to be–independent and fair.

Add to his remarks, those made recently by National Economic Council director Larry Summers, “there is no financial institution that exists today that is not the direct or indirect beneficiary of trillions of dollars of taxpayer support for the financial system.”

It would be wise for bank directors to consider these views when approving compensation plans.

Clearly, one issue for shareholders during the 2010 proxy season is how the board provided oversight for CEO compensation.  In 1951, legendary investor Benjamin Graham suggested that directors submit to an interrogation in order to justify “the generous treatment” they are asking shareholders to approve.  “The stockholders are entittled to be told… just what are the excellent results for which theyse arrangements constitute a rewarded and by what analogies or other reasoning the board determined the amounts accorded are appropriate.”

Surely such questions are valid 59 years later.

To Cutler’s concern that ”the strongest voices in corporate governance are not being heard,” we offer the suggestion that directors could use their strong voices to communicate with greater clarity, rather than settling for languages that satisfies lawyers.

Both Kerstetter and Cutler lauded SEC Chairman Mary Schapiro who has moved quickly to bolster the SEC’s regulatory and enforcement powers. At the same time, she strives to communicate intent in all the “why” of the SEC’s action. 

Take the recent press release about increased disclosure:  The SEC announced new “rules to enhance the information provided to shareholders so they are better able to evaluate the leadership of public companies.” The rules “will improve corporate disclosure regarding risk, compensation and corporate governance matters when voting decisions are made,”  said Schapiro.

It’s true that shareholders are a diverse group and it is not the job of the board to satisfy everyone, but listening to varied points of view always improves decisionmaking.

The rules will be in effect by the 2010 proxy season and could be published as early as next week.

Do boards understand that they are being challenged to communicate more openly with their shareholders?  Better communication gets to the heart of many of the governance issues that the SEC and the pending legislation hope to address.

So what’s a board to do?

Boards should think in concrete terms about what they have communicated with their shareholders in the past and how they can improve the clarity of communication.They should avoid legalese and adopt plain English in their discussion about risk, compensation and governance.

Greater disclosure is about clarity.  Boards are in a communication battle they can win if they recognize the element of respect in their communication with the company’s owners.

A case study in corporate rehabilitation, McCracken focused on the culture of CA, which he saw as a board responsibility. McCracken describes the continuation of the company’s journey to excellence as “we’re in the fifth chapter of a 10 chapter book.”

In his panel discussion for the NACD Conference on Governance, McCracken also revealed that he believes the job of the lead director or chairman as requiring significant time—one and a half to two days a week or six or seven days a month.

Directors acknowledge a new environment where every director is spending more time on respective board assignments, especially the chairs of the audit or governance committees of the board.

McCracken took the unusual step of hiring an executive coach to help board members learn to work together and establish a company culture focused on transparency, teamwork and collaboration.  “It takes time and effort to build trust.  

McCracken also observed: You can’t do both jobs—serving as chairman and CEO.  He has taken over as interim CEO as they search for a new CEO.

 “The Chairman runs and manages the board and the CEO runs the company.” 

 Perhaps attending quarterly board meetings and an occasional telephonic meeting were the typical director time commitment a generation ago, but not today.  Certainly, for the board to understand the risks in a corporate strategy means a much greater time commitment.

 It’s a bigger job today. Without an increased time commitment and an ability to work well together, “all that experience of the directors does not get engaged.”

Clearly, management needs to take full advantage of directors and the experience they bring for the long-term growth and benefit to the company and its shareholders

“Especially when you are asked to be on a private board, be sure that you understand what you are getting into,” said Feldman at an NACD Chicago panel.  In private companies, it’s especially important to beware of a dominant CEO.

“And always, do the right thing for all shareholders.”

Write a blog.  It gives you a chance to connect to your audiences in a very authentic way.  It’s about having a dialogue rather than a press clip.

Do it now.  The field is yours:  not many CEOs are blogging.

Blog to establish leadership.  Blog to get customer feedback.

Start the conversation.

Wall Street executives are no different than the welfare queens–they’re taking our money, opined Minow. “They are capitalists on the way up and socialists on the way down.”

Clawbacks are meant to be punitive, she agrees:  “It’s not your money–you didn’t earn it.”

In her view, too big to fail means the company is a utility and those who manage utilities need to be paid accordingly.  Her view is that “too big to fail is really too big to succeed.”

“Remember when we gave Chrysler $1.8 billion?  We thought that was a lot of money. AndLee Iaococca wouldn’t take more than $1 in salary until Chrysler was outperforming the competition. Let’s remember what we learned from that.”

Minow believes that outsized pay packages are a risk indicator especially in the way they describe their programs.   “Companies tell us that they have established principles and accompanying metrics.  We like it when we hear that there are nine principles for compensation.  We hear a number and the word, metrics.  But then the next sentence is that the company will pay out IF any ONE of those metrics are met.”   Clearly, this is not what she had in mind.

Boards are really asked to be disagreeable, says Minow. “It’s the duty of the board to imagine the worst and deal with it, like a mystery novel writer.”

In her brief remarks, Minow showed that she cares passionately about these ideas.  “It’s up to us to fix corporate governance. It’s not the government but the boards and the shareholders.  It’s our responsibility for capitalism to work.”

Well-known and respected governance attorney Holly Gregory led a group of experienced lawyers reflecting diverse shareholder, corporate and academic perspectives in examining the roles and responsibilities of shareholders and boards under corporate law.

Their report, formally “Report of the Task Force of the ABA Section of Business Law Corporate Governance Committee on the Delineation of Governance Roles & Responsibilities” aka “Governance Task Force” reflects a year of work, sets a constructive tone for boards, shareholders and policy makers to work together in strengthening corporate governance. The report reminds us that shareholders are not the only beneficiaries of the modern corporate system, which has created wealth on a scale previously unseen.  The Governance Task Force report points out that corporations contribute to the public good by employing people, innovating, improving products and services, paying taxes, supporting various community and charitable programs that benefit society at large.

Anyone interested in corporate governance should read the report, not only for the detail of the legal constructs that have created our current system, but for granular detail in the footnotes complete with links that enable the reader to follow their research and come to their own conclusion.

If you are looking for a scapegoat, there isn’t one. Nor does a brush tar one group.   Instead, the report describes how shareholders, management and boards have specific responsibilities to bring accountability to the effective management and oversight.

The recommendations are logical. “Shareholders should act on an informed basis with respect to their governance-related rights…apply company-specific judgment when considering the use of voting rights…consider the long-term strategy of the corporation as communicated by the board in determining whether to initiate or support shareholder proposals.”

Boards should “embrace their role as the body elected by shareholders to manage and direct the corporation by affirmatively engaging with shareholders to seek their views, consider shareholder returns and facilitate transparency.” In addition they should “acknowledge at times the company’s long-term goals and objectives may not conform to the desires of some of the shareholders.” In addition, they should “disclose with greater clarity how incentive packages are designed to encourage long-term outlook…”

Policymakers should “in the context of reform initiatives” understand the rationale for the current roles and “carefully consider how to best encourage the responsible exercise of power by key participants in the governance of corporations so as to promote the long-term value creation….”

The report should be required reading for all shareholders.

Panelist  Fred Steingraber, former Chairman and CEO of AT Kearney and director of several US and several international boards, said the time for boards to react was over.  Rather, boards should take a leadership position by demonstrating that they provide value through their oversight through transparency and better shareholder communication.

“Boards are in the midst of a very serious struggle to regain respect and control over  their growing responsibilities and image,” said Steingraber.  “To accomplish this will require demonstrating the will and capacity to make changes ranging from board organization/leadership, policy, process, committees, board composition to shareholder communications. They must now demonstrate leadership at the board level with a results orientation in the conduct of their work.

“Today,  the government is taking control of boards, largely due to directors not building good relations with shareholders and all too frequently being too defensive and too reactive in their communication.”

Boards need to break their silence to retain and regain control rather than ceding authority to critics.

Not only do boards need to listen to  shareholders to understand their concerns, but they also need to go beyond the derivative information that they normally receive to drill down to the underlying issues of business performance, said Steingraber. “Boards need to put together a longer term program that addresses the issues of succession planning and risk management.  This will not happen overnight.” For that reason boards need to lead by creating a  framework for change and communicate those changes, which will take place over time.

While many measures are drawn from Senator Charles Schumer’s (D-N.Y.) Shareholder Bill of Rights, this greatly expands the scope.

Just last week, David Gergen, American political consultant and presidential advisor during four administrations, opined about the state of the economy at the Council of PR Firms’ Critical Issues Forum according to Weber Shandwick’s Chief Reputation Strategist, Leslie Gaines-Ross in her Reputation Exchange blog.

What a message for corporate boards to take the initiative to build trust by engaging with shareholders with effective board-shareholder communication programs.

“ These days, it’s not unusual for a board member—typically the lead director or a key committee chair—to initiate the contact with RiskMetric’s research team.  It’s common for a director to lead the discussion, ” said Patrick McGurn, Special Counsel , RiskMetrics Group.

These discussions typically focus on an issue upon which RMG will make a vote recommendation rather than a rating.  “We’ve been encouraged by the broader response to the concerns we raise about governance,” McGurn said.

Many directors were hoping that concerns over executive compensation would melt away as the stock market improved, but the populist outrage over executive pay has only increased, which is reflected in the government’s growing intervention in the boardroom.

“Today, the government has its torso in the door, not just its foot,” observed McGurn.  If boards aren’t responsive to shareholder concerns, they place the company’s reputation as well as their own reputations at risk. “Investors expect boards to be more accountable because they see the directors as their elected representatives.”

With say on pay and proxy access all but deferred for the 2010 proxy season, shareholder petitionsand vote-no campaigns will be the focus.  “Every director looks at the results of the vote-no campaigns,” said McGurn “The directors who have worked hard and anticipated the issues will have an easier time.

“As Warren Buffet said, ‘when the tide rolls out, it’s clear who’s wearing a bathing suit.’ And the tide has rolled out.”

Said McGurn: “Smart boards that take control to improve shareholder engagement will be better positioned in this new environment.”

“This is a new era,” Sheehan told the audience at the National Association of Corporate Directors. “The financial crisis of the past year has resulted in the erosion of the trust of the American public in business.  We represent our members and beneficiaries but we also believe we are a proxy for the American public who invest in public companies.”

To restore trust, companies need to operate with transparency, acknowledge the role of the shareholders and demonstrate that management and directors are accountable.

“We may be seen as activist shareholders, but our interests are aligned,” said Sheehan.  “We want to see companies maximize their value.  If you do well, we do well for our 833,000 public school educators and their families.”

“I have never had a shareholder group ask something that was inappropriate,” said Hill. “They are aware of Regulation FD. We may not always agree but I think it’s very important to listen and sometimes  agree to disagree. We have learned so much from talking to shareholders.  It’s made us better directors.

Her earliest meetings with shareholders came about because of shareholder issues or concerns. Now,  the company talks with shareholders when they want input. For example, when the Home Depot board was working on director succession plans, they contacted long term large shareholders for candidates to consider.

“We found that amazingly helpful, said CalSTRS Anne Sheehan.  “It demystifies the process, which enables us to better support the company’s long-term objectives.”

Such proactive work has accrued to the company’s benefit.  “When you are in reactive mode, it is so much more time consuming, ” said Hill. With a more open dialogue, Hill says the board has more time to spend on strategy and other key issues. And it has added to a positive reputation for the board and the company.

Adapting his remarks from his new book “7 Lessons for Leading in Crisis,” George told directors that boards are in crisis, having lost the trust of shareholders and the public.  It will take nothing less than board leadership to face the reality, work in concert with other board members, figure out the cause of the failures and become transparent in their actions because boards are in the spotlight every day.”  The good news is that if boards take these steps they can help to return the focus to the long-term health of companies for the benefit of community and shareholders.

Such startling findings confirm that some directors are doing some soul searching.

The landscape has changed: shareholders, the government, regulators have demanded a higher standard for board performance.  When veteran board member and governance leader  such as Barbara Hackman Franklin urges her directors to step up and become a force for improved governance, a sea change is underway.

Being a director has become a much more demanding job.  And CEOs should be helping directors in

That’s not an excuse to call in a host of consultants to solve the board’s problems, but as the McKinsey article recommends, the board needs to take steps to be more effective.

Some boards have already developed the tools

Often characterized as “player-coaches,” these independent directors play an important role in taking the company to the next level.   “We find that the CEOs of these companies listen better to these independent directors because they’ve been there–they’ve run a business; they’ve been successful.  They can make enormous contributions as mentors.  However, the independent board members don’t work for the PE firm but rather have a fiduciary duty to act in the best interest of the company.”

In the best of all worlds, engagement,  focus on strategy and commitment to one’s fiduciary duty are qualities that directors of private equity and corporate boards share.

“When you join a board, you put your reputation on the line,” said Craig J. Duchossois, CEO of the Duchossois Group, a privately held company. “Do your due diligence on the company.  Does the company share your values? Talk to management, other board members, employees, customers and the community.” He made his remarks in a panel on Private Company Boards at a Chicago NACD meeting.

When Duchossois was asked how he did his due diligence, he turned to his newest board member in the audience, Donna Zarcone, “why don’t you tell us,  Donna.”

“We did due diligence on each other,” said Zarcone.  “You have to.  It’s so important. With a private company, you want to look at everything that’s available in the public realm.  Then, you need to do a lot of private checking, with other board members, with management, employees, customers, the community. ”

“Don’t be shy about asking management for what you need to make a decision,” added Michelle Collins, an advisory board member of Svoboda, Collins LLC, a private equity firm. “It’s a great test of how the CEO treats his board members.”

Directors shouldn’t spend too much time railing against these firms. Rather, it’s time for boards of directors to bypass these groups and review their own governance policies including charters, bylaws and compensation rules so that they are well versed on the company’s corporate governance policies. At the same time, boards should develop an understanding of its shareholders and their concerns.

With this knowledge, boards will lower their resistance to speaking out about the role they play in providing oversight. They will become “communication ready,” willing to craft their own communication policy, a “rules of the road”, so to speak that supports a customized and effective shareholder engagement program.

In the old world where directors were assured easy election, criticizing proxy advisory companies was easy sport. Today, boards need to speak for themselves, communicating their competencies and the attention they are dedicating to the important work of representing shareholders and providing oversight.

He had six suggestions.

First, he reminded them that being a board member is an honor but it is also an enormous responsibility.  Be sure that you understand the business at a fair level of detail.

Second, make sure that your risk management is married to a solid strategy. “Be prepared to challenge basic assumptions. ”

Third, don’t let structure of the organization become so complex that you don’t understand it.  “You always want to be able to say no.”

Fourth, focus on succession planning, “not just for the CEO but for the top eight to ten leadership positions.”

Fifth, understand leverage–not just financial leverage but investment leverage, product leverage and operating leverage.

Sixth, pay attention that you are getting the right information.  “If you don’t understand something, seek out more information from management through additional meetings or lunch but never behind the back of the CEO.”

After his brief remarks, commentator and nationally known personal financial expert Terry Savage interviewed Liddy and posed questions from the audience.

Liddy began his remarks reminding the audience of the very difficult times of a year ago and how the financial system was in a very precarious state.  “I had some relevant experience and I was asked to serve my country.  I think most of you would have done it, too.”

Thanking Liddy for his service, the audience rose in a standing ovation.

In her opinion article in this  week’s Agenda, Franklin calls her fellow directors to action. “We, as directors, should simply step up to the new environment.  Directors must demonstrate that we can make corporate governance more effective to serve the company and other stakeholders.  I truly believe that more effective governance and more vigilance on our part can contribute significantly to a company’s better financial and ethical performance.”

She goes on to describe the two broad areas:  one in directors rededicating themselves to understanding the companies they serve while renewing their own commitment to “integrity, good judgment, excellence and the courage to hold ourselves and company management to the highest standards.”

Second, she advises directors to reevaluate how well board members work together as a group and whether the group works constructively with the CEO.  And, if something needs fixing, “fix it.”

The world has changed and boards need to step up, not complain about government involvement or the fact that shareholders have achieved power that boards must recognize and accommodate to make private enterprise better.

“We as directors have a responsibility to roll up our sleeves, do our jobs better and prove that private sector solutions remain the best way for American business to operate.”

She urges directors to accept the NACD’s principles for strengthening governance.

You will find that the 10th principle is shareholder communication, “Governance structures and practices should dbe designed to encourage communication with shareholders.”

As Franklin says, it’s time for directors to make the changes necessary to bring value to the companies they oversee and the shareholders they represent.

A synonym for input is contribution.  Imagine if boards saw the comments and suggestions that they receive from shareholders as the way that shareholders want to contribute to the improvement and long-term strength of the company.

Trust fosters trust.  If boards want to engender more trust among shareholders, they can start by trusting that their shareholders sincerely care about the issues they raise and want what’s best for the company and all shareholders.

Boards that start with finding common ground with shareholders can then build outward.  Neither directors nor shareholders expect to be in complete agreement.  But such an approach is respectful and has as its goal the shared long-term health of the enterprise.

Naturally, boards will want to analyze the broker element of the proxy voting for their company. Yet any outreach to shareholders by the board should begin with a board-shareholder communication plan. Boards need a written communication policy, as prescribed by the National Association of Corporate Directors suggest in their Blue Ribbon Commission on Board-Shareholder Communication. What are the goals of the board’s communication?  Will they take a minimalist approach because there have been few shareholder petitions? Has shareholder communication to the board increased in the past year? What are their vulnerabilities?

Writing a board communication policy causes the board to think through these issues, enabling them to anticipate and avoid crises and to protect the company’s brand.

Boards face other changes on the horizon including shareholders’ bill of rights and proxy access. By working through these issues, boards begin to come to terms with the changed world in which they are operating. Smart board-shareholder communication is one way that boards can retain and regain control rather than cede their authority to critics through silence.

Wednesday’s Wall Street Journal describes the campaign by law firms, associations and companies to derail or weaken the current SEC proposal, which makes it easier for shareholders to nominate directors.“Fight Brews as Proxy-Access Nears” outlines the changes that proxy access, or Rule 14a-11 would allow stockholder groups, whether activist hedge funds or institutional investors, to place a candidate on a company’s proxy materials at the company’s expense. Furthermore, all of the candidates would be listed together eliminating the current practice of voters checking one box to vote for management’s slate of candidates

Boards have a window of opportunity to use communication as a risk management tool.  How much better for boards to frame the conversation about current governance practices rather than waiting to react and comply with the new rules? Boards have worked hard to assemble the right expertise on their boards, but few shareholders know how the amalgamation of talent serves to bring diverse views  and business experience to their oversight role.  Directors are listed in the proxy and appear on websites, however the information does  little to highlight their expertises.  Many directors are fearful that proxy access will weaken their boards just when strong boards are needed most.  There are a number of simple steps boards can take to convey to all shareholders the expertise and dedication of the board.   Boards that seize the moment with a customized board-shareholder communication program will be well positioned when the SEC finalizes the proxy access rules this fall.

Furthermore, he has also communicated about how trustees will fulfill their management roles going forward—he has published names of committee members and assignments,  declared that all meeting materials will be delivered to board members ten days before the meeting to improve preparation and meeting effectiveness and  efficiency.

Stephen Davis of the Millstein Center believes that “the single biggest motive for all the reforms of the past 25 years has been the sense of voicelessness and helplessness felt by major institutional investors.”  If directors are supposed to represent shareowners (at least in part), but never communicate with shareowners, then owners become concerned when things aren’t going well.

As Kenilworth village president, Steingraber’s stakeholders are his friends and neighbors in a small 3,000 person community. He honors them by lifting the veil from the management of the town’s business. As a director of boards in the UK, Germany, India, Australia and the U.S., Fred has expressed concern over the government’s increased involvement in board’s activities.

Communication is one way that boards can retain and regain control rather than ceding to government through their silence.

But long-time participants and observers in the corporate governance community think it’s much more basic: it’s a sense of voicelessness and helplessness felt by major institutional investors. These shareholders believe they suffer from lack of access—to the directors, to information. This  “under-representation” feeds some activists’ demands to be recognized as owners, whether it’s advocating for “say on pay”, majority voting and in even a battle for board seats.

If directors seem confused by the criticism, it’s because many believe they have been in full disclosure through legal documents properly filed—the 8K, the 10K, the proxy, the governance documents posted on the company’s website. But in an era of transparency can boards afford to remain in the background?

The NACD’s “Key Agreed Principles to Strengthen Corporate Governance for U.S. Publicly Traded Companies” was universally endorsed by the director community.  But how many boards have designed “governance structures and practices” to “encourage communication with shareholders”? And what would it look like?

Shareholders have a legitimate interest in the governance of their companies. What are the issues for your shareholders?  How has the board addressed those issues?

Here are some points to keep in mind, courtesy of Ram Charan, “the go-to advisor for corporate directors and CEOs.”

• Shareholder activism is here to stay.  Boards need to change their psychology to see it as a constructive influence, not a nuisance.
• Boards must be prepared to communicate directly with shareholders when the situation warrants.
• Shareholders want the board to hear their concerns, but boards must be independent and sometimes push back.

What were once all day meetings three or four times a year–or 24 hours– have now expanded.  There are more meetings, more telephonic meetings, and many more formerly unheard of one-on-one inter-meeting calls with individual directors.

Andrea Jung, the Chairman and CEO of Avon is also a director at IBM and co-lead director at Apple.  She credits her director work in helping her to be a better CEO.  One informs the other as she can look at issues from both director and CEO vantage points.  “The hours and effort spent in board work has increased more than tenfold,” she said on a recent Agenda panel.  “It’s not a comparison to ten years ago but two years ago.”

She calls the interaction with her board “constant” and “very critical.”

With directors giving so much of their time, have the agenda and board books been revised appropriately?  Is the pre-meeting information presented in a way that sets up the discussion for decision? Is the agenda managed so that directors do not feel thay “run out of time” to discuss the really important issues?

In an effort to restore trust in the financial system, SEC Chairman Mary Schapiro wants to increase transparency and the quality of disclosure along with shareholder access to proxy voting.

Most boards are providing good governance.  Longtime directors may be puzzled by the scrutiny and concern.  “Directors need the tools of a politician,” says Stephen Davis of the Yale Millstein Center and  a longtime observer and participant in the corporate governance community.  “They’ve been able to assume support at annual meetings. That’s not the case anymore, not after the crisis. If boards handle it right, they can win the long-term loyalty of their investors . If they establish solid relationships with long-term owners—typically investors with longer time horizons—boards have more freedom to plan for the long-term.”

By tools of the politician, Davis is talking about persuasion, not just informing but rather respecting shareholder issues and concerns and responding appropriately.  Not necessarily by doing what they ask but by providing an explanation of why a decision was made.  Davis advocates that directors re-link with the owners of the company, the shareholders, a move that has long-term value for everyone.  Accountability improves performance. He sees the single biggest motive for all the reforms of the past 25 years has been “a sense of voicelessness and helplessness” felt by major institutional investors.

The sooner directors see the opportunity and begin to take measured steps in crafting communication policies that meet the needs of their particular companies, the more directors become a force for restoring trust.

“Communicating is not in our DNA,” one director confided.

At a minimum, boards need to develop their own communication policies to establish “Rules of the Road.”  That is, what should individual directors do when they are called at home by shareholders? Who represents the board to the media and under what circumstances? How does the board get important third party information without it becoming adversarial.

Given the shift from a director-centric to a shareholder-centric world, boards would be well advised to begin discussions about their approach to communication as they begin to craft policies.  In the meantime, shareholder expectations are growing.

It’s not just the company’s top ten shareholders who are watching.  In the face of the economic crisis and the ongoing volatility of the financial markets, doesn’t it make sense for the board to communicate what they do to provide oversight, represent all shareholders and add value?  After all, it’s the individual board members who will face “no” votes and risk failing to be elected.

The world has changed.  Directors can no longer operate from behind the curtain and expect that shareholders will understand that they are doing their job.  Directors have an opportunity to educate the less sophisticated investor and reassure the public at large that they take their responsibility  seriously. By communicating appropriately, directors show respect for shareholders and keep them invested in the company.

That’s why smart boards are getting ahead of the curve.  Even if the U.S. Chamber of Commerce issues a statement saying that it is “disturbed by the change” to eliminate broker discretionary voting, smart boards are preparing for the 2010 proxy season.  Rather than railing against an activist Securities and Exchange Commissioner, most directors recognize underlying shareholder concerns.  They are serious about good governance because it’s a business value.

Unfortunately, Schumer’s words are also directed to a public that has precious little understanding of what directors do. Accustomed to carrying out their duties behind closed doors, directors must recognize that they are no longer invisible. Investors, who now include taxpayers, are all too willing to accept the image that Sen. Schumer and the media have portrayed. Smart boards are not only adjusting their activities to bring greater focus to risk management and oversight in the current crisis but finding ways to better use their board time in dialogue and discussion to ensure long-term shareholder value. This is a time of credible actions and the communication that plainly describes the actions boards are taking.

Meanwhile, in Charlotte at the Bank of America annual meeting, shareholders stripped Ken Lewis of his Chairman mantle. Given these circumstances, most directors in this season of shareholder meetings felt lucky to escape with a random interruption by a shareholder gadfly or an extended question that became a chance to pontificate during the Q&A period.

Directors should not expect board/shareholder relations to snap back to its former state. Shareholders are likely to exert more influence given their success and aided by an activist SEC chairman Mary Shapiro determined to expand shareholder access to the proxy before the 2010 proxy season.

This is a time for directors to think through their vulnerabilities to determine if the company is at risk in the current shareholder environment. What issues are simmering beneath the surface? Most directors know. If they don’t, these traditionally quiet months are a great time to anticipate shareholder relations for the coming year.

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What types of issues must be considered when developing such programs? We provide the following broad considerations based on our own experience managing the board-level communications and publications:

1. Make communication a board topic to discuss:
   • Create an inventory of current methods of communications—both formal and informal—between directors and shareholders.
   • What developments in the past 18 months have changed these methods? Were there contentious elements in the annual meeting? Document any other communication-related problems or risks evident over the last 18 months.
   • Which shareholder communications are the boards currently seeing?
     • Is the full board seeing all communication from shareholders? Or, is the board seeing just what the Board Secretary deems the full board should see.
     • In this new environment, what is the board’s appetite for communication?
       • What processes will be put in place to govern communication?
       • Will the board name a primary contact for shareholders?
2. Assess current communication with shareholders
   • Assess issues of public and shareholder concern through correspondence and interviews.
   • How does the company’s communication compare with peer company communication with shareholders?
3. Identify opportunities for the board to anticipate and manage shareholder issues and concerns.
   • As directors identify investor concerns, they need to do the necessary research to understand motivation and intent. What are the investor’s holdings? What is the investor’s history and time horizon? What has the investor done in other companies?
   • What research has the investor assembled in making his/her proposal? What research has the company done?
   • What are the board’s position based on the shareholder input, the management position and additional research?
4. Develop an action plan
   • Designate the chairman, lead director or committee chairs as spokesmen.
   • Arrange for communication training. Even if the designated directors are comfortable with the press, the world has changed and the media has expanded to include bloggers and even twitterers.
   • Develop message points, ensuring that the board is speaking with one voice and with appropriate consistency with the company.
5. Execute
   • Maintain communication as an agenda item until the board has successfully executed one element of the communication policy—a directors web page, a shareholders’ meeting, or another board-generated communication.
   • Evaluate success and comfort of the directors.
6. Monitor and follow-up
   • Test the feedback. How are investors and shareholders responding? What adjustments need to be made?
   • What improvements does the board want to see?

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