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.