During a NACD Webinar, DC in the Boardroom:  A Board Level Briefing on Proxy Access, the three attorney panelists—David Caplan a partner at Davis Polk & Wardell, John Gorman, partner at Luse Gorman and former Special Counsel, SEC Division of Corporation Finance and Annette L. Nazareth, also a partner at Davis, Polk & Wardell and  former SEC Commissioner, all agreed that directors should enhance their communication with shareholders.  They also agreed that the time to act is now.

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.”

“We’re seeing a sea-change in the environment of shareholder empowerment,” said Holly Gregory, Weil Gotshal partner and governance expert. “The Dodd-Frank bill accelerates a fundamental change, a new normal in the balance of governance power. “ She went on to note that the eighth anniversary of Sarbanes Oxley, enacted during the aftermath of WorldCom and Enron debacles,  boards were seen as the solution to the failures in corporate accountability. “In sharp contrast the new legislation reflects the view that boards are the problem and shareholders must be empowered to hold boards accountable.”

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.

With the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act, board service organizations are conducting Webinars to help directors understand the changes.  The director moderating a recent session noted that it was difficult for shareholders to nominate their own directors, but said it was unclear to him why it was a problem and why Congress had done anything to to authorize the SEC to change the rules. democracy

“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.

With the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act, board service organizations are conducting Webinars to help directors understand the changes.  The director moderating a recent session noted that it was difficult for shareholders to nominate their own directors, but said it was unclear to him why it was a problem and why Congress had done anything to to authorize the SEC to change the rules.

“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.

In his article in today’s AgendaWeek, Stuart Levine makes a compelling case for directors to pay more attention to strategic communication and their understanding of reputational risk with the BP crisis as an example.

“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.

The drama unfolding in the Gulf should send a strong message that the old playbook is inadequate for the social 24/7 always-on media.

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.