After 2009, the flood--of new intervention; What directors can do to prepare themselves for new waves of investor scrutiny and regulatory reach into the boardroom. The key: think like a shareholder.

• Author: Gwin, Bonnie W.
• Position: HEIDRICK & STRUGGLES GOVERNANCE LETTER

AS 2009 TURNED INTO 2010, while the churning economic waters seemed to have calmed a bit, boards are now facing a new challenge--a flood--of regulation, legislation, and SEC rules seeking to address the issues that led to the economic meltdown and the blowback from the missteps of some high-profile companies. Boards, already laboring under 10 years of steadily increasing responsibility and accountability, will face in 2010 more such regulation than ever--and individual directors need to be prepared.

Consider just some of the new reporting and proxy rules described in the SEC's 129-page "New Proxy Disclosure Enhancements" of last Dec. 16. The new rules, which went into effect as of Feb. 28 this year, require new disclosures about:

* The Relationship of a Company's Compensation Policies and Practices to Risk Management. The intent is to help investors determine whether a company is incentivizing excessive or inappropriate risk taking by employees.

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* Enhanced Information about Directors and Nominees. This includes their experience, background, qualifications, and legal proceedings against them in the prior 10 years (instead of the current five).

* How Diversity Is Considered in the Director Nomination Process. Companies must disclose whether they consider diversity in selecting directors and, if so, how.

* Board Leadership and Structure, and Its Role in Risk Oversight. Companies will have to explain why they have the board structures they do--whether a combined or split chair/CEO arrangement--and explain why they think their structure is appropriate. They will also have to disclose the extent of the board's role in risk oversight.

* Enhanced Information about Compensation. Companies must report the value of stock options when they are awarded and, under certain circumstances, disclose the fees paid to compensation consultants.

Three basic strategies

Meanwhile, on Oct. 27 of last year, the SEC's Division of Corporation Finance issued a legal bulletin that says it will no longer let companies exclude shareholder proposals requesting that "companies adopt and disclose written and detailed CEO succession planning policies." As of last August, shareholders of Delaware corporations--half of all public companies in the U.S.--can adopt bylaws that allow them to put forward director candidates on their companies' proxy statements. New SEC rules about proxy access are waiting in the wings. And all of this is to say nothing of...