Past is prelude in the boardroom.

• Author: Jones, Blair
• Position: COMPENSATION MATTERS - Column

The last 40 years have seen sweeping developments. What does the historical record foreshadow?

If you're a director, you can be excused for seeing the last 40 years of board history as a relentless chronology of regulatory growth. A key result has been more work and more personal risk--along with more worry about how outsiders view every move.

But what if we take a contrary view? What if we look at the historical glass as half-full instead of half-empty? The changes that have swept over the board then appear, ironically, to have also swept it forward. Directors have put shareholders at the center; introduced more structure and process; injected extra rigor into every task; and embraced shareholder and stakeholder dialogue.

More Shareholder Centrality. As the doldrums of the 1970s passed, the stock market took off, and companies in the 1980s embraced Milton Friedman's notion that the job of CEOs was to make money for shareholders. Investors cheered as directors refocused on shareholder value.

Rising Board Transparency, Accountability, and Independence. In the 1990s, junk-bond financing fueled leveraged buyouts and takeovers. Share prices rose in the wake of restructurings, but as companies laid off workers and manufacturing-based cities hollowed out, total CEO compensation rose. Congress, irritated, capped the deduction for executive pay at $1 million (excepting "performance-based" pay) and required new proxy disclosures on pay in 1992. More transparency failed to damp pay growth, but boards became more accountable for performance defined as shareholder gains.

More Structure and Processes. Investors insisted on stock gains in the late 1990s even in the absence of profits or sustainable business models. The stock market soared and then crashed. Existing governance controls proved inadequate, triggering passage of the Sarbanes-Oxley Act. The 2002 act created a new accounting oversight board and ushered in more board structure and process. Directors were obliged to give investors more accurate information, hold executive sessions, and defer more to independent advisors. Directors now rotate audit leads, and auditors give an opinion on the strength of accounting.

More Rigor Following the Flood of Litigation. More compliance triggered more litigation, raising directors' personal and reputational risk. A sharp reminder came in 2003, when Richard Grasso, fired from the New York Stock Exchange, reaped $139.5 million. Outsiders raised a ruckus...