Recently, the SEC issued Rule 14a-11 which has major implications for the way shareholders have access to nominating directors to boards.   The implementation of these rules is currently being challenged in court by the United States Chamber of Commerce.  However, the SEC direction is to encourage increased communication between shareholders and directors.  So while we all await the final outcome of the judicial process to run its course, it makes sense to understand the trends regarding proxy access and the direction that is coming.

Prior to this proposed rule, a slate of directors was nominated and included in the proxy materials and it was difficult to influence this process.   Now, there are no restrictions on the relationship between the nominating shareholder and the nominee.  However, candidates must satisfy standards of being independent as well as must satisfy specific director qualifications established by the board.

This new rule requires boards to become knowledgeable about how they conduct their nominating and governance processes as well as the implications for maintaining director standards and a productive board culture that enables them to be effective in both stable and challenging times.

How ready is your board?  Obtaining both qualitative and quantitative research on this subject, in addition to your annual board evaluations, will help to protect and position your board as a “blue ribbon” governance company, and keep you out of the limelight on issues that will not serve to protect your shareholders and increase value for your organization.

This increased involvement and engagement of shareholders will require new approaches and a systematic review of a board’s preparedness in response to risk and potential crises, with a strong board culture where clear and effective communications strategies can be developed and presented.  Laying the groundwork to get in front of a crisis, before it becomes one, is just smart risk management for independent board members, CEOs and boards as a whole.  When a shareholder can own as little as 3% and be put on the board, this may open the boardroom up to potential disruptions and potentially competing strategic agendas.  Both boards and CEOs will be defined by the way they prepare and respond to potential crises.

Just as independent directors, request that consultants and attorneys be retained to assistant in ensuring that their decision-making is sound and protected, I strongly suggest that you consider retaining a firm to assist you with facilitating high-level enterprise risk management discussions at the board level, which includes the subject of reputational risk.

The first step is education and understanding of these new regulations and forces that will affect your board in serious ways.  Then put into place an assessment process that identifies critical gaps between where your board is and where it should be.   Next step is to close these gaps and prepare for any potential incidents or movements that might take you away from creating value for your shareholders.

How can boards exercise their fiduciary responsibility or intelligent risk management as it relates to the board nominating process, board membership and board culture?   This is not a one size fits all process.  The goal should be to establish levels of trust on your board to ensure that honest communication can exist on a board without retribution.  If and when a crisis comes every few years, due to product error, succession planning or a shareholder event, your board has the strength of character to respond appropriately and be sheltered from any losses due to reputational risk.

Strengthening your board culture before any incidents, with the assistance of an independent consulting firm,  (not as a budget line item) will serve to start the conversation about these new levels or risk and will help your board to stay highly focused and get to the right outcome in a highly volatile and highly charged political environment.

Here are the five questions and conversations your board should be asking and having:

• Board Culture:  How effective is your board’s culture? Can it sustain a challenging conversation or a crisis? Are you comfortable engaging in a succession discussion with your CEO?
• Understanding of Proxy Access Regulations: Is your board up to date on the new proposed Proxy Access regulations and how they will require major changes in the preparation of your Proxy’s, Nominating Process and Director Qualifications?   Are they aware of the new current realities and their implications?
• New Levels of Accountability:  What is the increased level of accountability required by board members in this new environment?  Are you bringing the right issues to the table?  Is your board engaged at the level they need to be?
• Readiness Preparation/Reputational Risk: Is your board effectively prepared for a “disruptive event”?  How would it perform under this kind of pressure and what impact would this have on your company’s reputation which impacts your company’s financial bottom line?
• Strategic Business Planning: Are the assumptions that you are working with for Strategic planning being evaluated and re-evaluated to ensure keeping up with the changing times.

These issues should not be viewed in a limited traditional PR or investor relations bucket.  Board culture, establishing the right skills sets and qualifications for directors founded on continuous director education that ensures currency and intelligent responses are all on the horizon for director service in the new decade.  Start thinking about your role in bringing your board to this new level of competency and engagement.

Stuart R. Levine, the founder, chairman and CEO of Stuart Levine & Associates (www.stuartlevine.com)   is a director of Broadridge Financial Solutions, and chairman of the governance and nominating committee and lead director for J. D’Addario & Company.  He serves on the Advisory Council: The Directorship/NYSE Boardroom Guide for the New Director.