With the smoke still swirling on the Dodd-Frank regulatory reform bill, Compliance Week readers are doubtless turning attention to how governance provisions in the bill (or possibly the law, by the time you read this) will affect corporations and investors. That’s as it should be; the legislation promises to hand shareowners more say in director nominations and executive compensation in ways that we have flagged in the past. For now, however, let’s turn to a striking but under-appreciated legacy of this epic battle. Dodd-Frank readjusts the balance of power in boardrooms, but it also illuminates a potentially tectonic power shift in Washington. For the first time, investors showed—in dramatic fashion—that they can go head to head against the established business lobbies and win.

Consider the Sarbanes-Oxley Act of 2002, the last major overhaul in corporate governance statutes. Investors were almost nowhere in that struggle. Instead, the measure was driven by then-Delaware Senator Paul Sarbanes, who in turn was reacting to popular revulsion at the Enron and Worldcom scandals. In the House, U.S. Rep. Michael Oxley actually fought the initiative—until he bowed to the pressure of grassroots sentiment. (One wag suggested the bill should have been titled the “Sarbanes-Sarbanes-Sarbanes-Oxley Act.”)

Businesses may not have been happy with the final text of SOX, but the law was no great gift to investors either. Congress installed a raft of new, police-style requirements to guard against fraud but refrained from giving shareowners any new rights. In succeeding years public policy in governance was mainly about the long war over “proxy access.” The U.S. Chamber of Commerce and the Business Roundtable spearheaded a full-court lobbying drive to head off regulations empowering investors to nominate directors through corporate proxy statements. Investors were outgunned and marginalized because they failed to wield either of the two currencies that most matter in Washington: campaign contributions and votes.

Ground shifted this year. If the financial crisis and subsequent taxpayer bailout of Wall Street, AIG, and Detroit were not enough, then headlines about imperial salaries at Goldman Sachs and the lawsuit against the investment bank filed by the Securities and Exchange Commission stoked public outrage against corporate America. But this time, unlike in 2002, the investor community seemed ready to channel that resentment.

First, they worked together with New York Sen. Charles Schumer to introduce his Shareholder Bill of Rights, a wish list of powers funds have long coveted. Then, while the Senate stepped into nearly a year of healthcare reform quicksand, investors tapped Rep. Maxine Waters to force a proxy access provision into the House version of financial reform. Representatives had already adopted say-on-pay votes.

When Senate Banking Committee Chairman Christopher Dodd finally revived the Senate’s regulatory reform bill in the spring, Schumer kept the governance provisions alive against fierce opposition. Defying expectations, the final Senate bill contained nearly every heavyweight item in the investors’ wish lists.

Cut to a Yale University Law School classroom, June 17. A collection of big investment funds were attending the annual Yale Governance Forum, sponsored by the Millstein Center for Corporate Governance and Performance. In Washington, at the same time, the Senate-House conference committee was meeting to reconcile versions of financial reform legislation into a unified bill. Days before, a potent coalition of investors had struck a backroom deal with negotiators: Shareholders would agree to accept Congress killing a provision that would have required all companies to elect directors by majority vote. In return, they would be assured of language affirming the SEC’s authority to issue rules on proxy access. But suddenly, word came by Blackberry from a CalPERS lobbyist that Dodd—with White House support—was ready to gut proxy access.

Funds in the room sprung into action, collaborating face-to-face in hallways and mobilizing contacts in Washington through urgent e-mails. What unfolded was something new in our nation’s capital. The idea that investors had been in the backroom to begin with to make deals was unusual. Now, led by CalPERS (the public employee pension fund in California) and CalSTRS (the teachers’ pension fund there), they were working with just hours to go to fend off the biggest players in Washington: the Chamber, the Business Roundtable and, apparently, presidential aide Valerie Jarrett at the Obama White House. This time, the investors went to the top: House Speaker Nancy Pelosi. She in turn pressed Rep. Barney Frank, chair of the House Financial Services Committee, to hold firm against Dodd. And by the bleary-eyed end, Frank and the investor advocates had prevailed.

What was the secret formula? For one, the CalPERS lobbyist gave investors eyes on developments as they occurred. Second, that lobbyist’s office shaped canny strategies to recruit the right legislators to seize opportune moments while the fund’s public affairs office helped to craft targeted outreach to media. Third, CalPERS willingly shared political intelligence with other funds and collaborated closely with CalSTRS. Fourth, the Council of Institutional Investors helped coordinate and focus lobbying by key public funds in New York, Connecticut, and Massachusetts on Schumer, Dodd, and Frank. Fifth, the International Corporate Governance Network rallied powerful overseas investors to the battle. Finally, the domestic funds were not shy in claiming a capacity to deliver popular support to lawmakers who backed their case.

To be sure, there were special circumstances that lent strength to the shareowner stance. Pelosi in particular, as a California politician, had close ties to her state’s twin pension systems. Frank is a longtime supporter of greater shareowner rights. Both happened to be in positions to shape outcomes. But the episode taught investors the critical importance of wielding political influence. “This shows we can push back,” declared CalPERS governance chief Anne Simpson.

History may yet interpret the shareowner triumph as a fluke. Already corporate lobbyists are pressing the SEC to restrict proxy access to the narrowest possible conditions

Still, history may yet interpret the shareowner triumph as a fluke. Already corporate lobbyists are pressing the SEC to restrict proxy access to the narrowest possible conditions. Shareowners will need to be vigilant to guarantee that what was given on Capitol Hill is not taken away on F Street, home of the SEC. In the longer term, making shareowners a permanent heavyweight presence in Washington backrooms rather than a one-shot wonder hinges on the fate of plans to boost policy collaboration and Washington lobbying as routine tools in the investment community’s toolkit.

All this leads to a mirror question: Have U.S. corporations made fundamental errors in the way they are collectively represented in Washington? The Chamber of Commerce and the Business Roundtable seem to have come up short in proxy access, the most comprehensively lobbied governance issue of the last generation. Yes, they were able to engineer the removal of language that would have required directors to be elected by majority vote—and in our view majority voting is basic to restoring accountability and should not have been compromised away. But we suspect that victory will prove to be a Pyrrhic one anyway. With proxy access now near to reality, investors will likely turn concentrated attention to advocating for majority voting on a firm-by-firm basis across the market. Such private ordering has already made it the norm for large-capitalization companies. Truth be told, there is precious little argument against it.

So now is a time for post-mortems. In this column we have regularly observed that cannier strategies by the Chamber and Roundtable could have produced a negotiated and less one-sided proxy access outcome than the one in the Dodd-Frank bill. Successful businesses know when to change course when a strategy fails. Applying that same good sense to policy, executives may need to ask a tough question: How should we adapt to a Capitol Hill where investors may at last have learned how to play the game?

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