We’ve always had a soft spot for challenges to conventional wisdom—and as financial reform legislation looms, there is no better time for a bout of it.

Looking back on more than a quarter century of corporate governance history, we’re struck by how much change occurs because of lonely, almost solitary challenges to the established order of things, as well as through legislation. Where would modern corporate governance be without Robert Monks’ attempt to run for the board of directors at Sears in 1991—the first modern short-slate proxy fight, which cemented the focus of shareowners on the board of directors? Or California State Treasurer Jesse Unruh’s questioning of greenmail, which led to the formation of the Council of Institutional Investors and the one-share-one-vote paradigm? Where would corporate defense be without Marty Lipton’s invention of the poison pill? It doesn’t matter which side you are on; material change often occurs because someone asks an impertinent question that eventually upsets the status quo.

With that in mind, allow us to ask three impertinent questions. And to make sure they are impertinent, we’re asking them to our own community: Institutional shareowners who advocate for investor power as a means to a more stable and productive capital market.

Impertinent Question #1: Have we made a fetish of independence?

As early proponents of the need for independent directors and non-executive chairmen, we wonder if we (and others) have adequately considered the unintended consequences of extreme implementations of independence. Have we made it highly problematic for boards to recruit adequate domain expertise? Does limiting boards to only the CEO and independent directors hinder exposure of the independent directors to other views of the business? Does it make succession planning harder?

Henry Schein Corp., a Fortune 500 distributor of healthcare products, is a Fortune Magazine “most admired company,” which also has rated it at the top in its field in social responsibility for five consecutive years. Its board, however, is larger than most (13 directors) and includes five insiders. Nowadays, that’s an anachronism. The company consistently argues that having multiple business leaders in the boardroom exposes the independent directors to multiple viewpoints, gives them a better sense of the company’s culture and managerial depth, and promotes long-term thinking.

Now, we’re not about to claim that Schein is an exemplar of what should be; there are a number of governance features there that give us pause. Nor are we about to back away from our call for independent directors and smaller boards. But we take note of the exceptions to the general rule that at least seem to work over longer periods of time: Schein has outperformed the S&P 500 by several multiples over the past decade. Moreover, we admit that we, and many institutional investors, have accepted the received wisdom of independence without enough focus on the potential adverse corollaries, from the lack of deep knowledge of the businesses being overseen (think Bear Stearns), to the myriad succession planning failures that force boards going outside the company to select new CEOs. We need to address these negative consequences of a blinkered approach to independence if we’re to reap its benefits.

Impertinent Question #2: Can the organized institutional shareowner community enunciate a positive vision?

For a quarter century, shareowner proponents have focused on what we perceive as asymmetrical power relationships and conflicts of interests, and so we have fought for control over potential abuses of power. Independent directors are supposed to make imperial CEOs a thing of the past; “say on pay” is supposed to help rein in unwarranted excess pay; introducing majority voting and abolishing broker non-votes for directors is supposed to even the playing field for board elections. Funds have serially backed advisory resolutions calling for more disclosures. The financial reforms about to become law will provide even more checks and balances.

But those are only conditions necessary for improvement; they fall well short of an affirmative vision of what value a truly empowered shareowner community could provide. We know what we’re against, but have we put forth a detailed version of what we’re for? Partially as a result of that lack, we have been vulnerable to being portrayed as “short-term focused” and devoted to “special interests.” Moreover, our constant focus on excessive corporate power poorly used, even as most individual executives and directors are both competent and well meaning, has helped to foster counter-productive antipathy between owners, directors, and corporate management (though overly defensive directors and managers have not helped matters).

As financial reform shifts the balance of corporate governance power, we think the time is right for investors to take on a positive agenda.

The irony is that the leading, but far from generally accepted, unifying vision is some form of “universal ownership theory,” as first popularized by professors James Hawley and Andrew Williams (The Rise of Fiduciary Capitalism, University of Pennsylvania Press, 2000) and later in our own book (The New Capitalists, Harvard Business School Press, 2006). Those works suggest an emphasis on long-term investing and stewardship over trading; on rationalization of capital flow to highest economic benefit over the long term rather than focusing on share price over the short term; and on how to balance pressure from shareowners and stakeholders. That is just what the corporate community generally advocates.

Many institutional investors have, until now, preferred to steer activism toward throwing the bums out where there has been corporate malfeasance. Nothing wrong with that. But by keeping eyes trained on wrongdoing, investors have, in effect, been in a long election campaign relying on negative advertising: Partisans on each side are energized, but the body politic (or in this case, the body economic) is ill-served. Now, as financial reform shifts the balance of corporate governance power, we think the time is right for investors to take on a positive agenda. For example, devote more effort to positive reinforcement of good boards; engage in rich dialogue with directors; vote more by how a company behaves than what a robotic voting template dictates; and offer solid alternative candidates to boards rather than just voting no. Most importantly, the investor community, equipped with new authority, can now finally focus on board effectiveness rather than taking advisory potshots on a host of issues.

Impertinent question #3: Is there a danger in the rush toward codifying risk management into a stand-alone discipline?

Clearly, there was a failure of risk management in the global financial crisis. However, lest you think it always takes us a quarter century after a trend is manifest to ask the impertinent question, we see unintended consequences building in how the corporate governance community is reacting to the crisis. While we agree with the increasing calls for an independent risk-management function, we are concerned that some—perhaps most—naively suggest walling off risk management into a self-contained control silo based on mathematical models and without adequate grounding in the core businesses being overseen.

Avoiding a compromised risk-management function does not mean hermetically sealing it off from the business being overseen. Not only does that increase model risk, but it also threatens to divorce the accountability for risk in a company from accountability for strategy, tactics, and execution.

We see that as a very poor idea. In the extreme, it gives ownership of problems to risk management, thereby increasing the incentive for risk management to become the “department of no” rather than a resource for managing risk in the business. At the same time, if risk management “owns” the problem, will line management and executive management properly consider risk in conjunction with day-to-day management and strategy setting? Or will they think the independent risk function is there as a backstop should something go wrong?

There must be a balance between independent risk monitoring and measurement on the one hand, and communication with line management on the other. Getting the balance right—incenting appropriate risk taking by providing line management with the analysis and expertise to make judicious decisions while not allowing undue pressure on risk management—is admittedly tricky. It will be even more difficult if we owners don’t understand the necessary balance from the start.

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