Time to look into the crystal ball to see what the new year might bring to the world of corporate governance.

But before we turn to 2011, let's glance in the rearview mirror to see how our 2010 predictions panned out. Happily, we were mostly right. Our column last January bet that financial reform legislation (later dubbed the Dodd-Frank Act) would back shareholder proxy access and say-on-pay, giving investors more clout in relation to corporate boards. We were wrong in expecting majority voting to be part of the law. To be honest, however, lots of people expected that proxy access and shareholder advisory votes on executive pay would be included in the final legislation.

Spotting fresh corporate governance challenges in 2011 will not be so easy. We will focus here on two developments that we suspect will have a profound effect on boards—but neither will command big headlines.

Let's take the slightly higher-profile trend first. We predict that 2011 will be remembered as an inflection point in the effort to lift the percentage of women on U.S. corporate boards. 

Why now? After all, advocates such as Catalyst have hounded boards for decades to appoint more women. Boards responded, but sluggishly and modestly. Today just 16 percent of non-executives on S&P 500 boards are women, up an unimpressive 4 percent from a decade ago, according to Spencer Stuart's 2010 U.S. Board Index. Worse, 60 companies in the Fortune 500 today have no female director at all, according to a 2010 Catalyst census. The numbers aren't a whole lot different elsewhere. In Britain, for example, just 14.3 percent of outside directors in the FTSE 150 are female—and that's down slightly from a year ago, Spencer Stuart reports.

The difference is that Europe now has some momentum behind the push to boost those levels, either through voluntary action or by outright government fiat. Norway famously installed a quota that a minimum of 40 percent of a board's directors must be women; companies that fall short face closure. France recently followed suit, with a 2016 deadline for compliance. Britain's Department for Business Innovation and Skills invited public comment on ways to spur an increase in female directors. And the chairs of Lloyds Banking Group and Centrica—perhaps seeing writing on the wall—last month launched the “30 Percent Club” composed of companies aiming to get at least 30 percent female representation on their boards by 2015. Meanwhile, Viviane Reding, E.U.'s justice commissioner, has threatened Europe-wide legislation, unless markets act on their own.

Our guess is that the shift under way in Europe will put pressure on U.S. boards to follow along. The Securities and Exchange Commission already provides a catalyst. Under new disclosure rules, boards have to explain how they take diversity into account when nominating corporate directors. Expect investors now to evaluate those statements—and the state of real progress—against the background of board diversity in Europe. And that is not because shareowners favor political correctness (though some do). More evidence is emerging that diverse boards may be better at creating value. CalPERS and CalSTRS will soon unveil their Diverse Director Database (3D) to further encourage board nomination committees to look beyond the usual pools to fill open seats. So it may be best to anticipate this pressure and act now. For instance, nomination committees could broaden instructions to search firms, consult with large investors, and stay abreast of the 3D initiative. 

Rethinking Auditing

Now let's turn to the second powerful governance development of 2011, taking shape behind the scenes. It is about resetting the relationship between outside auditors and investors in public companies.

In theory, auditors are typically appointed by shareowners at the annual meeting. They are supposed to work for, and be accountable to, these equity owners of Corporate America. In reality, of course, auditors work for some combination of management and directors. As global investor Aviva recently observed: “There is little, if any, contact between investors, shareholders, and audit firms.”

We predict that 2011 will be remembered as an inflection point in the effort to lift the percentage of women on U.S. corporate boards.

The Sarbanes-Oxley Act made matters worse by formally tying auditors to the board's audit committee rather than to investors. Normally, the only information investors receive from the outside auditor they hire is a singularly uninformative boilerplate letter asserting the portfolio company's compliance with audit standards. No wonder many investors don't appreciate or understand the work auditors do to arrive at that colorless finding. Auditors , for their part, have few opportunities to ensure that what they check is what owners consider critical.

Auditors, some investors, and some regulators are quietly starting to rethink the system. The European Commission kicked off debate in October with a so-called “green paper” proposal, Audit Policy: Lessons from the Crisis. A small tide of comments arrived by the Dec. 12 cutoff. Among the ideas the Commission may take up are proposals that would require auditors to explain more of their findings to investors, particularly when corporate operations skirt the lines of propriety or financial statements rely heavily on executives' judgment. French auditors already must highlight accounting matters subject to judgment. The E.C. might promote that approach through Europe.

Another idea: that outside auditors should supply investors with an opinion on board effectiveness. The big question here is what standards the auditors should apply, but the concept is hardly alien. Auditors in many jurisdictions must supply shareowners with an opinion on the overall integrity of a board's stewardship of a company. The rationale is clear: An incompetent board can ruin shareowner value while scrupulously following accounting rules. Should the auditor inform investors of larger problems it spots?

Europe may again serve as the catalyst of reform in this area and may be willing to go farther down the stewardship path than the United States, but U.S. audit professionals have already begun testing ideas on how to make auditors more accountable to shareowners by more expansive, French-style reporting. They are also mulling opening new channels for dialogue. There is a model in Australia, for instance, where the law permits outside auditors to answer certain questions at annual meetings.

Complex legal risks would have to be addressed in a U.S. context, of course. And it would improve nothing if auditors were simply to restate in person the compliance formulae they write in annual statements. On the other hand, meaningful interactions could give investors value as they evaluate risks at portfolio companies just as it would give auditors insight into what issues their theoretical bosses think are important. Dialogue would underscore the accountability of auditors to owners and further align their interests.

Any drive to refresh the auditor-investor relationship should be something for boards to monitor over the long term. One thing is clear: If auditors do more reporting to investors, shareowners would be in a position to scrutinize the work of audit committees more closely. That would be a sobering thought even if the New Year's champagne weren't already stowed away.