If there is one thing corporate managers (and columnists like us) know well, it’s the experience of pitching what we think are great ideas to an audience—and seeing them enthusiastically ignored. But every once in a while an idea sticks.

That’s what seems to be happening with our proposal from last June to take the process of electing corporate directors to the next level. Behind the scenes, a group of big institutional investors embraced our concept, and they have just produced a practical, candidate-screening template that could affect director elections for the first time in the 2009 proxy season. Corporate executives and board members need to be aware of what’s happening here. Even more, they should participate with institutional investors in the formulation of the template to make it as informative, yet painless, as possible.

First, however, here’s a flashback to fill in the story.

In a column we titled “How to Hire a Director” (June 2008), we spotlighted increasing gaps between the responsibilities expected of corporate directors, the way directors are elected, and the way investors treat decisions about voting in board elections. In particular, we focused on the profound consequences flowing from the new reality that most S&P 500 companies now embrace a majority-rule election system, where directors who fail to gain a majority of ‘yes’ votes must resign their seats. Director elections in the United States now have real meaning and real consequences.

Strangely, however, both investors and corporate boards were nearly all behaving as if nothing had changed. Most shareowners still paid only cursory attention to director elections, leaving scrutiny of director candidates to the proxy services they hired. On the corporate side, boards still typically released the same brief CV-style paragraphs on candidates, as if no more sophisticated information or analysis were required.

If you need evidence that these habits are out of touch with the new director election reality, have a look at 2008 proxy season outcomes piled up since our May column came out. Some 20 directors at 15 companies received more than 50 percent opposition, according to RiskMetrics. By contrast, in 2006 just eight board members failed to achieve a majority. More than two dozen other directors came so close to failure this year that they would have lost their elections had broker voting been banned from tallies, as the New York Stock Exchange and many investor groups recommend. These figures represent historic changes to U.S. board elections, and they are largely fueled by proxy service firms being more discriminating when they arrive at recommendations on how investment funds should vote on director candidates.

We proposed two strategies for boards to raise their game. For one, a nominating committee could meet with the company’s largest shareowners to discuss board composition—and invite investors to submit names to the candidate pool. Some boards already do this.

Second, and more controversially, we recommended that when releasing its proxy statement, a board provide more fulsome disclosure of the qualifications of director nominees. A board could, for example, schedule one or more conference calls in which directors would be available for investor questions, or directors could answer questions via submissions online. To avoid overloaded director in-boxes, we urged investors to forge a single common questionnaire framing in general terms what they most need to know to make informed decisions on director elections. This is the idea that has taken off.

The International Roundtable on Executive Remuneration and Director Engagement, a three year-old working group of big institutional investors, took up the challenge following a spring meeting. Over the summer, Roundtable Coordinator Keith Johnson circulated first drafts of an “Independent Director Candidate Questionnaire,” fishing for investor feedback. He got it. In early August the group settled on a final, two-page discussion draft. As you read this, investors are sending the questionnaire through their separate internal channels for approval. Odds are, a core of funds with big stakes in U.S. equities will begin asking boards to respond beginning in 2009.

Bear this in mind: Most of the information Roundtable investors will be asking for has not been included in the traditional proxy statement, as the questionnaire itself helpfully declares. Clearly, the point of the exercise is to probe beyond CV-style disclosures required by regulators.

What do investors want to know from boards and nominees? From the nominating committee, shareowners ask for the criteria used in selecting nominees. For instance, how will each candidate help achieve company objectives, represent shareowner interests, and supplement skills of other board members? The investors also ask for a description of how the nominating committee arrived at its criteria and identified nominees.

From the candidate, shareowners pose four questions. To give you an accurate preview, we quote them directly here since you can’t yet find the questionnaire online. The first three are straightforward:

Effectiveness. Why do you think you would be an effective independent director at the company?

Independence. Please tell us about any financial, business, family, or personal relationships with members of the company’s senior management or board that are not disclosed in the proxy (if any) and explain how they might (or might not) affect your independence.

Company issues. If there are particular issues you would like the company to address or goals you would like to achieve as a director, please comment on them.

To try to preempt obvious reasons companies might cite for staying silent, footnotes contain a disclaimer that answers are to be read as “current personal views and are not intended to preclude a candidate from exercising future discretion as required in the exercise of applicable fiduciary duties under the circumstances.” Another footnote invites candidates to comment on “strategic, environmental, governance and social, or extra-financial issues that relate to creation of value and exposure to risks.”

The fourth question to board candidates is designed to produce a snapshot of candidate attitudes to corporate governance and shareowner rights. A nominee is asked either to narrate what “changes or improvements in governance practices you would like to see made at the company,” or to circle numbers on a 1-to-5 scale to show personal agreement or disagreement with statements covering 10 major current corporate governance issues “whether or not they are applicable to the company.”

You’ll also see a question rarely before posed to a board by mainstream investors: “How and when will the candidate be available to respond to shareholder questions, and how can shareholders participate, submit questions, and receive all responses?”

Regardless of how we feel about the specific questions, we recognize that the investors’ template is a welcome attempt to add substance to director elections that have, until now, been largely superficial. At the same time, we remain cognizant of the potential for reform being viewed as burdensome or, worse, as provocative. That was not the Roundtable’s intent, but we’d be foolish to pretend that such suspicions don’t exist in the corporate community.

Nonetheless, our hope is that the director and corporate communities now join an iterative process with investors to ensure that a common questionnaire is seen as informative by all sides. The Roundtable picked up the idea from our earlier column. Perhaps the National Association of Corporate Directors and the Society of Corporate Secretaries and Governance Professionals will take up our follow-up suggestion to reach out to the Roundtable and provide input on the template. Lack of communication and cooperation between the investor, director, and corporate communities can always scuttle a good idea—but wouldn’t it be nice if, this time, all sides could agree on how to improve it?

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