The economic crisis presents a unique opportunity to meaningfully alter American corporate governance, and the government seems intent on doing just that. Wielding unprecedented interventionist policies along with plans to spend more than $10 trillion across numerous industries, the government has substantial reform-minded ambitions. Of course, government funding comes at a price, and that has companies and shareholders alike wondering exactly what the new regulations might mean for them.

Much attention has been focused on the imposition of headline-grabbing operational limitations such as rules around executive compensation and expense restrictions. This focus is misdirected. Instead, corporate America ought to keep a collective eye on the regulatory reform agenda brewing in Congress and at several oversight agencies.

While it is true that operational restrictions may have significant short-term effects, the fact is that these restrictions are tied directly to government ownership stakes. Therefore, once the government is repaid, many restrictions no longer apply, suggesting that any lasting reform in American boardrooms is unlikely to take hold. In fact, just a few weeks ago, several banks returned a total of $68 billion, and as a result, these institutions will escape various government-imposed curbs.

A key difference between emergency measures aimed at the current economic crisis and more fundamental regulatory reform is that regulatory reform, once enacted, becomes embedded in the oversight landscape and proves extremely difficult to dislodge. The Obama administration seems to appreciate the "stickiness" associated with regulatory change, and this approach will likely play a central role in the overhaul of the U.S. financial sector.

A recent Securities and Exchange Commission initiative illustrates the kind of regulatory change investors can expect. In May, the SEC proposed to significantly revise the federal proxy rules to make it less onerous, not to mention dramatically less expensive, for shareholders to nominate directors. As demonstrated by Pershing Square Capital Management LP's recent well-publicized proxy contest with Target Corp., advancing shareholder director nominations under the current regime can be a costly and burdensome endeavor. Pershing Square reportedly spent $10 million to $15 million in its losing battle.

The SEC's proposal, among other things, would require companies to include director nominations in their proxy materials as long as the nomination is made by a shareholder meeting certain eligibility criteria. Under the current rules, companies are generally allowed to exclude shareholder director nominations from their proxy materials. Providing greater shareholder access to a company's proxy statement marks a complete turnabout for the SEC, which as recently as November 2007 decided against taking similar measures. The SEC acknowledged that the current economic crisis was a motivating factor for this policy change.

The current groundswell of support for increased private sector oversight is having legislative implications as well. Sens. Charles Schumer, D-N.Y., and Maria Cantwell, D-Wash., recently sponsored legislation codifying a "Shareholder Bill of Rights" to empower shareholders and increase corporate accountability and oversight. The legislation seeks to deter excessive risk-taking by requiring companies to establish separate risk committees, improve accountability by having directors face annual re-election and rein in executive compensation by requiring that shareholders have a "say on pay." Moreover, the proposed legislation encourages the SEC to proceed with easing federal restrictions on shareholder access to company proxy materials. The legislation is broadly supported by major pension funds and labor unions, many of whom have advocated unsuccessfully for similar changes in the past. Recently, the White House also got behind the shareholder caravan when, in its proposed financial regulatory reforms, the administration clearly signaled its support for greater shareholder input, particularly regarding executive compensation.

Even though the SEC proxy access initiative and the Shareholder Bill of Rights legislation are still pending, with legal challenges sure to follow, the confluence of these initiatives suggests that profound corporate governance changes are on their way. With that in mind, corporate America should consider how it will navigate this new reality. In the near-term, corporate boards are well advised to analyze their organizational documents for advance notice and other provisions related to shareholder proposals to assure their nominating, voting and meeting procedures are narrowly tailored to avoid proxy season surprises. While this review should have been completed in light of the recent Office Depot Inc. and Cnet litigations, our findings suggest that many companies have been slow to do so.

Companies should also examine whether the regulatory framework -- current and as proposed -- enables them to achieve the stated objectives of regulators and legislators alike -- namely, more open communication between companies and their shareholder base. Currently, only those holders owning 5% or more of a company's stock are required to disclose their positions. Other holders remain anonymous -- some stridently work to do so -- making it difficult for investor relations personnel to contact these shareholders in connection with outreach efforts. As a result, companies have, at best, an imperfect understanding of their shareholder make-up. The proposed proxy access rules do not ameliorate this issue by seeking to lower the 5% disclosure threshold even though the new rules would provide 1% holders with the ability to nominate directors via the company's proxy statement. These dueling thresholds seem difficult to reconcile. If the desire for greater transparency and more direct communication with shareholders is the catalyst for governance reforms, shouldn't companies be able to directly contact all significant shareholders, particularly those that are about to gain access to its proxy materials? Making disclosure thresholds parallel with proxy access privileges (whether at the 5% level, the 1% level or somewhere in between) seems like a logical approach for companies to consider and potentially take up with the SEC.

Given the dramatic effects of the economic crisis coupled with growing populist sentiment, we suspect that regulatory changes like the SEC's proxy access initiative and legislative efforts such as the Shareholder Bill of Rights are simply the opening salvos from Washington. In response, companies and their advisers need to proactively evaluate the effects of the proposed reforms and develop an individualized, strategic preparedness plan in order to cushion the impact of these sweeping changes.

Steven Epstein is a partner and Matthew Soran is an associate in O'Melveny & Myers LLP's M&A practice in New York.