Five years after the Sarbanes-Oxley Act (SOX) was signed into law, U.S. corporate boards are far more independent and responsive to the governance concerns of shareholders, though observers may conclude more needs to be done in some key areas including diversity, according to an analysis of 1,245 S&P 1,500 companies in 2002, and 1,425 in 2007.

Boards have taken significant steps to rebuild investor confidence following the corporate scandals of 2001 and 2002 that gave rise to the watershed legislation. Indeed, insiders have far less influence on corporate boards today than they did five years ago, while audit committees—critical to ensuring good governance, and a primary focus of SOX—are near to being fully independent,.

Approaches to board leadership are another example of marked change for the better. For instance, far more companies today have separated the positions of chairman and CEO than was the case five years ago. In 2002, 73 percent of companies had combined the posts, leading many shareholders and stakeholders to view America’s captains of industry as all-powerful figures insulated from shareholders and disconnected from directors. But that figure stands at just 55 percent today, while the number of non-employee chairmen who are independent has jumped 10 percentage points over the past five years to 17 percent in 2007.

The past five years also have seen an end to the age of the imperial CEO, which, in turn, has spurred further governance reforms. For example, the analysis finds that companies are now paying much closer attention to concerns surrounding executive leadership, with far more having succession-planning committees today than even one year ago, let alone in 2002.

Meanwhile, boards today are much more likely to engage with investors on concerns such as executive pay and takeover defenses, despite a five-year-long bull market that might otherwise have led many all-powerful corporate leaders to disregard shareholder entreaties in the pre-SOX era.

Investors, responding to the accounting scandals of 2001 and emboldened by SOX, have played no small role in prompting change. Classified boards, once the norm for S&P 1,500 companies, are far less prevalent today, for example. Fewer than half of all S&P 500 firms now have them, thanks primarily to investor pressure to dismantle the defense, but, also critically, to the growing presence of more independent and responsive boards willing to act on investors’ demands.

While governance reforms since SOX have been far reaching in many areas, some observers will conclude that more remains to be done. Advocates of greater diversity in corporate boardrooms will be disappointed by findings that show little improvement in the number of minority and female directorships since the watershed legislation was signed. Governance observers believed both groups would benefit from post-Enron reforms that called for greater board independence, but findings show minimal growth in the proportion of female directorships, and no change in the percentage of directorships held by members of a racial or ethnic minority group.

To view the entire paper, Counting Progress: The State of Corporate Boards Five Years After SOX, please visit here.