Updated from 11:56 a.m. EDT

On a day in which board oversight is in sharpfocus,

Microsoft

(MSFT) - Get Report

announced it is expanding itseight-member board to 10 directors, describing themove as an attempt to strengthen its corporategovernance structure.

While the

New York Stock Exchange

reels afterChairman Richard Grasso resigned in a flap overexcessive pay, Microsoft framed its latest move as"another in a series of steps taken to enhance strongcorporate governance."

Microsoft's board of directors unanimouslynominated two new board members for election byshareholders at their annual meeting in November:BMW CEO Dr. Helmut Panke, 57 and Charles H. Noski, former

AT&T

(T) - Get Report

vicechairman, 51. The board also recommended thatshareholders re-elect the current eight directors.

Observers praised the move by the world's largestsoftware company, but said Microsoft could go evenfarther.

"I think any time you add independent directors tothe board -- who agree to commit to company equity,it's a very good thing," said Charles Elson, directorof the Center for Corporate Governance at theUniversity of Delaware.

Another step Microsoft and other companies cantake to improve corporate governance is to appointlarge shareholders to the board, Elson added. "Ifrankly would prefer a company to seek outrepresentation of large shareholders," he said.

Yet an even more radical maneuver would be allowing shareholders to make nominations, a move the

Securities and Exchange Commission

is currently considering allowing as part of an effort to give stockholders greater access to the proxy statement. "There are institutional investors out there who would like a more immediate say in board decisions and if they team together and nominated a couple of directors for the board, I can't see that would do anything but good," said Paul Hodgson, a senior research associate at The Corporate Library.

However, he acknowledged that it would be surprising if Microsoft offered investors such opportunity ahead of the SEC decision. And, Microsoft may have consulted with its major shareholders anyway before making the nominations, Hodgson added.

Microsoft has a requirement that directors hold acertain number of shares in the company, according tospokesperson Rachel Wayne. More details on such ruleswill be disclosed later today when Microsoft files itsproxy statement.

To some degree, Microsoft already has investorrepresentation on its board, noted Matt Rosoff, ananalyst with Directions on Microsoft, an independentmarket research firm in Kirkland, Wash., that tracksthe software giant. He noted that directors WilliamReed, former chairman of Simpson Investment Co., andDavid Marquardt, a general partner with AugustCapital, were original investors in Microsoft.

The addition of Panke and Noski would bring toeight the number of independent directors on thecompany's board, according to Microsoft. However, thatappears to count Jon Shirley, former president and COOof Microsoft, as an independent.

With more outsiders claiming a more diverse range ofexperiences from different industries, Rosoff said,the board should have a lot more strength andindependence than in the past.

There are "people who might actually have the willto overrule

Chairman Bill

Gates and

CEO Steve

Ballmer," Rosoff said. "It's a good move overall."

The nomination of a director from outside theUnited States was not a surprise because a year agoBallmer mentioned the company was looking for aninternational board member, Rosoff said.

Panke has been with BMW since 1982 in a variety ofpositions, including head of BMW's North Americanoperations. He has served as chairman of the board ofmanagement since May 2002. His appointment comes asMicrosoft continues to grapple with an antitrustinvestigation in Europe.

"As our first director from outside the UnitedStates, Helmut will bring a valuable globalperspective to our board," said Gates, in a prepared statement. "His experienceas chairman of one of Europe's most successfulcompanies will be invaluable."

Rosoff said he believes Panke was not named inresponse to the European antitrust investigation,though a board member from Europe could help with someof the company's legal issues. Rather, Rosoff believesPanke's nomination underscores the growing importanceof Europe to Microsoft in the aftermath of itsacquisition of Danish software vendor Navision lastyear.

The Microsoft board has asked Noski to sit on itsfinance committee. He joined AT&T as senior executivevice president and chief financial officer and wasnamed vice chairman of AT&T's board of directors in2002. He retired from AT&T following completion of itsrestructuring in November 2002.

Before joining AT&T, Noski was president, chiefoperating officer, and a member of the board ofdirectors of Hughes Electronics Corp., a publiclytraded subsidiary of General Motors Corp. in thesatellite and wireless-communications business.

Rosoff said Microsoft's attempt to break into thewireless market, which has met mixed results to date,also may be behind Noski's nomination.

In its announcement of the action, Microsoft tookpains to acknowledge the governance-sensitivesentiment. It pointed out that last year its boardestablished a governance and nominating committee andadopted revised standards of business conduct thatapply to all Microsoft employees. Microsoft pointedout in a press release that it also established anantitrust compliance committee, although that wasrequired under the settlement terms of its U.S.antitrust case.

In addition to stock awards, Microsoft directorsreceive an annual retainer of $50,000 for sitting onthe board, plus $10,000 for chairs of board committeesand then $1,000 for each special board committeemeeting.

In recent trading shares of Microsoft were up 71 cents, or 2.5%, to$28.66, nearing its 52-week high of $29.48.