1. Buy a 2X6, set your circular saw to cut 1/2 inch deep, remove baseboards, stand your 2X6 in front of the wall, set your circular saw on top and cut the drywall a uniform 10 or 11 inches above the floor, and hopefully that will be UNDER your electrical outlets so that you don't have to start bothering with cutting holes in your new panels to fit around those. Wear dust mask. Vaccuum up after dust settles.
2. Buy "Dens-Shield", made by the Georgia Pacific Company at any drywall wholesaler. (Yes, they will sell to you if you pay cash cuz they sell to contractors and builders, not retail stores, so there's no one to bark at them for stealing their business.) Dens-Shield comes in smaller 32 inch by 60 inch panels for bathrooms, but you can also buy it in 4X8 foot sheets. It's 1/2 inch thick just like drywall, but it's highly water resistant.
3. Decide what baseboard you want to put in (now would be a good time to switch to a different style if you want). Have a sheet of 1/2 inch thick construction grade SPRUCE plywood ripped into strips a little narrower than the baseboard you want to install. (say 1/2 inch narrower) Use drywall screws to fasten the strips of spruce plywood to the bottom plates of your walls. You want to use spruce construction grade plywood because it won't be sanded down to 7/16 inch thick to make it smooth. It will be a full 1/2 inch thick, just like drywall or Dens-Shield.
4. Now, cut your Dens-Shield into strips that are the width of the gap between the top of the spruce plywood and the bottom of the drywall. Install the Dens-Shield strips with drywall screws. I'd recommend using 3" drywall screws to fasten short pieces of 2X2 to your studs at the ends of the strips of Dens-Shield to give yourself plenty of room for the drywall screws. It's a pain trying to get two rows of screws into the same 1 1/2 inch wide stud cuz half the time that stud is twisted and/or bowed.
5. Tape your joints with fiberglass mesh tape. It's as strong as paper tape, and I can guarantee you won't have problems with air bubbles trapped under it.
6. Thin your joint compound by mixing water into it so that it's easy to spread smooth, and use a "CURVED TROWEL" to apply joint compound over your Dens-Shield/Drywall joint. A curved trowel looks like an ordinary trowel until you sight along it's edge and notice that it's intentionally bent so that it has a 1/8 inch arch in it. Since you hold the trowel at a comfortable angle to the wall when spreading joint compound with it, the curved trowel allows you to easily spread a perfectly symmetric "mound" of joint compound over that joint that's only about 1/16 to 3/32 inch inch thick in the middle. That's more than enough to bury joint tape under, but it's not enough to leave a visible "bump" in the wall, even if you have wall mounted light fixtures. You can buy curved trowels at most home centers and every drywall wholesaler.
And, ALWAYS ALWAYS ALWAYS, when you're either spreading joint compound on a surface or sanding dry joint compound off a surface, ALWAYS work with a bright light shining at a sharp angle onto that surface to exagerate the roughness. That will give you a much better idea of where you need to add joint compound and where you need to sand it off in order to make a smoother surface. Once it looks "not too bad" under such critical lighting, it'll look perfect under normal lighting.
7. Prime and paint and put your baseboards on. Because the bottom 10 or 11 inches of your walls are plywood and Dens-Shield, you can now handle a 10 or 11 inch flood without sustaining any damage to the wall.
Also, because of the fact that you now have plywood behind the baseboard instead of drywall, you can use shorter (pronounced "smaller diameter") finishing nails to install your baseboards. And, always predrill before hammering any nail into a hardwood baseboard. Otherwise you're likely to bend the nail and split the hardwood and make a general mess of the job.
If you can't find a finishing nail/drill size combination that holds the baseboard on securely without splitting the wood, go to any places listed under "Machine Shop Equipment & Supplies" or "Fasteners" in your yellow pages and buy a NUMBERED drill bit. Standard fractional drill bit sizes are 1/16, 5/64, 3/32, 7/64, 1/8, etc. Numbered drill bits go from a #100 drill bit which is 0.005 inch in diameter to a #1 bit which is 0.2280 inch in diameter. Then, letter size drill bits start with an "A" size bit being 0.2340 inch in diameter and a Z letter size bit being 0.4130 inches in diameter. Numbered drill bits are referred to as "wire gauge" drill bits because the diameters are actually the same as the diameter of wire of the same guage. That is, a #8 drill bit is 0.1990 inch in diameter and a #8 gauge wire is 0.1990 inch in diameter. There are 10 different number size drill bits between 1/16 and 3/32 inch fractional drill bits; #52 at 0.0635 inch in diameter, which is slightly larger than a 1/16 inch drill bit to #42 at 0.0935 inch in diameter, which is slightly smaller in diameter than a 3/32 inch drill bit. You'll find that numbered drill bits aren't really an awful lot more expensive than regular fractional size drill bits because the steel rod that numbered bits are made of is made in standard wire guage sizes for other purposes anyway. They'll run $2 to $3 a bit or so, which is more than fractional bits, but not prohibitively expensive and easily affordable if it's gonna solve a problem.
I wouldn't tell you if it wasn't true.
Because I love children.