The many corporate scandals of the past two years have highlighted the importance of effective corporate governance. Cases that are by now notorious, such as Enron, WorldCom, Tyco, and Healthsouth, provided vivid examples of how companies and investors can be hurt when boards of directors do not do their jobs well. How can we improve board performance? One main way is by reducing the extent to which boards are now insulated from, and unaccountable to, shareholders. We need to rethink the arrangements that determine the current power of the board vis-à-vis shareholders.

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summary of article's key recommendations

• the presence and role of independent directors: directors who do not have substantial connections with the company or its executives other than through their directorship
  
• pending stock-exchange rules and governance reforms would require that nomination and compensation committees be composed of independent directors
  
• make directors not merely independent of corporate insiders, but also at least somewhat dependent on shareholders
  
• vide a meaningful safety valve that shareholders could use to replace directors who fail to serve them well
  
• firms include in proxy materials distributed to all voting shareholders the names of directors nominated by qualified shareholders (or groups of shareholders) who satisfy minimum ownership requirements
  
• require or encourage firms to have all directors stand for election together could contribute significantly to shareholder wealth
  
• take away the board's existing veto power over changes to the company's governance arrangements
  
• eliminate legal rules that insulate management from shareholder intervention
  

[CLB: Do you agree these recommendations would further governance goals?]