Corporate governance tends to “gotcha” type oversight intended to catch somebody at something. Here are three positive ways to improve corporate governance:
Distribution of surplus: Outside Directors of public companies should determine the distribution of surplus among growth, dividends, stock buy-backs, and non-strategic acquisitions. The first two should be favored because they help the job-growth economy. The latter two waste the surplus but are favored by CEOs under pressure to hype short-term earnings. Moving this responsibility away from the CEO to outside Directors can add a longer-term balance to corporate planning and neutralize the short-term pressure.
Compensation: Compensation Committees composed of outside Directors should be responsible for the compensation practices of all employees in order to assure an internal logic and encourage performance bonuses and ownership opportunities. At present, most Committees respond only to consultants’ recommendations for additions to the executive smorgasbord that feeds the compensation frenzy and alienates the people.
Internal audit: Company integrity should be monitored by the Internal Audit Department in its reports to both the CEO and the Audit Committee of outside Directors. The CEO should provide quick and visible action in response to any violation of company ethics; the Audit Committee must guarantee to Internal Audit an unrestricted access to all operations.