On July 16, Alan Greenspan characterized the markets in recent days as "notably skittish". Many would consider that a serious understatement; partiularly in light of what happened the next seven days. The question is what can be done about it? It starts with board governance and those entrusted with that responsibility.

Fortune Magazine recently stated that a mere 75 mutual funds, pensions, and other institutional shareholders control some 44% of the market. Keep this factoid in mind when we consider July 15th’s 400 point plunge, subsequent rebound, followed by a two-day plunge of over 600 points in the Dow Jones Average…volatility being blamed on investor fears of more revelations of corporate greed. With the concentrated control mentioned earlier, just who is paying attention, demanding performance from CEO’s, and protecting the long-term interest of shareholders, in fact, the very treasure of our free enterprise system?

With very little real “board governance” occurring, has this critical oversight role been usurped by a select group of unscrupulous executives? As the well-known shareholder advocate Robert A. G. Monks (Harvard College ’54) remarked on this abdication of corporate governance, “A corporation with a million shareholders has no owners.” Nature abhors a vacuum, and this one apparently has been filled by unethical CEO’s and their like-minded advisors. CEO’s with handpicked Outside Directors are routinely supported without criticism in almost any decision affecting the future of the corporation, including their own compensation. As reported in the June 24 issue of Fortune Magazine, this self-escalating greed machine has taken the ceiling for CEO compensation from $20 million in 1987 to over $700 million in just 15 years.

In addition to the need for “board governance” with more teeth, perhaps we need to shift away from EBITDA to “Free Cash Flows” as the measuring stick of choice for corporate performance. At the Harvard Business School back in the late seventies, we were taught that Free Cash Flows was the cleanest way to determine the performance and the value of a corporation. Since then, we all have been through the latest fads for measuring corporate performance: EVA, pro forma earnings, EBITDA, operating earnings etc. Maybe it’s time to go back to the basics of free cash flow.

Finally, Monks insists that the major owners of corporate stock: the mutual funds, pension funds, 401(k) plans, and other institutional investors, reassert their ownership control and put a stop to these shenanigans. He advises them to take responsibility for voting shares they control, to study the proxy statements, and to insist that Outside Directors be independent.

With a return to integrity, genuine board governance, a better method for measuring corporate performance, and oversight of both by the major owners of the corporate stock…those people who control 44% of our national treasure, we can bring back confidence to our markets.

A two-time Olympian, a former consultant with Arthur D. Little & Kurt Salmon Associates, and a multi-industry generalist, Tony is the most diversified member of our team. Since receiving his AB with honors from Harvard College in 1972, Tony's career has spanned such industries as financial services, healthcare, environmental services, consumer products, energy, plastics and telecommunications. Also, prior to earning his Harvard MBA in 1979, Tony worked in Washington as a management analyst on key projects for the United States Senate and the House of Representatives.