It’s an open secret that most public corporations exhibit abysmal corporate governance. Insider management is skilled in using corporate by-laws against the shareholders that are nominally their bosses. One good example is HP’s acquisition of Compaq. Whatever the merits of the deal, the company (i.e. Carly Fiorina) spent half a billion dollars of shareholder’s money in PR expenditures opposed by a significant chunk of the said shareholders, lobbying for an outcome that would handsomely profit the same executives with retention bonuses, a flagrant case of self-dealing.

Most shares are owned by large institutional investors that are too lazy to do proper due diligence. In many case, they are pension funds or investment banks that curry management’ favor in the form of contracts. Index funds can’t even vote with their feet. The only way out would be for corporate by-laws to be standardized and made statutory, rather than one-offs rife with potential for abuse.

A simple question: if a board’s job is to hire and fire a company’s CEO, why is the CEO, who is after all a mere employee, allowed to participate in the board at all, let alone preside it? The CEO should be accountable to the board, not a member of it, or privy to the board’s deliberations. This is in part due to gross over-hyping of CEOs’ importance. What they do is neither unique or as rare a skill as is often supposed, and their prima donna demands should be resisted. Of course, most companies’ boards today are already dominated by their management, so the rot is set too deep to expunge easily.

I concluded years ago that most public corporations are run by self-dealing kleptocracies. They loot most of the companies’ profits, and leave some crumbs to the shareholders. The only way to realize the true potential of investing in a profit-making enterprise is to be an active majority shareholder, either by buying a controlling stake (an option available only to those already wealthy) or by starting one yourself. Belgian financier Albert Frère had a saying “The difference between a big minority shareholder and a small minority shareholder is the difference between a big chump and a small chump”.