We support other options including replacement of the board (and debarment of directors from serving on any other boards), adoption of governance improvements including proxy access, majority vote requirements, and separation of CEO and Chair. We are not persuaded that the German system (which has so far shown no advantage over the US system) would be an improvement, though we would be glad to see future IPOs present that structure to the market and see how it responds. As for the last suggestion, we suggest that foundations are subject to exactly the same agency costs and entrenchment incentives that corporations are, but again, would be glad to have that option available to any shareholder who would like to invest.
[P]unishment, while necessary, will always be insufficient to hold corporations to the law, let alone to the public interest. A more adequate approach would be to supplement the current punitive regime with reform of corporate governance in directions that would decrease the temptation of managers to engage in misconduct in the first place. Among the many possibilities, three are singled out for consideration, each of which targets simultaneously the problem of corporate short-termism and the problem of corporate misconduct. One reform would be to change the way in which corporate executives are compensated, curbing pay in the form of stock and stock options so as to eliminate its perverse incentives. A second would be to institute some form of German-style “co-determination.” A third would be to allow ownership of corporations by Danish-style “industrial foundations.” The essay concludes that the last reform holds the most promise as the most realizable supplement for decreasing corporate misconduct. The reform adds two additional benefits. Foundation ownership is one of the few effective devices for institutionalizing progressive corporate governance over the long term; and industrial foundations customarily direct a portion of corporate dividends to charity, in effect reinstating the norm that for-profit corporations provide public benefits.