For me, I just find it unfathomable that management would either bet the farm on some very high risk investments, or equally bad, bet the farm on investments they did not fully comprehend. This is such an extreme case of mismanagement that investors the world over can not believe it was possible. As a matter of fact it seems so impossible that it is probably what kept many of us faithfully invested. Many of us take investment risks, some more than others, but to bet the whole farm? To bet your future existence? This is financial insanity.

Is this just a case of greed causing blindness? If so why was it so contagious among some firms and not others?

It seems to me that the reported $2 per share purchase price that JP Morgan Chase (NYSE: JPM) is paying for Bear Stearns (NYSE: BSC) would not have been enough to buy the brand name last year, never mind the whole company. What we are witnessing is the strong (until JPM reports some surprise) taking advantage of the weak. It also exemplifies how bad the market is, that no other buyer has stepped in at these fire sale prices.

A piece (subscription required) in The Wall Street Journal looks at the increasingly common practice of companies selecting new CEOs from the ranks of their current directors.

Proponents of the practice believe that a current director will already have some familiarity with the company and its people and that that makes for a smoother transition. But the Journal adds that "Some investors disagree. They contend that a chief chosen from the board signals cronyism and weak succession planning. A director's comfort with a colleague obscures `a clear view of the individual's suitability to be a successful CEO,' says Richard Breeden, an activist investor and former chairman of the Securities and Exchange Commission."

Another concern that I have that wasn't touched on in the article is that in many cases, a member of the board is brought in to replace a CEO who has been pushed aside because of poor performance.

It's coming up on that time of year again! Proxy season: the one time where corporate management teams can actually be held accountable to their shareholders. According to the Wall Street Journal (registration required), only about one third of individual shareholders actually vote their proxies, which allow them a say in electing directors, certain corporate policy proposals and, more often now, executive compensation.

How well is a stock you own doing on the corporate governance front? Institutional Shareholder Services prepares Corporate Governance Quotients on many publicly traded companies. You can view the company score on Yahoo!finance. For example, on the profile page for McDonald's, we see that: "McDonald's Corp.'s Corporate Governance Quotient (CGQ®) as of 1-Mar-07 is better than 59.5% of S&P 500 companies, and 94.3% of Consumer Services companies." For a more detailed look at a company CGQ score, you can go to the ISS's Issue Atlas page for the company.

Factors influencing the CGQ, according to the ISS website include: (1) board structure and composition, (2) audit issues, (3) charter and by-law provisions, (4) laws of the state of incorporation, (5) executive and director compensation, (6) qualitative factors, (7) D&O stock ownership, and (8) director education. The score for each core topic reflects a set of key governance variables.

Use the CGQ to examine the corporate governance of every stock you own. Browse around on the ISS page for additional information about corporate governance and proxy voting.

Investors will want to read Alfred Rappaport's article "10 Ways to Create Shareholder Value" in Harvard Business Review September 2006. Most companies profess to increase shareholder value, but do they actually do more than talk? Rappaport argues NO. Most corporate senior management focuses on short-term earnings and stock prices connected to the exercise of generous option grants. Both of these actions mitigate against creating shareholder value. Not surprisingly, Rappaport singles out Warren Buffett's Berkshire Hathaway (NYSE:BRKA) as one company that really does focus on increasing shareholder value. This is due to the fact that Mr. Buffett has long insisted on acting according to Rappaport's #1 Principle for increasing shareholder value: Do not manage for earnings. Management must develop strategic plans with the long-term goal of increasing shareholder value regardless of dips in short terms earnings. A company's acquisition strategy should proceed along those same lines.

Executive compensation, or rather excessive executive compensation, has been in the news of late. Think former NYSE head Dick Grasso and Home Depot CEO Bob Nardelli. Rappaport suggests that companies reward executives handsomely but only for long-term returns. This presupposes, however, that the executive suite does not have a revolving door and that a CEO is given long enough to implement strategic plans.

Share the wealth. Don't just reward the senior management team. A lot of middle and front-line managers work very hard in the trenches every day to create lasting shareholder value. If they don't do their jobs, the best strategic plans will come eventually to nought. Recognize and reward their efforts. Everybody benefits in the long run. Corporate boards should lay off granting options as though there is an infinite supply. Make senior management stand the same risk as all other shareholders by owning stock outright. That will help keep everybody focused on the same goal.