With pretty much everyone -- including most CEOs -- agreeing that executive compensation is out of control and corporate governance in America is pretty much a joke, you'd hope that shareholders would take one opportunity they have each year -- proxy season -- to let their voices be heard.

Sadly, the New York Times DealBook reports that individual investor participation in proxy voting has plunged: "Of 92 firms that have held their annual meetings this season, the average participation among "retail" shareholders - individuals, as opposed to institutions - dropped more than 75 percent from the previous year, according to statistics from Broadridge Financial cited on RiskMetrics' Risk & Governance Blog."

The drop is probably largely attributable to a recent SEC rule change that allows companies to use "e-proxies," forcing shareholders online to cast their vote.

There's no question that, in time, proxy voting will be conducted online exclusively. But obviously that time has not yet come.

In the meantime, there's still no excuse for not voting your shares each year -- if only so you have the right to complain about what a mess the shareholder democracy is.

For a whole bunch of really good reasons, shareholders have been demanding more independent directors at public companies. Director independence has been a major problem at virtually every major fraud that I can think of, and an independent board is one of the best checks against a potentially unscrupulous management team.

But now shareholders are going a step further. According (subscription required) to the Wall Street Journal, they want directors who aren't CEOs at other companies either.

A big part of the reason behind the trend is the increased demands of Sarbanes-Oxley, which place great responsibility on outside directors to monitor internal controls at the company. The days of collecting a a nice stipend and going to a couple meetings per year are over, and shareholders want people who can devote the necessary time to being stewards of shareholder interest.

Another problem with having CEOs from other companies serve on boards is that they may be conflicted. Given that most companies set executive compensation based on the pay levels of other companies, there is a strong incentive for CEOs to work to boost pay at other companies and, in turn, their own pay packages.

Today, many companies are actively seeking up and coming executives at other companies to serve on their boards. These executives may have a fresher perspective, and can also take what they learn in the boardroom back to their jobs at their current employers.

The role of the director in America has changed forever, probably to the long-term benefit of outside shareholders. They days of the imperial CEO are mostly over, and CEOs are being held accountable to an unprecedented extent.

Last week, I wrote about the SEC's horrible new rule making it easier for companies to keep outside candidates for director off the ballot.

But after Gary Weiss chastised SEC Chairman Chris Cox and the media for not paying attention, I had to return to the topic. Weiss's comments are right on:

... the media has been comparatively silent over the SEC's capitulation to corporate lobbyists, such as the Business Roundtable and U.S. Chamber of Commerce ... Chris Cox, very much a "politician" as Gretchen points out, is blowing with the wind -- which is an utter indifference to investor rights in the Bush administration.

According to the New York Times, "Federal securities regulators appear primed to allow companies to bar shareholders from access to ballots for board elections, a move that major pension funds and governance advocates say could make corporations less responsive to investors' interests."

I have to tell you: It is a sad day for corporate governance in America when the commission that was designed to protect small investors is playing a role in further entrenching boards of directors in corporate America.

Does anyone seriously think that too much accountability for directors and corporate officers is a problem in America right now? In the past few months, we have watched the heads of major banks leave in shame after losing billions of dollars on ill-advised subprime loans. So much for accountability: They headed back to the Hamptons with 9-figure severance packages.

The SEC should be playing a leading role in giving dissident shareholders more options for effecting change.

If you had to pick the subprime lender most likely to be messing with its numbers and failing to take proper reserves, Countrywide Financial (NYSE: CFC) would have to be the one. It's already somewhat of a corporate governance pigsty, with the SEC currently investigating stock sales by CEO Angelo Mozilo.

The stock soared last week after the company reported its quarter and Mozilo made optimistic predictions, but according (subscription required) to The Wall Street Journal, "some analysts warn that the nation's largest home-mortgage lender by loan volume hasn't gone far enough in marking down the value of mortgage securities it holds and may have trouble delivering on that profit vow."

A central part of the bear thesis is that Countrywide is offering very high rates on CDs, indicating that the company is desperate for cash, and can only acquire it by paying high interest rates.

With value investor Whitney Tilson offering to eat his hat if the company earns a Q4 profit, I wouldn't be touching the stock. With uncertainty surrounding the company's accounting/future, management integrity is a must. WIth that in question, I just don't think Countrywide Financial is a prudent investment here.

Michael C. Jensen, a business professor, consultant, and speaker, was one of the early advocates of the larger-than-life compensation packages that have now become the standard fare of boardrooms everywhere.

But now he's revising his thinking in his upcoming book C.E.O Pay and What to Do About It. Now Jensen wants boards to be tougher in negotiating pay packages with executives. But according to The New York Times, not everyone is buying it:

"Imposing the constraints that Michael Jensen has in mind," said Margaret Blair, a professor at Vanderbilt Law School and a specialist in corporate governance, "runs contrary to the culture that has emerged in boardrooms over the last 20 years. Mr. Jensen himself is partly responsible for that culture."

Mr. Jensen complains that too many executives are being paid for breathing, rather than for performance. Furthermore even an incompetent and, in many cases, unethical executive can't be fired without a big severance package.

His proposals make a lot of sense, even if they seem unlikely to ever take hold. I eagerly await his book, as I think bad corporate governance is one of the most serious threats to American business today.

In a recent editorial in The Wall Street Journal, former Secretary of Labor Robert Reich made the case that CEOs deserve their pay -- The typical CEO of a Fortune 500 company earns more than 364 times the pay of the average employee, up more than 10-fold from the ratio forty years ago.

Reich argues, compellingly, that American business is more competitive now than it used to be, and the CEO is more important than he or she was back then: "The CEO of a big corporation 40 years ago was mostly a bureaucrat in charge of a large, high-volume production system whose rules were standardized and whose competitors were docile... The CEO of a modern company is in a different situation. Oligopolies are mostly gone and entry barriers are low. Rivals are impinging all the time -- threatening to lure away consumers all too willing to be lured away, and threatening to hijack investors eager to jump ship at the slightest hint of an upturn in a rival's share price."

It's a story that might have gotten more attention a few years ago, but now Wall Street has become somewhat complacent about accounting/governance issues.

Shares of Dell Inc. (NASDAQ: DELL) actually closed up after the company disclosed that it would be restating results for 2003 to Q1 2007 because of various accounting issues, manipulation of numbers at the request of senior executives to meet financial targets.

Some analysts don't care. According to MarketWatch, "Eric Ross, an analyst with ThinkEquity Partners, called the restatement 'meaningless' due to the amounts involved in the restatement periods."

In a way he's right. If all that investors should care about is ROE, EBITDA, and EPS, it doesn't matter. It's not material. But when investing for the long term, we're putting a lot of faith in management, and the fact that company executives were committing fraud ("seeking adjustments so that quarterly performance objectives could be met" = fraud) over a period of four years should hardly be construed as "meaningless."

Whoever would have though the part of Bill Clinton would also be the party of Carl Icahn. But apparently that's what has happened. While the GOP may talk big about being pro-business, the Democrats appear to be establishing themselves as the pro-shareholder party -- at least on the governance front.

The SEC is examining two plans. As the Wall Street Journal sums it up, "one that would give new rights to shareholders to put their own nominees on corporate proxy ballots, and a competing version that would allow companies to bar shareholders from making such a move."

The Democrats appear to be lining up behind the more shareholder-friendly bill, and Republicans seem to support the idea of barring shareholders from nominating directors.

We need to make corporate executives and directors more accountable to stockholders, not less. The Democrats may be able to pick up some "investor-class" votes by going after the Republicans for being anti-shareholder rights.

Herb Greenberg's latest Weekend Investor column poses an interesting question: With all the hoopla about excessive compensation, options backdating, and bad corporate governance, does it really matter from the perspective of an investor? While it may be a good excuse for some old-fashioned righteous indignation, what effect does bad governance really have on performance? Here's a telling quote from the piece:

No surprise, then, that companies like Colgate-Palmolive, PepsiCo and Kimberly Clark, whose stocks have been solid performers, also have received the best possible grades year after year from Mr. Anderson's firm.

"Well governed companies face the same kind of market and competitor risks as everybody else," he says, "but the chance of an implosion caused by an ineffective board or management is way less." No argument here.

That's certainly true, and I would say that while scandals like options backdating and excessive compensation aren't reasons to sell a stock by themselves (Overpaying for a CEO by $5 million a year is a quantifiable destroyer of value, and it's reflected in decreased earnings), these indications of self-dealing and greed are often symptomatic of other problems. Executives either have integrity and respect for the people they serve or they don't.

My tendency is to avoid stocks where I feel like there are governance issues, or even just companies who don't behave in a way that I consider to be ethical. When it came out that Enron had profited by manipulating the California energy markets, a lot of cynical investors cheered -- After all, Enron was making them rich! But their rejoicing was short-lived as Enron was robbing Grandma Millie and its shareholders.

I think it's important to look at bad business practices not in terms of the finite cost of the problems observed, but as indications of likely future problems: If a board signs off on excessive compensation, it's probably not paying very good attention. There's a good chance that the company may lack effective internal controls.

Once again, it's in the news that the SEC is going to take a look at mutual funds. The Wall Street Journal reported that "Mutual-fund fees and disclosure will get close scrutiny this year by the Securities and Exchange Commission, which also plans to finalize a longstanding plan to require mutual funds to have independent chairmen, the regulator's chairman said." The SEC will be also be discussing the much maligned 12b-1 fees, which are additional fees charged to investors to cover advertising and marketing costs.

Here's the thing: While I have no doubt that there are governance problems with many mutual funds, I don't think it's something investors need to worry about. The reason for this is that, in my opinion, the only funds investors should really bother with are low-cost index funds, which almost never charge 12b-1 fees.

The issue I would like to see the SEC tackle is financial planners/advisers putting people into mutual funds other than index funds, usually because they collect a load/commission for doing so. Is this a conflict of interest that most investors are aware of? I don't think so. To me, this is far more pressing than 12b-1 fees, which savvy investors just avoid anyway.

In an interesting case of what could be a conflict of interest, the New York Times reported on Friday that Institutional Shareholder Services was recommending that New York Times Co. (NYSE: NYT) shareholders "withhold their support for board members to pressure the company over dissatisfaction with its performance and ownership structure." At last year's meetings, an investor group that included Morgan Stanley withheld 30% of the company's shares from support of the directors.

However, the company is controlled by the Ochs-Sulzberger family, which holds 89% of the Class-B shares, enough to give them complete control over 9 of the 13 board members. So voting against the company's board is a symbolic gesture rather than a practical example of activist investing likely to cause changes.

While the company's shares have performed poorly for a long time, this may be more a reflection of the changing face of the news industry, rather than the competence of management.

For more information about corporate governance and using Institutional Shareholder Services' information to make informed decisions during proxy season, read my piece How to make the most of proxy season.

Last week, Topps Co. (NASDAQ: TOPPS) agreed to be bought out by Torante, former Disney chief Michael Eisner's private equity firm. The company agreed to be acquired for $9.75 cents per share, but hit $10 in trading today, indicating that many believe that the company may eventually fetch a higher price.

Here's where it gets interesting: Topps directors, including Timothy Brog and Arnaud Ajdler, voted against the deal, and Topps management has responded in an unusual way. The deal included a "go-shop" provision, which means that the company can solicit offers from other companies for a period of time. Topps has taken the unusual step of banning those two directors, plus one other, from any involvement in the go-shop process. The Wall Street Journal's Deal Journal raised and an eyebrow, and I share their sentiments:

The WSJ writer comments, "Why did the board agree to the deal in the first place if 30% of its membership thought it undervalues the company (at $9.75 a share, the bid is below the stock's 52-week high of $10 reached last month)? Why are the three ill-suited to manage the "go-shop" process for a new suitor? Seems to us that people who don't like the deal on the table have the most incentive to ferret out a better one."