The $50 billion Madoff Securities scandal could have been prevented easily. So could much of the corporate and investment fraud that's taken place over the last couple of decades. Why? All these frauds shared at least one thing in common -- the people who committed them all produced their own financial statements. In my limited experience in academia, I have never seen a single student grade their own test or paper. So why should business executives be able to write their own report cards?

We don't know much about the Madoff scandal, but there's no question that Madoff securities could not have gotten away with it if a completely independent entity had been generating financial statements for investors. Instead of spending decades cranking out fraudulent statements that showed investors making 10% returns each year, an independent auditor would have stopped Madoff in his tracks.

Of course, for such an independent entity to work correctly, it would need to be structured, paid and staffed in the right way. As I suggested in Value Leadership back in 2003, the government would create an independent group of auditors who would create financial statements for investors. This group would be paid from taxes levied on corporations and its people would be promoted based on their ability to geneate timely, accurate, and thorough financial statements.

This post is part of a feature on companies and products that our bloggers think are in need of a makeover. See all 26.

This summer I had the misfortune of flying AMR Corp.'s (NYSE: AMR) American Airlines. In my experience, it ranks near the top in its expression of contempt for its customers. As I wrote in my book Value Leadership, it is almost the opposite of Southwest Airlines (NYSE: LUV), which has tarnished its flawless image with its first quarterly loss in 17 years due to a $247 million charge resulting from a jet fuel hedge gone sour. But to give American Airlines a makeover, it would be wise to borrow selectively from what makes Southwest so great.

In August, I was scheduled on a 1:50 pm flight from Boston to Miami -- trying to get a connecting flight to Chile on its excellent airline, LAN Air. American Airlines said the flight would be delayed for 15 minutes because of a mechanical problem that caused the air-conditioning in the back of the plane not to work. Half the plane got out, and an hour later American Airlines announced an indefinite delay.

A big line formed at our gate to rebook. Next to our gate was an empty one with two American employees who were working on their computers. I waited patiently until one of them finished her work and asked if she could help me. She stared at me and said no, she could only help people on the flight scheduled for that gate, and went back to her computer. No thanks to her I ended up booking a flight that left at 6 pm, causing me to miss my connection to Chile.

If you drop a rock into the middle of a pond, the rings of water will radiate out from the center to the shore. Similarly, if a corporation hires great people and makes them happy and productive, they will exceed customer expectations, make money for shareholders, and give back to the communities in which they operate. That's the good corporate citizen premise of Value Leadership: The 7 Principles That Drive Corporate Value in Any Economy (Wiley, 2003).

How can investors profit from this idea? A quick answer is to buy stock in Value Leaders -- companies that follow the seven principles -- like Goldman Sachs Group. Inc. (NYSE: GS) and avoid the stock of companies that have fallen away from these seven principles, like Wal-Mart Stores, Inc. (NYSE: WMT). Over the long term, however, the list of Value Leaders changes -- Wal-Mart used to be on the list. Therefore, investors need tools to sift the leaders from the losers so they can make their own decisions.

Let's face it, on the surface, principles like Experiment Frugally -- one of the seven in my book -- sound great. But if you can't measure them, you can't use them to pick stocks. That's why I studied 1,500 companies and picked eight that followed 11 criteria closely linked with the principles. I found that these companies grew 35% faster, earned 109% higher profits, and boosted their stock price at five times the rate of their peers between June 1992 and June 2002. To measure values, I developed a Value Quotient (VQ) which gauges how well companies follow the seven principles in the way they perform 24 activities and 106 specific tactics. I found that companies with higher VQs do better in the stock market.