American International Group (NYSE: AIG) has pulled itself out of penny-stock territory after its shareholders approved a 1-for-20 reverse stock split on Tuesday. However, the shares are swallowing some losses today nonetheless, as investors reshuffle their portfolios following the adjustment. AIG opened today at $19.65 after falling as low as $13 in premarket action.

CEO Edward Liddy reassured shareholders at the company's annual meeting that he's confident a new CEO and chairman will be named shortly. The bailed-out insurance issue also named some new directors to its board, at least seven of whom were recommended and approved by the U.S. Treasury Department or its trustees.

This Wall Street Journal (subscription required) blurb says it all: "A BofA director has quit and more resignations are expected as the company seeks to remake its board with bank and finance experts."

Aha! What a novel idea!

One of the largest banks in the world has decided that maybe, just maybe, it would be a good idea to put people on its board of directors who are experts in the world of banking. This is a perfect example of the corporate governance breakdown that drove Bank of America (NYSE: BAC) to its current state -- and a great example of why CEO Ken Lewis and every other member of the company's board of directors should be kicked out as a condition of the billions in bailout money the company has received.

Interim General Motors (NYSE: GM) Chairman Kent Kresa has hired Spencer Stuart, a New York firm, to help him locate candidates to replace at least half of the beleaguered automaker's twelve directors.

The Wall Street Journal reports (subscription required) that Mr. Kresa has originally planned to conduct the search himself, but was persuaded the a search firm could perform the job more quickly. Replacing the board of directors is important politically as GM looks to present enough of a fig leaf of change to prevent President Obama from pulling the plug and plunging the company into bankruptcy.

With a wave of shareholder meetings about to hit the United States, directors could be in for the first real test they've faced in a long time.

With shareholders looking at portfolio statements showing losses of 30%, 40%, 50% and more, directors are expected to face a tougher time retaining their seats. And a new trend of brokerages changing the way they vote customers' shares could make changes even more likely.

Former Merrill Lynch CEO John Thain's decision to spend $1.22 million to redecorate his office will probably put the issue of executive compensation limits back in play for the U.S. Congress, most likely for only bailout fund recipient companies, but quite possibly for other business arrangements, as well.

The compensation issue was considered politically dead for this year, but Thain's audaciousness could serve as the type of catalyst necessary to get a controversial bill through a review process that's designed to defeat or delay legislation. Thain was put in charge of Merrill's trading, investment banking, and brokerage operations after the Bank of America (NYSE: BAC) acquired Merrill.

Further, Thain's $1.22 million splurge of the company's money is the type of action voters will notice, prompting them to place pressure on U.S. Representatives and U.S. Senators to act. Thain's gratuitous redecorating has surfaced alongside Merrill's distribution of bonuses despite massive losses at the former investment banking and brokerage giant.

Board of directors oversight?

Some will argue that executive and employee compensation is a matter for a corporation's board of directors, not the U.S. Congress. Economist Peter Dawson said that's precisely the reason Congress should intervene.

As though we needed another reason to be disgusted with corporate governance in the United States, here's a gem from The Wall Street Journal (subscription required): "So far this year, 46 outside directors who are CEOs or chief financial officers left the boards of 42 companies in three struggling industries -- financial services, retail and residential construction -- concludes an analysis for The Wall Street Journal by Corporate Library in Portland, Maine."

Directors at companies like Ford (NYSE: F), General Motors (NYSE: GM), Sprint Nextel (NYSE: S), and American International Group (NYSE: AIG) have been resigning, citing the huge amount of time required to be a director at a company faces extinction.

Oh where to begin. First of all, isn't it a little bit messed up to go along collecting a salary in the $150,000 per year range (which is what GM directors are paid) to go to a few meetings a year when times are good, and then head for the hills when the going gets tough? Isn't that like working for ten years as a security guard at a posh country club without incident and then calling in your resignation at the first sight of a burglar?

A piece in today's Wall Street Journal (subscription required) discusses "an emerging breed of directors who reach out to shareholders", listening to concerns, explaining governance policy, and basically just acting attentively in communications with shareholders.

But not everyone's so sure it's a good thing. There are concerns about Reg FD and selective disclosure -- directors can't say anything that material and non-public -- but directors should have enough familiarity with securities laws to know better. If they don't , they're probably ill-qualified for the Sarbanes-Oxley world.

I like the idea of directors holding meetings with investors, or even just talking on the phone. First of all, it's nice to see directors actually doing something to earn their keep. I'd support the idea of non-executive chairmen being required to stuff envelopes for a few hours a week because being a director is one of the easiest, least stressful, least time-consuming jobs there is.

Concerns about selective disclosure and undermining management aside, here's the thing: directors can always listen to shareholder concerns, and refusing to hear from the people you work for is just plain arrogant. They might not be able to say much, but they can always listen and, perhaps, learn about the issues that matter to their bosses: the shareholders.

Most reasonable people -- even the most laissez-faire among us -- accept that excessive executive compensation completely out of line with performance is a serious problem in America.

Too often though, this gets debated as a populist issue with congressional hearings and rants from union activists. But at its core, excessive compensation is a corporate governance issue and the ones getting screwed over are the shareholders.

In a great column in the Sunday New York Times, Ben Stein explains the real root of this problem: supine boards of directors, motivated by cushy relationships with CEOs, perks based on kissing asses instead of creating value, and no real skin in the game.

The solution to this should be pretty simple, and it has nothing to do with protests, newspaper columns, or passionate (and televised) congressional hearings. What we need are more activist investors, rigorous enforcement of laws requiring that institutional investors vote their shares in the best interests of their fiduciaries, and for the SEC to improve proxy access rules, making it easier for shareholders to unseat under-performing directors. Unfortunately, the SEC under Republican leadership has backed the interests or entrenched -- and lousy -- executives and directors, not the interests of shareholders. That's wrong.

As Randy Cepuch wrote in his book A Weekend with Warren Buffett, the notion of corporate democracy is "pretty much a myth." That's going to have to change, or our country's competitiveness will be seriously jeopardized.

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.

Just after the close of the market Wednesday, Overstock.com (NASDAQ: OSTK) issued a press release announcing the departure of a top executive. Effective December 31, Jason Lindsey resigned as president and chief operating officer and left the board of directors. Lindsey was the third Overstock board member to resign in 2007.

This hurts, and observers can only wonder if this is a sign of the Overstock.com ship finally sinking under the direction of CEO Patrick Byrne. Byrne is known far and wide for his publicity stunts and various antics in the name of his pet projects, all the while his company is unable to turn a profit.

What's even more telling about this departure is that Lindsey helped found the company. Byrne is quoted, "When I screwed it up a couple years ago, he came out of retirement, and has played a decisive role getting it back on track." At least Byrne is finally willing to admit that he screwed up the company!

In an editorial titled Union Proxies (subscription required), the Wall Street Journal argues that the SEC's decision to allow companies to bar third-party candidates for the board of directors from the ballot was actually the right move.

I argued just the opposite here and here, but the Journal does bring up a point that's worth responding to:

"Access" sounds good in theory. But in practice, what really matters is whether such proxy slates serve the interests of all shareholders, or merely a few. In the case of proxy challenges, the main agitators are unions and their political allies who run public pension funds. These groups have their own political agendas that they want companies to pursue, and those agendas may or may not serve the larger interest of increasing shareholder value. In the worst case, such agitation could empower special-interests on boards that reduce a company's value.

Here's the flaw in the Journal's reasoning: If the union-backed pension funds are supporting ideas that are wildly out of touch with the interests of other shareholders, then those shareholders have a right to vote against them, and presumably they would.

And if the majority of a company's shareholders vote for the candidate, then they should gain a seat on the board. This is basically about voting rights: shareholders in public companies should have a right to put the people they want on the board of directors. Denying proxy access because many candidates would have special interests is like arguing that union members shouldn't be allowed to vote or run in political elections because they have ulterior motives. Maybe they do, but that's up to the voters to decide!

We've seen enough examples of supine boards of directors and managers who stayed in their roles as Chief Value Destroyer for far too long because of these boards. Proxy access would have been a great way to make directors more accountable to shareholders, and it's a really sad day for corporate governance when the SEC gets in the way of that.

In spite of its lackluster performance of late, Motorola (NYSE: MOT) has decided it doesn't want King Icahn [subscription required]. CEO Ed Zander wrote letters to shareholders and employees saying Icahn is "not the right person to serve as a Motorola director." More puzzlingly, Zander wrote that Icahn's responsibility to his hedge fund investors "may conflict with his ability to represent all stockholders."

Now hold on. Icahn's responsibility to his hedge fund investors is to generate high returns. The board's responsibility to shareholders is to generate high returns. So what's the conflict? Given Icahn's ownership of 3% of MOT stock -- an investment worth over a billion dollars -- it's hard to imagine someone whose interests are better-aligned with those of outside shareholders.

Mr. Zander, it's beyond me why you wouldn't welcome one of the foremost business and governance experts of our time on the company's board. This looks like it has more to do with Zander's desire to keep control over the company than any altruistic desire to "represent all stockholders."