Former Tyco (NYSE: TYC) CEO Dennis Kozlowski and former CFO Mark Swartz asked New York's Supreme Court to throw out their convictions on the grounds of insufficient evidence -- Kozlowski had been convicted of grand larceny.

As despicable of a character as Kozlowski is, he doesn't belong in prison: Tyco was a corporate governance train wreck, and he was essentially jailed for being paid an obscene amount of money. Tyco was not a massive securities fraud and, in fact, has produced solid returns for its shareholders.

One of the flaws with the Tyco case -- and it extends into media coverage of corporate governance today -- is that it held an executive responsible for gross negligence on the part of the board of directors. By throwing Kozlowski in jail and writing him off as a crook, the real threat to shareholders was essentially let of the hook: complacent and compliant directors at public companies.

Free Dennis Kozlowski, stop wasting taxpayer money imprisoning someone who was more reflective of an era than evil, and move onto bigger battles.

Most investors think Sarbanes-Oxley regulations have been the rule of the road in corporate governance since put into law in 2002. That has never quite been true. The law has been challenged in the courts for almost six years, accused of giving the federal government too much power to push public companies around.

What appears to be the final challenge to Sarbanes came to an end as a federal appeals court turned back a legal challenge to the act.

According to The Washington Post, "Businesses have protested that the act imposed costly burdens and provided too little benefit." The cost issue is entirely true, especially for small public companies that have had to stretch financial resources by spending hundreds of thousand of dollars to meet the requirements of the law.

But, it would be hard to make the case that the average shareholder is not better off with more independent corporate audit committees and accounting firms under pressure to perform flawlessly. A look at the number of companies that have had to restate financials because of errors uncovered and enforced by audit committees is a testament to the benefits of the law. The law has ended the habit of giving large institutions a "look" at company prospects and has taken away many of the disadvantages that individual investors have suffered for decades.

Sarbanes has been expensive, but the alternative would have done the common shareholder a great deal of damage.

Douglas A. McIntyre is an editor at 247wallst.com.

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.

While calling Arthur Levitt's tenure as chairman of the Securities & Exchange Commission ineffective would be an understatement, he could, and still can, be relied upon to say the right thing. Now that the SEC finally has the quorum necessary to take action on a variety of issues, they should take Levitt's advice about proxy access changes.

Earlier this year the SEC made it impossible for shareholders to change the way directors are elected -- one of the most anti-investor events in recent history -- and it's time for that to change. Levitt writes in The Wall Street Journal that "While not a panacea, giving shareholders a bigger voice in the companies they own would go a long way in helping to restore trust."

Exactly. Some critics of strong corporate governance say that the SEC shouldn't meddle in these affairs. I basically agree: but the problem is that the SEC has meddled, making it impossible for shareholders to take control of their own companies when necessary.

A new study out of Stanford's law and business schools suggests that the increasingly popular corporate governance quotients provided by firms like the Corporate Library and Institutional Shareholder Services may not be so helpful. The researchers found little or no correlation between the ratings at different firms, and higher scores do not appear to correlate with strong performance. Indeed, firms that performed well based on ISS metrics were found to be more likely to face shareholder class-action lawsuits, which is mystifying.

The companies that provide governance data do, in my opinion, provide a valuable service, but investors who really want to know what's going on at their companies should go read the proxy statements themselves, straight from the SEC's Edgar database (Look for "DEF 14A"). Here are some questions to ask as you look:

• Do the executives and directors own a large amount of stock in the company? Do they sell frequently or buy stock on the open market with their own money? An important, but often overlooked, area to look at is the ownership of the directors. Directors who own a large amount of stock are likely to be more vigilant in performing their duties.
• How does executive pay change from year to year? Does it go up every year by leaps and bounds regardless of performance, or do the top guys take a hit with the shareholders?
• Does the company have a staggered board, poison pill, or other devices designed to make it more difficult for shareholders to affect change?
• Does the company disclose any significant related party transactions?

If you can come up with detailed answers to those questions, you'll have a much better idea of the company's governance strengths and weaknesses than you can get from reading any third-party report.

The Associated Press reports that "as the American economy slowed to a crawl and stockholders watched their money evaporate, CEO pay still chugged to yet more dizzying heights last year." The average S&P 500 CEO took home a pay package valued at $8.4 million in 2007, an increase of 3.5%. The top 10 highest paid CEOs took home a total of more than $500 million, but 5 of those companies saw huge drops in profitability at their companies. It's good to be the boss, even when it stinks to be the shareholder.

On one level, criticizing rising executive pay based on the performance of the economy is grossly unfair: executives should be paid based on their marginal value to the company, not based on broader economic trends that they have no control over. The problem is that executives routinely benefit from factors they have no control over: any CEO of any oil company is doing quite well just for being in the game. When things are going well, everyone's happy, and shareholders generally don't complain about CEO pay when they're earning double-digit returns. But when CEOs don't take a hit with the shareholders on the way down, it's not fair. CEOs are in the ideal "Heads I win, tails it wasn't my fault and I still win" situation.

What can be done about executive compensation problems? That's easy: improved corporate governance that can only be achieved through an increase in shareholder activism. Large institutional shareholders need to get off their hands and threaten with proxy fights when corporate boards fail to do their jobs. For its part, the SEC can improve proxy access, making it easier for dissident shareholders to affect change if that is the will of the majority.

Right now, companies can be run by small clique of insiders who have virtually no stake in the company's long-term future -- and decades can go by without any accountability. Until that changes, executive compensation in America will continue to be a disaster.

Executive compensation gone wild is a major pet peeve of mine. And if seven-figure pay packages plus restricted stock and options and country club memberships aren't bad enough, some executives are now sticking their companies with the losses on homes they bought.

Here's how it works: A company wants to hire a new CEO but she'll have to relocate to take the job. So the company agrees to make up any loss on the sale of the house. In this real estate market, that's becoming more of an issue. Qwest (NYSE: Q) lost $1.8 million on Edward Mueller's old house.

Part of me doesn't think this is such a big deal. If that's what it takes to recruit the executive, and the board is aware of the potential liability, it isn't really any different from a higher salary. Recent SEC rules that require companies to provide a summary compensation table showing the total value of the top officers' pay packages including all perks make this less of an issue.

Of course, some pay critics are using this as an opportunity to jump on the greed of executives and the supine nature of corporate directors. But the focus should remain on corporate governance and the fact that executive pay is too often completely unrelated to performance. Issues like relocation benefits make for good stories, but they're really not the issue.

Aflac (NYSE: AFL), which is a major insurer, has an off-beat message – at least, according to its commercials (which involve a noisy duck).

Well, the company has made some history this week. That is, the shareholders can vote "yes" or "no" on executive compensation.

While it is non-binding, it is still important. If anything, its recognition from Aflac that its shareholders have a say on things.

Funny enough, the company really doesn't need this in terms of pacifying shareholders. After all, Aflac has been a solid performer.

However, does this mean we'll see other firms join in the trend? Perhaps some. But, when it comes to giving up a little power, you're likely to see lots of resistance in the boardroom.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates MergerBook.com.

Earlier today, my colleague Douglas McIntyre argued that the Rockefeller family shouldn't "bite the hand that feeds" it at Exxon Mobil Corp. (NYSE: XOM), a company founded by ancestor John D. Rockefeller. I couldn't disagree more.

The family is advocating a series of proposals such as creating an independent chairman and pushing the world's largest oil company to be more environmentally friendly seem pretty sensible to me. First of all, corporate governance experts advocate separating the role of chairman and chief executive as a good idea for all companies, not just successful ones. This is a good way to prevent a company from falling under the control of an imperial CEO.

Also, I can't understand why McIntyre thinks that "developing new forms of alternative energy is essentially the job of smaller companies which will eventually compete with Exxon for business." Other oil companies including BP Plc. (NYSE: BP) are moving headlong into alternative energy. Even Exxon, which argues that wind, solar and biofuels will account for 2% of global energy demand by 2030, isn't totally opposed to the idea of alternatives to oil.

According to a statement on its Web site, "ExxonMobil is taking to address the risk of climate change. These included working to improve energy efficiency and fuel economy, and groundbreaking research into low-emissions technologies." The company, of course, argues that the world will need petroleum-based energy for some time to come.

Finally, the idea that shareholders should just sit back and let management do whatever it wants couldn't be more wrong. Companies are owned by shareholders and are supposed to be working in their best interests. Despite record profits, Exxon shares have barely budged this year. If the Rockefellers think the company can do better, the company should at least hear them out.

Tragically, America's publicly-traded companies are hardly bastions of transparency and good corporate governance, but the problem is even worse in China.

A study by RateFinancials reported in Barron's (subscription required) found that on measures like quality of earnings, accounting, and corporate governance, Chinese companies are lacking.

Many Chinese companies listed on U.S. exchanges are tightly-held and have complex structures -- two serious red flags. They also don't have to file proxy statements, and often have the roles of chairman and CEO are filled by one person. There are also questions about the independence of the boards, related-party transactions, and so on.

What can investors do? Few would dispute that most people should have some exposure to foreign companies, and your best is to either buy an index fund or hand your money to a reputable mutual fund manager who has the resources to kick the tires on prospective investments in faraway lands.

If you think you have access to enough information/knowledge to perform proper due diligence on a company like LDK Solar (NYSE: LDK), I think you're kidding yourself.

So far, Europe has lagged behind the United States in terms of exorbitant compensation being heaped on top corporate executives.

But Porsche CEO Wendelin Wiedeking's $100.2 million pay package is sparking controversy in Germany. I consider myself a big supporter of strong corporate governance, but a big pay package isn't a problem by itself; it's only a problem when it is completely out of line with the fundamental growth of the company.

At Porsche, that may be the case. According to the Wall Street Journal (subscription required), "In its most recent financial statement, Porsche disclosed that it made more money in its latest fiscal year from trading derivatives than it did from selling cars. It said earnings from stock-option transactions contributed a pretax €3.59 billion to the overall result."

Here's the problem: Trading derivatives for big profits can be hugely risky, and profitability can be fleeting in a way that operational growth (e.g., selling cars) isn't. Paying executives huge bonuses for gambles that paid off is bad for two reasons: First, it's completely unwarranted (Maybe they just got lucky) and, secondly, it can encourage rampant speculation. They're playing with shareholders' money for a chance at big profits. If they lose big next year, they probably get fired -- but hey, he just made $100 million!

Maybe the company isn't taking big risks with derivatives trading, but I seriously doubt it; as Long Term Capital Management and the Orange County crisis taught us, big rewards in derivatives generally come with big risk, even if it isn't apparent when the money is rolling in.

Yesterday I wrote about a new SEC rule that will make it easier for corporate managers to reject shareholder efforts to put their own board nominees on the ballot.

The decision is a disaster for corporate governance in America, and the Wall Street Journal's headline today pretty much sums it up: "Cox, in Denying Proxy Access, Puts His SEC Legacy on the Line."(subscription required). Christopher Cox is the Chairman of the SEC.

The Journal adds that "The tensions over proxy access may tarnish Mr. Cox's image as a self-proclaimed investor advocate. It also reopens concerns he had so far deflected: that he would roll back shareholder rights in favor of business interests, as well as questions about the effectiveness of his consensus-based approach to rule making."

The argument against broader proxy access is pretty lame: Business groups argue that this will allow corporations to prevent special interest groups like labor unions or GreenPeace from hijacking public companies to further their own interests. That would be a valid point except that special-interest groups rarely gain enough shareholder support to win board seats -- If they do get the number of votes needed to get on the board, then it isn't really a special interest: most shareholders support it!

What this will really do is make it easier for incompetent or just plain bad directors to insulate themselves and management from accountability. That's wrong and it's bad for business.

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.

For most of our lives bankers have been represented to us as conservative creatures, dressed in pin-stripe suits, nary to part with a dollar and certainly adverse to taking any risk. This image was cast in our movies, television, and novels. Unfortunately, with events playing out as they are today, this carefully-crafted stereotype couldn't be further from the reality.

Mr. Drysdale, who managed Jed Clampett's millions in the Beverly Hillbilly's television show of the '60s is just that -- a TV character. If you look back over the last few decades it has all been a facade, and the government has participated in this fraud by loosening banking laws and allowing these institutions to wander farther and farther from rational and safe behavior in pursuit of the highest returns they could get without limit.

If you are old enough, you might remember back three decades when the banks were seeking these high returns in South America, when inflation and interest rates tempted them and they all took a big bath. Then a decade later in 1989 the commercial real estate market collapsed amid over-valuations, and many banks and thrifts collapsed along with them...right into the arms of the Federal Government, which was forced to take them over with yet another bailout. This took about five years to turn around and things were brighter by early 1995.

As Citigroup's (NYSE: C) Chuck Prince illustrates, the key to keeping the CEO job is not generating consistently superior corporate performance, it's maintaining good relationships with your board of directors. Without the board's support, Prince's string of disappointing quarters would have cost him his job long ago. Lesson: if you let the board know you're failing then you keep your job -- but if you surprise the board, you're out.

That's why corporate loner Stanley O'Neal, Merrill Lynch (NYSE: MER)'s CEO, is likely to get the boot. Because not only did he oversee a 58% increase in writing off bad investments two weeks before Merrill's latest earnings announcement, he committed the unpardonable sin -- if you want to keep the CEO title -- of initiating merger discussions with Wachovia (NYSE: WB) without board approval.

CNBC reports that O'Neal could be gone this weekend, so I won't be surprised if O'Neal is replaced -- possibly by NYSE Euronext (NYSE: NYX) CEO John Thain. Regardless of who heads Merrill, there are some big challenges ahead. Here are five things that I think Merrill's next CEO should do: