Stocks have been a lousy investment in the US for a long time. The S&P 500 closed at 1108 today--the same level it was at 12 years ago (as shown in the above chart). Nor is that 12 year period of zero returns aberrational. What was aberrational was the very high returns of the 1990s, which was one of the highest returns by decade on record, if not the highest. Since 1981 bonds have crushed stocks. Buy and hold is a myth.
I suggested in 2007 that a major problem is corporate governance, and cited evidence in support of inferior corporate governance standards. There is little doubt that some of the prime movers in the recent financial meltdown suffered from very weak boards. And a major problem with weak boards is that they are stacked with the CEO's cronies. Distinguished commentators such as Stephen Bainbridge long ago recognized the problems with CEO cronies populating many boards.
So, here is an idea: instead of having vast amounts of social wealth controlled by the CEOs' cronies, and dedicated to the infinite enrichment of CEOs, why not legally mandate that those governing the modern corporation do so professionally in accordance with professional standards similar to lawyers, doctors, stockbrokers, and any other number of regulated professions.
Recently, two Harvard Business School professors proposed just that. Their proposed code of conduct would require, among other things, that: managers "enhance the value of the enterprise to create wealth for society in the long term;" "uphold laws and contracts;"and "do not allow gender or race to influence decisions." All of these professional standards would be enforced through professional sanctions imposed through judgment of peers. In other words, directors could be disbarred. In 2005, I argued for a model based upon stock broker regulation including entry examinations and continuing education requirements. The essential point is that only those professionally qualified to be directors would be directors.
As I have written on this blog earlier, I believe that the Citizens United case makes corporate governance more important than ever. I have also written about the myth of the American meritocracy in light of the financial crisis--I posited that our corporate leaders lack ability as well as character. I also argued that all members of traditionally oppressed groups should be suspect of Citizens United because it shifts power from a more diverse body politic to a culturally monolithic group of corporate elites.
This all suggests a potential interest convergence among those in favor of superior corporate governance and those currently excluded from the ranks of board directors and officers. Both of these groups should be interested in a legally mandated regime of professionalization of corporate governance. This would open board membership to all comers based upon merit--and eliminate the need to be a crony of the CEO.