Making Corporate Governance Work

The Committee for Economic Development, a business-oriented public policy group, recently announced a five-part set of recommendations to improve corporate governance. The five steps include: assuring a autonomous and active audit committee with close ties to the internal as well as external auditor; clearly stating that financial statement information is based on estimates and judgments with supplementary nonfinancial information; giving more time to see if Sarbanes-Oxley will be a cost-effective way to monitor internal control and ethical issues; getting a handle on executive performance evaluation and compensation and using nominating committees without management membership to select director nominees.

Roderick Hills, co-chair of the CED, is wise enough to not promise a panacea from these proposals--but the proposals make a ton of sense. Especially valuable are the clear statement of judgment in financial reports; the control over executive compensation and the director nominee proposals.