Corporate Governance Role in Meltdown

What role did board governance play in the financial meltdown of 2008? According to John Gillespie and David Zweig, co-authors of a new book called "Money for Nothing," it was a major one.

Gillespie, a former Lehman banker, a co-founder of Salon.com, maintain that boards were asleep at the switch or simply failed to act to protect some of our largest companies to fail or inadequately protect themselves. Some 57 million American households own stock in public companies. Their interests are supposed to be protected by boards. Instead, their holdings plummeted in value, and then, as taxpayers, they were forced to bail out many of these same companies. I spoke to the authors last week, and excerpts of the interview follow.

TheStreet: What do you think of Mary Schapiro's performance as head of the SEC?

Gillespie: The expectations for her were really low. I've been pleasantly surprised. She's increased disclosure requirements, beefed up enforcement and instituted an Investor Accountability Office. She's also throwing out non-broker votes counting in favor of a vote for management starting this proxy season.

Zwieg: I've been disappointed in her delaying a decision about giving investors a right to nominate directors to boards (the proxy access rule). The longer she waits, the more investors' money is being used by companies' management and lawyers to fight shareholders' interests on this rule.

TheStreet: How do you beef up enforcement at the SEC?

Gillespie: It's really tough. A career person at the SEC makes 180K in annual salary but they have to be as good as the top person at Wachtell.

Zweig: Who else is going to do enforcement if not the SEC? The ratings firms? Accounting firms? I don't think so. We'd like to see a small transaction tax on all stock trades go toward beefing up of SEC enforcement.