8 Remedies

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--MAKE COMPANIES ACCOUNT FOR EXPENSES THEY INCUR WHEN THEY GIVE STOCK OPTIONS TO EMPLOYEES Currently, stock options do not count as a corporate expense, even though by granting them companies dilute the holdings of existing shareholders a real cost. Experts such as Warren Buffett and Alan Greenspan have argued that all publicly traded companies should count stock options as an expense. Yet today among big companies only Boeing and Winn-Dixie do so. Why? The current system is so lucrative for company executives, who reap the lion's share of stock options, that few will make the change unless forced. This was not a big deal a few years ago. But this "free money" led to gigantic options grants in the '90s and now, by some estimates, the cost to shareholders is double what it was just two years ago.

--STOP COMPANIES FROM MAKING LOANS TO EXECUTIVES A company is not a private bank. Kozlowski appears to have borrowed millions of dollars. WorldCom CEO Bernie Ebbers borrowed hundreds of millions. The Rigases, controlling family members at cable giant Adelphia, borrowed billions. In each case, shareholders have been left holding the bag. So let's change the rules. Executives get paid well; let them go to the bank and put their home in hock like the rest of us. And end the practice by which executives at Enron and Tyco have sold stock back to the company, rather than on the open market, to avoid legally disclosing the sale for as long as a year while exhorting others to buy.

-STOP TAXING FOREIGN INCOME U.S. firms are lining up to reincorporate in Bermuda for one reason: as offshore companies, they will avoid tax on income earned outside the U.S. It is time to recognize that business has gone global. Companies should pay tax only where they earn money. Congress is debating restrictions on offshore relocations. Better to eliminate the tax on foreign income; then such companies as toolmaker Stanley Works will stay in the U.S., and more foreign firms will relocate here. Company tax savings will flow to the bottom line, leading to a higher price for shares, which when sold trigger capital-gains tax and offset lost government revenue.

--MAKE STOCK ANALYSTS WORK FOR INVESTORS New York Attorney General Eliot Spitzer got a lot of political mileage out of a settlement with no teeth. He forced Merrill Lynch to pay $100 million after he showed that its analysts touted stocks to win investment-banking clients, even though the analysts regarded the stocks as poor investments. Under terms of the deal, however, analysts still work with bankers and indirectly share some of their bonus money. Disclosure of conflicts of interest has improved, as has analysts' willingness to speak in language we all understand (e.g., "sell"). But to really fix the problem, analysts should not be allowed to work with their firms' bankers and should be compensated according to how well their advice works out.

--TAKE RESPONSIBILITY Many people also contributed heavily to their own misfortune by blindly jumping into the latest tech stock or failing to diversify. If you don't have time to research investments, stick with diversified stock and bond mutual funds. "If you ever again buy a stock like Adelphia, where five of nine board members were family," says Minow, "you deserve what you get."