The next big thing: finally, a governance initiative that has some consequence for shareholder wealth.

• Author: Hagberg, Carl T.
• Position: GUEST COLUMN

WHAT'S THE next big thing on the corporate governance front? Smart investors will begin to use the shareholder proposal process to hold directors' feet to the fire on the company's cost of capital and their stewardship of the company's stash of shareholders' cash--insisting that they manage it as a truly "prudent person" would.

Here's why we believe this, and why we think such actions are way overdue,

U.S. public companies are currently sitting on $2 trillion in their treasuries--a record-breaking and truly staggering amount of cash. These monies legally belong to shareholders. So what have companies been doing with these funds?

Over the past decade, and now, once again, as the economy slowly recovers, many of our biggest and best-known companies have been earmarking the lion's share of free cash to stock buyback programs. And these programs, it must be noted, have had historically horrible results. A recent Morgan Stanley study of buybacks - at 26 industrial companies since 2007 found that more than half had a zero or negative return.

Turn for a second to the lens of billions U.S, banks spent to buy back shares between 2000 and 2007. All of this cash could, in theory, have gone directly to shareowners. But all of it went up in smoke instead--never to be seen again--in the financial crash. And now, big banks are once again allocating the lion's share of their free cash to buybacks rather than to dividends, JP Morgan Chase, for example, recently announced it would increase the annual dividend payment by $3 billion, and buy back $8 billion in stock. At Wells Fargo, the board authorized a $1.5 billion dividend increase, and a buyback program that could go as high as $6 billion.

How did they come up with these ratios for cash outlays? And what is the expected return to shareowners on these "investments" of their cash? If one is a long-term investor, one ought to be asking questions like this and, we say, demanding answers.

Our own pet peeve here is describing buybacks as "returning money to investors"--a perversion of English, and of logic, that comes close to being fraudulent language in our book. If we want to cash out, we can simply call our broker, or go on E-Trade.

Bad as all these misguided buybacks are, there is worse news when it comes to corporate use of free cash to make acquisitions. As data from McKinsey & Co. again affirmed this past June, roughly 70% of deals fail to meet expectations for return on investment.

Here are three...