A tension-raising list of questions.

• Author: Wharton, Clifton R., Jr.
• Position: Corporate governance

"Corporate governance in the United States is going through a major transformation," says Dr. Clifton R. Wharton Jr., Chairman and Chief Executive Officer of Teachers Insurance Annuity Association and College Retirement Equities Fund. TIAA-CREF is the largest pension fund in the country, with an asset base of $100 billion. In the following article he presents some of the key governance questions that management and investors need to resolve. These observations are excerpted from his remarks as a featured speaker at a major conference on governance issues sponsored by Northwestern University's J.L. Kellogg Graduate School of Management, SpencerStuart, and Booz Allen & Hamilton Inc.

I think all of us would agree that corporate governance in the U.S. is going through a major transformation. But from my perspective as I have looked at it in the recent years, I believe that the current legal and regulatory structure and provisions are no longer fully adequate. They do not match the needs of the underlying new realities.

The following section of the path-breaking work of Adolph Berle and Gardner Means is very appropriate, as we look at what I believe to be the fundamental change in the new realities we have today.

They wrote: "Those who control the destinies of the typical modern corporation own so insignificant a fraction of the company's stock that the returns from running the corporation profitably accrue to them only to a very minor degree. The stockholders, on the other hand, to whom the profits of the corporation go, cannot be motivated by these profits, since they have surrendered all disposition of it to those in control of the enterprise. The explosion of the atom of property destroys the basis of the old assumption that the quest for profits will spur the owner of industrial property to its effective use. It consequently challenges the fundamental economic principle of individual initiative in industrial enterprise. It raises for reexamination the question the motive force back of industry, and the ends for which the modern corporation can be, or will be, run."

They saw these developments as a negative, challenging the fundamental economic principle of individual initiative in industrial enterprise. They raised for reexamination the question of the motive force of industry, and the ends for which the modern corporation can be, or will be, run. That was back in 1932.

As one looks at the current era, I would argue that rather than an...