The way to greater worth.

• Position: GOVERNANCE REGULATION - Excerpt

Ed. Note: In 2006 Jon Lukomnik co-authored The New Capitalists: How Citizen Investors Are Reshaping the Corporate Agenda, published by Harvard Business School Press (www.hbr.org/books). His co-authors were Stephen Davis, president of Davis Global Advisors Inc. and executive director of the Millstein Center for Corporate Governance at Yale University, and David Pitt-Watson, former chief executive of Hermes Focus Asset Management, Europe's leading shareholder activist fund manager. The book was named bythe Financial Times as one of the best business books of 2006. Following is an excerpt.

The long era of rubber-stamp boards is, year by year, being replaced by a frame-work of board responsibility and accountability. Much work remains but what has already occurred represents an enormous strengthening in the accountability of the corporation, through its board, to its owners.

Still, a few argue that new capitalists' fixation on accountability is a fad that fails to recognize the entrepreneurial purpose of the business, which is to profit by offering customers a better service at lower cost than the competition. If we focus too much on the accountability of boards, critics ask, won't we end up diluting their prime function, which is to provide entrepreneurial leadership to the organization?

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Certainty there are real dangers if, in the cause of good governance, we become overly legalistic about processes and procedures. The aim of greater accountability is to increase value for shareowners. Legal make-work, by contrast, is aimed at reducing liability without regard to whether the cost of that risk reduction is worthwhile. But there the problem lies not in the principle of reform...