The Conference Board's star-studded Commission on Public Trust and Private Enterprise attacked executive compensation today, releasing its first recommendations for improved corporate governance.

The Commission, made up of luminaries including Arthur Levitt, Jr., Andy Grove, and Warren Rudman, said that investor loss of confidence is due to a huge breakdown in the underpinning of corporate capitalism in America. Investors hand over money to professional non-owner managers, expecting boards of directors to oversee management to police the conflict of interest between owners and managers. The Commission advocates private sector reform rather than more regulation and legislation.

The recommendations fall under four umbrellas: strengthening compensation committees; linking performance-based compensation to specific long-term strategic goals; using equity-based incentives appropriately (such as requiring senior management to accumulate "meaningful" amounts of company stock and specifying "substantial" minimum holding periods); and basing compensation on what makes sense for the business, regardless of accounting effects. Like motherhood and apple pie, who would disagree? The devil will be in the details.

The Commission strongly attacked the way stock options have been used, noting, in particular, the perverse tax code incentive that limits tax deductibility of cash compensation over $1 million but treats fixed price stock options more favorably. While the 12 commissioners unanimously adopted the Board's 22 recommendations on compensation, two dissented from the recommendation to expense stock options. Intel(Nasdaq: INTC) Chairman Andy Grove opposed expensing stock options, while former Chief Paul Volcker advocated the stronger recommendation that stock options be strongly discouraged for public companies.

Not a commission member, but a dean of American corporate best practices, Berkshire Hathaway(NYSE: BRK.A) CEO Warren Buffett spoke at the end of the presentation. He noted wryly that he has been allowed to serve on the compensation committee of only one of the companies on whose board he serves. He said we need Dobermans in these positions, not Cocker Spaniels, but at a minimum, at least Cocker Spaniels that bark.

We think Buffett's right that corporate boards have gone to the wrong dogs. The mystery of the last few years, when many corporate boards and compensation committees exercised little or no oversight while company officers transferred wealth from shareholders to themselves (gazillions in the form of "loans" and other perks), could be summed up by this famous exchange from Arthur Conan Doyle's tale "The Adventure of Silver Blaze":

Inspector Gregory: Is there any other point to which you would wish to draw my attention?
Sherlock Holmes: To the curious incident of the dog in the night-time.
Inspector Gregory: The dog did nothing in the night-time.
Sherlock Holmes: That was the curious incident.

Exactly.

The Commission's press release is available on its website. More recommendations on corporate governance, including auditing and accounting, are forthcoming.