They were replaced by Travelers, the insurance company formerly owned by Citigroup, and Cisco Systems, the maker of networking equipment.

GM filed for bankruptcy Monday and Citigroup, after receiving $45 billion of U.S. taxpayer aid, are the first two major companies to leave the Dow since AIG was removed last September.

Travelers rose by 4.65 percent in morning trade after the second-biggest U.S. commercial insurer replaced its former affiliate in the index.

Cisco became the fifth technology business in the index, making the category’s weighting in the barometer surpass the industrial sector for the first time.

“Chilly reception”: The Wall Street Journal (2/11 Crittendon) Timothy Geithner’s first sales job as Treasury secretary was greeted yesterday with skepticism from two key constituencies: Wall Street and Capitol Hill.

The Dow Jones Industrial Average slid steadily in the hours after Geithner’s morning announcement of the Obama administration’s revamp of the financial-sector rescue effort. The Dow ended the day down 4.6%, nearly 400 points.

On the Hill, senators from both parties grilled Geithner during his first appearance before Congress in his new job, with many complaining about the lack of details in the plan.

The Global Dow includes 150 companies from around the world, including those “that are established global leaders as well as those poised for future global leadership.” Of these 150, 42 percent are American-based, with 10 percent in Japan and less than 10 percent from countries classified as “emerging markets.”

The largest three companies in the Global Dow, by market capitalization, are ExxonMobil, Proctor & Gamble, and General Electric. Other companies include stateside innovators like Google and eBay, and international players such as Russia’s Gazprom and Spain’s Banco Santander.

The new global index reflects a world economy that is more interdependent than ever. “In [founder] Charles Dow’s day, tracking the stock market was a domestic undertaking. Today, equity markets are global in scope and more intertwined than ever,” said John A. Prestbo, editor and executive director of Dow Jones Indexes.

“Even when we remove the $430 million deal from our statistics, the China region still recorded its highest level of venture capital investment since the third quarter of 2003,” said Jessica Canning, Global Research Director for Dow Jones VentureSource.

The majority of capital invested in the second quarter went to developed and later-stage companies.

“In all, some $968 million, or 71 percent of all capital invested in China in the second quarter, went to companies in the ‘information services’ and ‘media, content and information’ sectors.” Canning added. “By comparison, in the U.S., only 12% of venture capital investment went into these areas during the second quarter.”

In total, the report found that China’s Information Technology (IT) industry accounted for the most deals and investment in the second quarter with 28 deals garnering $899 million. This is a 184 percent increase over the $316 million invested in 34 IT deals in the second quarter last year. In particular, China’s “information services” sector, which is where Oak Pacific Interactive falls, saw 17 deals completed in the quarter for $805 million, a five-fold increase over the $161 million invested in 15 deals in the space during the second quarter of 2007.

Elsewhere, Dow Jones VentureSource found that the Consumer Services industry, which includes the “media, content and information” sector, saw 17 deals garner a record $246 million in the quarter, up 34% from $183 million invested in eight deals last year. The Business & Financial Services industry saw 13 deals close in the quarter, garnering $99 million, 25 percent less than the $132 million invested into 17 similar deals over the same period in 2007.

Health Care still remains a small investment industry in China, as the second quarter saw only three biopharmaceutical deals close, accounting for $13 million. This is 28% below the $18 million invested in five health care deals in the second quarter of 2007.

“Larger deals drove investment in the second quarter as the median deal size in China reached $10 million, the highest total we’ve seen to date,” said Canning. “Nearly 98% of all capital invested during the quarter went to companies that are already profitable or generating revenues. This is due in large part to the significant amounts of capital China-focused venture funds have raised over the past 18 months. VCs have to invest larger and larger amounts and they’re looking to back later-stage, established companies which are seen as lower in risk than early-stage companies. ”

The majority of capital invested in the second quarter went to developed and later-stage companies, according to the report. Even so, smaller, early-stage deals were more prevalent, as seed and first rounds made up 52 percent of all venture rounds in the quarter, which is down from 65 percent in the second quarter of 2007. Second rounds made up 20 percent of the deal count, up slightly from 19 percent, and later stage rounds accounted for 21 percent, up from 7 percent.

In February, the boardof videogame publisherTake-Two InteractiveSoftware rebuffedtwo unsolicitedacquisition offersby Electronic Arts(EA), arguing that theyundervalued the company.The dramamade headlines, but itwas the move byTake-Two’s board toapprove a change toan agreement withZelnickMedia—an investment firm that runs the company—thatreally raised the eyebrows of corporate-governance watchers.

Take-Two deemed EA’s offers, first at $25 and then $26 a share,“highly opportunistic,” and as an attempt to take advantage of theupcoming release of the fourth installment of Take Two’s popularGrand Theft Auto videogame. “In addition to undervaluing key elementsof our business, EA’s proposal fails to recognize the value weare building through our ongoing turnaround efforts,” said StraussZelnick, chairman of Take-Two’s board and founder of ZelnickMedia.

Between the two offers, Take-Two’s board approved an amendmentthat, in the event of a merger or takeover, more than triplesthe annual fee it pays ZelnickMedia for providing financial andmanagerial consulting services. The board also raised the maximumannual bonus ZelnickMedia is eligible to receive and wouldgive the firm 1.5-million restricted shares, valued at about $40 million,should the award win approval from shareholders at the annualmeeting. The timing prompted Take-Two shareholder PatrickSolomon to file a lawsuit alleging that the company’s failure to “reasonablyrespond” to EA’s offers “minimized shareholder value.”

“It’s problematic, ethically. It has the appearance of an attempt totake advantage of a potential merger,” says Kirk Hanson, executivedirector of the Markkula Center of Applied Ethics at Santa Clara University.“On the other hand, it may have been completely innocent.”

Take-Two believes it is in the best interest of shareholders to remaincordial and resume a conversation after the videogame’s releasein late April. Such an offer could benefit its management companyhandsomely. –Matt Perkins

New Appointments: 

Zale Corp. has named RichardC. Breeden and James M. Cotterto its board. Breeden, formerchairman of the Securitiesand Exchange Commission, isthe CEO of Breeden Partners.His appointment to the boardcomes after Breeden Partnersacquired a stake in the company.Cotter is a founding partner ofBreeden Capital Managementand senior managing director ofRichard C. Breeden & Co.

The Home Depot namedMichaels Stores CEO Brian C.Cornell to its board. He has alsoserved as chief marketing officerof Safeway, and prior to that waspresident of Pepsi-Cola NorthAmerica’s food-services division.

Anne Sheehan has joined theboard of the California PublicEmployees’ Retirement Systemas the designated representativeof the State Personnel Board ofwhich she has been a membersince 2003. Sheehan has alsoserved as the chief deputy directorfor policy of the CaliforniaDepartment of Finance.

Exxon Mobil named Larry R.Faulkner, president of HoustonEndowment and presidentemeritus of the University ofTexas at Austin, to its board.Faulkner is a member of theAmerican Academy of Arts andSciences and serves as chair ofthe National Mathematics AdvisoryPanel by designation of thePresident and Secretary of Education.He also serves on theboards of Temple-Inland andGuaranty Financial Group.

Overstock.com named JamesV. Joyce to its board for a termending in 2010. As CEO of Icent,Joyce has provided organizationalconsulting services to thecompany since 2005, and hasalso worked for Bain Consulting.

Nancy L. Buc, a partner in thelaw firm of Buc & Beardsley, wasnamed chair of the Food andDrug Law Institute’s board. Previously,she served as generalcounsel for the Food and DrugAdministration, and was an attorney-adviser to the chairmanof the Federal Trade Commission.Seven other board memberswere also appointed, includingWilliam B. Schultz, apartner with Zuckerman Spaeder,who was named vice chair,and Linda Suydam, presidentand CEO of Consumer HealthcareProducts Association, whowas named treasurer.

Sanmina-SCI named John P.Goldsberry to its board and aschairman of the audit committee.Goldsberry is CFO of Gateway.

James M. Cornelius has beenelected chairman of the board ofBristol-Myers Squibb and TogoD. West, Jr. has been named adirector. Cornelius is CEO of thecompany, but will relinquish thatrole in 2009. He was formerlychairman emeritus of Guidant’sboard after its merger withBoston Scientific. West is chairmanof TLI Leadership Groupand of Noblis. He serves on theboards of Krispy Kreme Doughnutsand AbitibiBowater.

Three new directors were namedto the board of plastic compoundsand resins supplier A.Schulman. Stanley W. Silverman,Michael Caporale, Jr., andLee Meyer, who were elected tothe board by stockholders, joiningJames A. Mitarotonda asClass III directors. The companyalso expanded its board by onemember, a slot filled by the appointmentof CEO Joseph M.Gingo.

Ivanka Trump received final approvalto serve on the board ofTrump Entertainment Resorts,which operates three casinos inAtlantic City. She originally receivedtemporary approval inJuly, pending completion of abackground investigation. Currently,she serves as vice presidentof development and acquisitionsof the Trump Organization,and is assuming a greaterrole on NBC’s “The Apprentice.”

United Fuel & Energy namedRichard Becktel to its board.Becktel has been involved in thefuel and lubricant distributionbusiness for more than 30 years.He is the president and CEO ofSouthern Counties Lubricants.

Joseph T. Dunsmore, CEO ofDigi International, was named toAnalysts International’s board.Dunsmore has served as CEO ofDigi since 1999, and previouslyserved as vice president of accessfor Lucent Microelectronics.

TreeHouse Foods named DianaS. Ferguson, CFO of MerisantWorldwide, to its board, filling avacancy created by the resignationof Michelle R. Obama in May2007. Previously, Ferguson servedas CFO of Sara Lee Foodservice.

Carl Bass and Thomas Darcywere named to McAfee’s boardof directors. Bass is CEO ofAutodesk, and also serves on theboard of iRise. Darcy, formerexecutive vice president forstrategic projects at ScienceApplications International, wasalso CFO of the company formore than five years.

Kodak named Dennis F. Strigl,COO of Verizon Communications,to its board. He is the pastchairman of the board of CellularTelecommunications and InternetAssociation, and currentlyserves on the boards of VerizonWireless, Anadigics Inc., PNC FinancialServices Group, andPNC Bank. He is also the chairmanof the board of trustees ofCanisius College.

World Wrestling EntertainmentCOO Michael Sileck was namedto the board of Switch and DataFacilities, an internet exchangeand colocation services provider.Sileck will serve as a member ofthe company’s audit committeeand corporate governance andnominating committee. He is amember of the executive committeeof the WWE and serveson the company’s board.

Godfrey Sullivan was named toInformatica’s board. Currently adirector of Citrix Systems, Sullivanwas president and CEO ofHyperion Solutions until its acquisitionby Oracle last year.

Ruth G. Shaw, former presidentand CEO of Duke Power Co.,was named to the board of DTEEnergy, where she will serve onthe nuclear review committee.She is also a member of theboards of Dow Chemical andWachovia.

Superior Bancorp appointedMark A. Lee and Charles W.Roberts III to its board. Lee ispresident and CIO of Forest HillCapital, the company’s largestshareholder. Roberts is presidentof C.W. Roberts Contracting.

PepsiCo announced the electionof Ian M. Cook and Lloyd G.Trotter to its board of directors.Cook is president and CEO ofColgate-Palmolive, and Trotterrecently retired as vice chairmanof General Electric after a 37-year career there. He has joinedthe New York-based investmentfirm GenNx360 Capital Partners,of which GE is an investor, as aprincipal.

While James R. Ridings has announcedhis retirement as CEOof Craftmade International, alighting and ceiling fan companythat he founded in 1985, thecompany has asked him to stayon as chairman of the board. Hehas served as both chairman andCEO since 1986.

Lata Krishnan was named to theboard of SVB Financial Group.Krishnan, CFO of Shah CapitalPartners and president of theAmerican India Foundation, isalso a board member of theAmerican India Foundation,American Foundation for Chess,and the Commonwealth Club.

Coca-Cola nominated MuhtarKent, the company’s presidentand COO, to stand for electionas a director at the company’sannual meeting of shareholders.Kent has been named CEO ofthe company, replacing E.Neville Isdell, effective in July.

Retired Admiral Edmund P. Giambastiani,Jr. has been namedto Monster Worldwide’s board,increasing the overall number ofmembers to 10, of which 8 are independent.Giambastiani servedas the seventh vice chairman ofthe Joint Chiefs of Staff from2005 to 2007.

Quaterra Resources has namedTracy Stevenson chairman of theboard. Stevenson, a senior miningindustry executive, was withRio Tinto and affiliated companiesfor 26 years.

James Ledwith was named tothe board of Novatel Wireless.Ledwith, a certified public accountantand former partner atJ.H. Cohn, is currently a directorof publicly traded San DiegoTrust Bank, and a trustee of theSidney Kimmel Cancer Center.

Industrial Enterprises of America,an automotive aftermarketpackager and supplier, namedJames Margulies as interim CEOand CFO of the company, replacingJohn D. Mazzuto, whoresigned from both roles. Margulies,currently a principal ofthe Cleveland-based law firmMargulies and Levinson, has alsoagreed to serve on Industrial Enterprises’board.

Thomas L. Monahan III has beenelected to the board of directorsat Convergys, a relationshipmanagement company. Monahanhas been the CEO of theCorporate Executive Boardsince 2005 and was named chairmanearlier this year.

AuthenTec, a provider of fingerprintsensors and solutions, hasnamed SafeNet president andCOO Chris Fedde to its board.A 25-year veteran of the informationsecurity industry, Feddersucceeds Harris Corp.’s KentBuchanan on AuthenTec’s sixmemberboard.

Owens Corning has appointedDavid J. Lyon to its board. Lyonis a vice president of D.E. Shaw& Co., which owns more than 10percent of the company’s outstandingstock. He replacedMarc Sole, who recently steppeddown as senior vice president ofD.E. Shaw & Co.

Bernard Puckett was appointedto Skilled Healthcare’s board asan independent director and amember of the audit and compensationcommittees. He waspreviously chairman of OpenwaveSystems, as well as seniorvice president of strategy andbusiness development for IBM.He was also president and CEOof IBM’s mainframe business.

Equifax, a provider of employmentand income verificationand human resource outsourcingservices, has named MarkTempleton to its board. Templetonis currently president, CEO,and a director of Citrix Systems.

Canadian firm CV Technologiesappointed J. Douglas Gilpin andDavid Weyant to its board.Gilpin is a chartered accountantand former partner with KPMG.Weyant is vice president andgeneral counsel for the CalgaryHealth Region.

Korn/Ferry International appointedDebra J. Perry to itsboard. Perry, who previouslyworked for Moody’s Corporationfrom 1992 to 2004, was a seniormanaging director in the globalratings and research unit ofMoody’s Investors Service,where she oversaw the Americascorporate finance, leverage finance,and public finance departments.She is a board memberat Conseco and MBIA.

Presto Services has namedPradeep Jotwani, formerly asenior vice president of Hewlett-Packard, to its board. Jotwani,who was with HP for 25 years,currently serves as an adviser tostart-up companies and is on theadvisory board of the MarkkulaCenter of Applied Ethics at SantaClara University.

Soft-drink company Cott Corporationnamed Graham W. Savageto the company’s board. Heis chairman of Callisto Capital, aToronto-based private-equityfirm. He also serves on theboards of Sun-Times MediaGroup and Canadian Tire.

Former Dell CEO Kevin Rollinshas been named to the board atSears. Rollins stepped downfrom Dell earlier this year and iscurrently a senior adviser to theprivate investment firm TPGCapital. He also serves on theboard of Avaya, and is a memberMuhtar KentDebra Perryof the President’s LeadershipCouncil and the Marriott SchoolNational Advisory Council atBrigham Young University.

Hasbro named Kenneth A. Bronfin,president of Hearst InteractiveMedia, to the company’s board.He also sits on the board of severalHearst portfolio companies.

Alnylam Pharmaceuticals hasnamed Dr. Edward Scolnick toits board of directors and scientificadvisory board. Dr. Scolnickis the director of the psychiatryinitiative at the Broad Institute,and formerly was president ofMerck Research Laboratories.Currently, he serves on theboards of Millipore Corp. andpreviously served on the Foodand Drug Administration’s boardfrom 2000 to 2002.

Donald K. Cooper has beennamed to American Uranium’sboard. From 2000 until his retirementin 2007, Cooper served aspresident of Behre Dolbear &Co., an international mineral andindustry consulting firm. Currently,he is a senior associate, principal,and director of the company.Liz Claiborne has named KennethB. Gilman to its board. Hespent more than 25 years at specialtyretailer Limited Brands andwas CEO of Asbury AutomotiveGroup until he retired last year.

Choice Hotels International hasnamed Scott A. Renschler, a clinicalpsychologist, to its board.Renschler has served as a memberof the board of Realty InvestmentCo. since 1993, and hasalso served on the board ofCommonweal Foundation.

William K. Gerber has beennamed to Wolverine WorldWide’s board. Gerber previouslyserved as CFO of Kelly Services.Gerber also served as vice presidentof finance and corporatecontroller for The Limited. Heserves on the boards of AK Steeland Kaydon Corp.

Northstar Electronics namedTerrence McLeod and Gary J.Dinn to its board. McLeodserved for several years as an adviserto Northstar’s board andwas previously president ofOceanview Systems. Dinn hasprovided expertise to the company’soperating subsidiary,Northstar Technical, for morethan two years. He is chairman ofOceans Advance and presidentof M3 Technical.

E*Trade named former CitigroupCOO Robert Druskin toits board. He will chair the newlyformed finance and risk oversightcommittee, which will beactivated in June after the company’sannual meeting of stockholders.

Rough Ride for Ex-Dow Jones Director 

Earlier this year, formerDow Jones boardmember David Liagreed to pay $8.1 millionto settle charges asa result of insider-tradingallegations. Fromthere, things only gotworse: he was forcedto resign from his positionon Hong Kong’scabinet, known as theExecutive Council, dueto pressure stemmingfrom the settlement,even though he didnot admit guilt.

The Securities and Exchange Commission alleged that thecurrent chairman and CEO of Bank of East Asia gave a heads-upto a colleague last year about an unannounced bid for DowJones by Rupert Murdoch’s News Corp. The SEC reached a settlementfor a total of $24 million with Li and two other HongKong residents involved. Three colleagues purchased about $15million worth of Dow Jones securities at the time, and stood tomake about $8 million.

“This case makes clear that the SEC will move fast, and decisively,not only in the United States but around the world to protectinvestors from insider dealings and threats to fair and openmarkets,” SEC Chairman Christopher Cox said in a statement.

“Under the agreement with the SEC, I am not permitted tocomment upon the allegations made against me,” Li said in astatement. “As a result, I am not in a position to respond to thequestions that have been raised by concerned members of thepublic and the media. This has unavoidably brought pressure tothe CEO and the Executive Council.”

More bad news for Li: his Directors’ and Officers’ insurancepolicy won’t provide much help. “Typically, a D&O policy wouldcover the defense costs associated with an insider-trading investigationor proceeding by the SEC, but would not cover any fineslevied by the SEC,” says Timothy Burns, an attorney with HellerEhrman LLP. “Also, the SEC typically imposes, as a condition ofsettlement, that the alleged wrongdoer will not seek recoveryfrom insurance. This is intended to ensure that the fine detersfuture misconduct.” –M. P.

The study, Debunking the Myth of Runaway CEO Pay, finds thatincreases in CEO pay at companies included in the Dow index loosely mirror their financial performance. Forthe study, DolmattConnell looked at CEO base salaries, short- and long-termincentives, and total compensation levels ofrom 1997 to 2006.

During that time, CEO pay has grown at an annual compoundedrate of about 15.1 percent (an increase from $7.81 million in 1997 to $19.90 millionin 2006), while compounded total shareholder return has grown at about 12.1percent.

“Overall, the study illustrates that the large increases inCEO pay over the past 10 years have been driven by large increases in the size,profitability, and shareholder return of the companies that CEOs run,” said JackDolmat-Connell, president of DolmattConnell & Partners, in astatement. “CEO pay is not out of control. CEO Pay rises and falls with companyperformance, and American companies in general have performed well in recent years.”

Corporate governance expertsquestion whether a member of the family that is selling its stake in Dow Jonesto News Corp. belongs on the media conglomerate’s board at all.

“A board seat isn’t somethingto be given away,” said Charles Elson, director of the Weinberg Centerfor Corporate Governance at the University of Delaware. “It’sthere to monitor management for shareholder benefit.”

News Corp. confirmed on Wednesdaythat it is considering adding Natalie Bancroft, a 27-year-old who lives in Europe and has studied opera, as an outside director.

The Bancroft family missed adeadline to nominate a candidate, giving the ultimate choice to Chairman andChief Executive Rupert Murdoch, according to a report Wednesday The Wall Street Journal, which Dow Jonesowns.

News Corp struck a $5.6 billiondeal to buy Dow Jones this summer after months of negotiations with theBancrofts.

If appointed, Natalie Bancroftwould be the lone woman on the board, which includes former Spanish PresidentJose Maria Aznar and venture capitalist Thomas Perkins.

Do two-tiered voting arrangements amount to poor governance? We present two pieces of evidence that suggest the answer is yes. We tracked 253 dual-class firms that went public from 1990 to 1998 and compared them with 2,369 single-class firms that conducted initial public offerings during the same period. First, we asked whether the market values dual-class and single-class firms differently. The answer was a resounding yes.

Comparing price-to-earnings multiples between the two groups, we found that at the IPO date, and for at least the next five years, single-class firms trade at higher multiples than dual-class firms. The value gap for the average dual-class IPO in our sample was about $30 million.

Of course there are many factors that contribute to differences in P/E ratios across firms. For example, one might ask whether dual-class firms trade at lower P/E multiples because they tend to come from different industries than single-class IPOs (e.g., newspaper publishing rather than technology). Or perhaps dual-class P/E ratios are lower because the market expects these firms to grow more slowly, to invest less in research and development, or to earn lower profits.

Our statistical analysis demonstrates that although these factors are important, they cannot explain away the valuation differences. In short, holding all other factors constant, dual-class firms simply trade at lower prices relative to fundamentals than do single-class firms.

Naturally, this raises a second question: Why does the market assign lower valuations to duals? The simplest explanation would be that singles outperform duals over time. However, we found no evidence that single-class firms generate more cash flow than dual-class stocks. On average, the operating performance of both types of firms was similar, but there was considerable variation around the average. It is when performance deviated from the average, particularly when performance was poor and corporate governance matters most, that differences between singles and duals emerged.

Shake-up Protection
In a well-governed firm, what is supposed to happen when the company underperforms? If poor management is the cause, then it is the board’s responsibility to act, possibly by firing senior managers and hiring new ones. For the firms in our sample, we found 978 cases in which firms replaced their CEOs within five years of the IPO. For single-class firms, a CEO’s departure is preceded by stock returns that trail the market by roughly 17 percent. For dual-class firms, there was no pronounced abnormality in stock returns leading to the CEO’s departure.

However, this pattern reversed when we looked at stock returns preceding takeovers. For single-class firms that are ultimately acquired by other companies, stock returns leading up to the takeover more or less tracked the market. But for dual-class firms, takeovers were preceded by stock returns that trailed the market by almost 30 percent.

What does this tell us? First, CEOs of single-class companies do not hold onto their jobs for long if they are not delivering value for investors. Below-market returns lead to management changes. At dual-class firms, managers enjoy the protection of superior voting power, so there is no correlation between poor stock returns and CEO turnover. However, if returns are low enough, an outside investor may come in and offer a substantial premium, effectively buying out the management team’s voting power.

Murdoch’s Premium Bid
That brings us back to Dow Jones. From January 2004 to April 2007, Dow Jones shares trailed the S&P 500 by roughly 70 percent. On May 1, Rupert Murdoch offered Dow Jones shareholders a 65 percent premium over the April 30 trading price. That offer seemed unambiguously good to most Dow Jones shareholders, but it was the Bancrofts who ultimately determined whether Murdoch’s offer would succeed or fail. So it goes with dual-class companies.

Just last year, Emmis Communications’ CEO, Jeff Smulyan, offered $15.25 per share to buy the 83 percent of the company he didn’t already own. Institutional investors complained that Smulyan’s offer was far too low, but in making the offer, Smulyan made it abundantly clear that he would not entertain competing offers from other bidders. With a mere 17 percent of the stock, Smulyan was in the catbird seat because he controlled a majority of votes through a dual-class stock arrangement.

The two-tiered structure is still a common fixture of today’s IPOs. Google used it when it went public in 2004. Could the search giant’s stock have performed even better without it?     
For current or prospective directors of dual-class firms, we offer the following advice: First, if possible, work to eliminate the dual-class voting structure. In our study, firms that rescinded the superior voting rights of Class B shares experienced an immediate value gain of at least 5 percent, which we believe is almost certainly an understatement of the ultimate effect of switching from dual- to single-class stock. Second, if the dual-class structure cannot be eliminated, work to ensure that other mechanisms are in place to align the interests of managers and outside shareholders. Equity-linked compensation plans can help, but only if they expose managers to both the upside and downside risks that shareholders face.