Public companies, like republics, end up with the leaders they deserve.
I think the more interesting question is, "Why do boards of directors hire and overpay mediocre CEOs who actively destroy shareholder value?" And why do the shareholders elect board members who do this?
A strong antidote is to a) pay board members minimal cash compensation for their duties and b) ensure board members have a significant portion of their net worth invested in the company they oversee. This rather simply aligns board members’ interests with that of other shareholders. Sitting on a board should not be a cushy job -- it should be a privilege to oversee the management team responsible for making you richer and richer. If enough board members own chunks of the company, then bring in "outsiders" for their perspectives, but always make sure the board collectively has enough skin in the game.
With respect to compensation, I frequently see executive pay associated with bullshitty metrics that are not tied to owners’ total returns or increasing the enterprise’s per-share intrinsic value. When executives are compensated with stock, the cost to owners (share dilution) is frequently obfuscated in the financial reports, or considered income through the use of legal but creative accounting. (Adobe and others were notorious for this chicanery before the dot-com bubble imploded.)
When I consider purchasing shares, I always look at "corporate governance," CEO attitude, and board composition as important qualitative indicators of quality. Frankly I’m shocked by the number of publicly traded enterprises that retain significant earnings, and then piss the money away on failed acquisitions, ostentatious headquarters or skyscrapers, or, in the case of Bethlehem Steel before the bottom fell out of the industry, three separate corporate golf courses -- one for management, middle management, and employees.
This is one of the reasons I’m fond of dividends: I don’t trust many CEOs to smartly allocate capital to generate satisfactory rates of return. It takes a special sort of person to either sit on cash for extended periods until a truly outstanding opportunity presents itself, or just admit that the enterprise has exhausted sensible options for capital redeployment, so time to bust out the dividends and share repurchases.
The topic of corporate governance seems to be in vogue at the moment. Just last week, several CEOs and asset management firms released an open letter advocating for public companies to adopt "commonsense" governance principles . And the large asset management firms like Vanguard are starting to become more vocal about how the companies they own are managed, if this letter is any indication . Vanguard and other "passive" asset management firms have enough weight (literally trillions of dollars under management) to force change, and boards know it.