Outrage is what people feel when they demonstrate and riot, not when they sip a beer and complain about the latest boondoggle. And a president isn’t doing anything about a problem when the number of loopholes exceeds the highest prime number.

I expect John and Jane Public to be angry at Wall Street because many corporate executives make more in an hour or two than the average American earns in a year, especially after corporate America eviscerated the middle class by sending so many decent-paying jobs overseas. Further, they feel incensed at corporate America because the number of abuses and scandals approaches the number of droplets in the oceans and because the current calamity is attributed to Wall Street. (Americans unfortunately don’t understand that the Fed has also played a major role in this recession because it created the huge asset bubbles from its policy to keep interest rates idiotically low.)

But this isn’t outrage. Not even close. I’ll leave it to future sociologists to study why Americans are so complacent, maybe even fatalistic. My hypothesis is that most Americans are deluded into thinking that Big Brother will protect them, restore economic prosperity, and bring justice to the bad guys. They have much to learn!

Unfortunately, government is part of the problem. Both the Clinton and Bush administrations contributed to the crisis by appointing to the Fed men who advanced foolish strategies. Alan Greenspan and Ben Bernanke showed little long-term thinking when their low-interest policies created asset bubbles that have burst recently. Asset bubbles feel good as prices rise, but economic law demands a return to earth sooner or later.

In addition, President Bush appointed Harvey Pitt and Christopher Cox to lead the SEC, and they proved to be among the worst SEC chairmen ever as they enabled numerous accounting scandals and dramatically increased the powers of corporate executives and destroyed many effectual aspects of corporate governance. When you give CEOs virtually absolute power, Lord Acton reminds us that we should expect them to be absolutely corrupted.

I am willing to give Team Obama some time to see what they will do, but the initial dialog on executive compensation is disheartening. While their words appear to be a strong antidote to the ills of management, it is a cynical solution as they know that the real impact will be nil. The measures are so toothless that they not only don’t have any bite, they also don’t have any growl. At most they are the cat’s meow.

President Obama’s proposal would cap executive cash pay to $500,000 for the bad boys on Wall Street, limit golden parachutes, and require a nonbinding vote by the board of directors. This proposal is silly for it does so little. While it caps executive pay, it allows unlimited “restricted” stock similar to stock options. Banks might just substitute lots of these shares of stock for cash, and the managers will be just as happy. A nonbinding vote is harebrained as managers can thumb their noses at shareholders if the vote attempts to rein in their remuneration.

Further, what little is in the proposal can be gotten around. Business can transact with other corporations and have others pay their managers. Firms might create consulting arrangements for the managers and pay them consulting fees over and beyond their compensation. Corporations could create interlocking directorates with other corporations and pay them directors’ fees in addition to their compensation. They might even outsource the management operations to those outside the organization, for the caps wouldn’t apply to them. I am sure that corporate America has these and dozens of other ways to immunize the executives from such pay limits.

If President Obama and his administration really mean business, there are some other actions that they can take. They could enforce corporate laws; they could force the separation of CEO and chairman positions; they could empower shareholders; and they could criminalize director irresponsibility when it comes to management compensation.

Of prime importance is the enforcement of current laws. We have too many top executives who commit fraud and carry out accounting scandals to cover up their frauds. Let’s do something to reduce the corruption.

For example, Kristin Davis ran a prostitution business and now claims that many of her clients were Wall Street executives. Further, she asserts that these men used corporate credit cards to pay for the services. When she provides evidence in the form of credit card receipts, why isn’t the government enforcing the laws against larceny?

Obama’s administration should also require business enterprises to separate the position of chairman of the board from the CEO position. The board represents the shareholders and, as such, it ought to supervise and control the activities and the proposals of managers. The board cannot function very effectively for these purposes if the board is populated with the top executives.

A number of corporate scandals occurred in Great Britain in the 1980s, and the British formed a commission to study how to combat this evil. The Cadbury Report (named after the chair of the commission) recommended the separation of the CEO and the board chairman, and the British adopted this recommendation. Since then, they have experienced fewer corporate scandals, thereby proving the utility of this proposal.

The administration should also empower shareholders to vote. Forget the asinine nonbinding feature favored by the current administration; instead, let’s give the owners of the firm the freedom to approve or disapprove management compensation schemes. I find it amusing that we call ourselves a capitalistic society but so often we enervate the powers of the shareholders.

The SEC had several chances in recent years to empower owners to regain control over their firms, but instead the SEC stood in the way. Oh, the irony that the organization which purportedly exists for the protection of investors actually obstructs investor-owners from controlling their own firm!

Let’s also criminalize directors who do nothing to prevent corporate frauds or accounting scandals. They are representatives of the shareholders; as such, they must protect the interests of shareholders rather than assist managers to bilk shareholders out of their investments.

If Obama wants to score political points while simultaneously holding out his hands for future contributions from America’s wealthy managers, then he should continue to call for a cap of executive compensation. However, if this administration desires to reform corporate America, then let’s have some legislation with real teeth. No more meows.

This essay reflects the opinion of the author and not necessarily the opinion of The Pennsylvania State University.

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J. EDWARD KETZ is accounting professor at The Pennsylvania State University. Dr. Ketz's teaching and research interests focus on financial accounting, accounting information systems, and accounting ethics. He is the author of Hidden Financial Risk, which explores the causes of recent accounting scandals. He also has edited Accounting Ethics, a four-volume set that explores ethical thought in accounting since the Great Depression and across several countries. He is the co-author of a monograph, Fair Value Measurements: Valuation Principles and Auditing Techniques (with Mark Zyla, Managing Director, Acuitas, Inc.) published by BNA in 2007.