The country’s economic crisis has shed a bright spotlight on the management of companies by chief executive officers and raised questions relating to CEO performance.

Billions in taxpayers’ money have been given to auto companies and financial institutions, including $170 billion to failed insurance conglomerate AIG.

In March, when AIG distributed roughly $165 million in bonuses to employees, angry public outcries were heard and demonstrations were seen nationwide.

Lawmakers from both parties expressed their anger over AIG’s behavior. Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, said, “It’s time for us to assert our ownership rights.”

The wrath from both the public and lawmakers will drive a new wave of regulations, and the Treasury Department unveiled proposed legislation in late March that would give it broad powers to shut down big financial institutions such as AIG. While some regulation is welcome, the government should be cautious to make sure that any legislation is both practical and realistic.

Any legislation enacted will increase directors’ responsibilities. The way some boards function must change. This is especially true in cases where work is not distributed, especially when it comes to one person in a company having too much power. This, in particular, has led to the downfall of many corporations.

Power needs to be balanced for board integrity to be ensured. The company CEO reports to the board chairman. The board model for many U.S. companies where one individual serves as chairman, president and chief executive of the company needs to change. This governance model gives too much responsibility to one person.

The better governance model is having an independent director serve as the chairman of the board, and the president and the CEO of the company report to the board and the chair.

This model allows the board to maintain the appropriate level of accountability. Separating the powers of chairman and CEO is vital for a board to function effectively and for the good of the company and its shareholders.

Neville Dumasia, head of governance, risk and compliance at KPMG, was recently quoted as saying, “The concept of CEO and board chair separation is well accepted in Europe, and American companies are steadily moving in that direction. This would bring a better balance in the boardroom.”

Independent directors offer independent judgment. One of the 10 agreed-upon principles to strengthen corporate governance of U.S. public companies, according to the National Association of Corporate Directors, is independent board leadership. Governance structures and practices should be designed to provide some form of leadership for the board distinct from management. As the board oversees management, it must function distinct from management with objective judgment either from an independent chairman or a designated lead director. Independent directors can and should provide healthy questioning of management assumptions, not mistrust management.

Directors should have clear responsibilities. Governance is most effective when directors know what is expected of them and what their responsibilities are. Among their most important responsibilities is to ask the CEO questions. I wonder how many corporate governance disasters could have been avoided if directors had demanded answers from their CEOs on issues that seemed questionable.

Directors should act proactively and be prepared for any crisis. Could the directors of a decade ago stimulated more innovation from the auto companies and anticipated energy needs? Would those innovations have manifested themselves in new products and new product design? Could they have done more to help the country stay competitive? It is this kind of thought leadership that directors need to provide.

Good corporate governance today is a balancing act that is necessary to represent the interests of the shareholders. Most boards today know that they need to change their procedures to increase their effectiveness. It is a healthy and wise exercise to conduct a comprehensive quantitative and qualitative assessment to determine what’s working, what’s not and how to provide the best shareholder and management oversight.

Being a director today is tough work. According to Mike Kelly, of executive search firm Michael Kelly Associates in Remson, N.J., “Being on a board is one of the toughest things you will do in your career. You need conviction, intelligence and the ability to get along with people.” And I would add independent judgment.

©2009, All rights reserved. Stuart R. Levine is chairman and chief executive of Stuart Levine & Associates, an international consulting and leadership development company.