Governance concerns take a backseat at healthy firms.
While there is broad agreement among institutional investors about the importance of shareholder rights, effective boards, and efficient executive compensation and succession, the true economic value of good governance and effectiveness of shareholder activism are still matters of debate. Mutual fund investors tend to believe there is no one size fits all approach to corporate governance and are therefore disinclined to impose any form of best practices model.
Second, while investors may refer to corporate governance in their monitoring and intervention, actions relate far more frequently to poor performance. Except in highly publicized cases involving allegations of excessive executive compensation, dysfunctional boards, or fraud, it is generally only after firms are identified as troubled or long term underperformers that governance practices are given more than routine scrutiny.
Third, institutional investors view good governance as most valuable when a firm or its industry is in trouble. Despite somewhat differing views on the overall value of good governance practices, all investors in the survey sample agreed that having an independent board, solid succession plans, and shareholder rights unfettered by restrictive anti-takeover measures helps assure the fastest possible recovery for the firm and share values.
Although few express any doubt that good governance can turn around poorly performing firms, it is discouraging that more investors aren't willing to be proactive.
with the Corporate Governance NETwork!
Contact: 
jm@corpgov.net
All material on the Corporate Governance site is copyright © since 1995 by Corporate Governance and James McRitchie except where otherwise indicated. All rights reserved.
Back to the top