Home
About us
Projects
Publications
Newsletters
Conferences
Media
News
Contact
Search
Login
News
Search
Sign up for Newsletter
27 February 2008
The Guardian: Poor governance reduces profits, says ABI
Source: www.theguardian.co.uk
· Insurers group warned on Northern Rock four times
· Firms with best practice have 18% higher returns
Jill Treanor The Guardian,
Companies that repeatedly fall out with their shareholders over executive pay and boardroom structure perform less well than those whose corporate governance practices are supported by investors, according to research published today by a leading shareholder body.
The Association of British Insurers asserts that companies with the best corporate governance records produce returns 18% higher than those with poor governance over a four-year period.
It provides Northern Rock as an example where worries about corporate governance were reflected in poor performance. The ABI alerted shareholders to concerns about the size of bonuses of executives at the bank for four consecutive years before its business model imploded and led to its nationalisation.
Peter Montagnon, head of investment affairs at the ABI, said: "It seemed like an over-generous approach to bonuses." With hindsight, he added, it demonstrated that the balance of power on the board between the executives and the non-executives was "not quite right". The ABI issued four consecutive "amber-top" warnings over Northern Rock''s annual report for the financial years 2003, 2004, 2005 and 2006 to alert shareholders.
The ABI, whose members control about 20% of the stockmarket, was reluctant to provide other specific examples to illustrate that its research justifies the importance of corporate governance to company performance. Montagnon admitted that if the detailed research had found no link between corporate governance and performance "it would have caused us to stop to ask what we were doing.
"Our members'' interest in governance has always been driven by their desire to generate value for policyholders over time. The results confirm our belief that good governance produces better returns with less volatility - something that long-term savers need," he added.
The analysis covers 241 companies with the best and worse corporate governance records. The ABI used data compiled by its institutional voting information service, which analyses company reports and scores them in three ways: red top, to show its highest level of concerns; amber top, for serious concerns, and blue to give the all clear.
The research established that governance drives performance rather than the other way round, and found lags of two to three years in the relationship between poor governance and inferior performance. Montagnon pointed out that the research shows that the balance between non-executives and executives is important. More non-executives improve performance, although American-style boards, where there are considerably more non-executives than executives, are linked to poor profitability.
Companies that have breached rules on pre-emption rights, which require shares to be offered to existing investors during new share issues, show a negative impact on their performance. The ABI research highlights an annual decrease of three percentage points of return on assets, on an industry-adjusted basis.
The number of red-top alerts received by the company during the period is "strongly and negatively correlated with its performance". For each additional year the company receives a red top, its return on assets falls by about one percentage point a year.
Proving a link between good corporate governance and performance has exercised professionals and executives. The ABI acknowledges that empirical evidence has been mixed in the past, but argues that its results are more conclusive because its measures of corporate governance are more comprehensive than those used in other surveys.
News
29 February 2008
Bloomberg: Climate Risk Disclosure Gains Momentum, Report Says (Update1)
28 February 2008
Norwegian Petroleum Fund Executive to witness in US Congress - Oljefond-topp skal vitne i Kongressen
27 February 2008
The Guardian: Poor governance reduces profits, says ABI
27 February 2008
Good governance gives 18% better returns over 5 years - report
27 February 2008
Finacial Times: Good governance pays better than bad
27 February 2008
BusinessWeek: Investors Still Don''t Get Accountability
26 February 2008
Finnish Press Recognises SIRP Research on SRI and Responsible Investments
25 February 2008
Financial Times: FT REPORT - FUND MANAGEMENT: BT trustee leads UN campaign
24 February 2008
Responsible Businesses are More Competitive
20 February 2008
Gore Warns on ''Subprime Carbon'' Industry
[
1
][
2
][
3
][
4
][
5
][
6
][
7
][
8
][
9
][
10
][
11
][
12
][
13
][
14
][
15
][
16
][
17
][
18
][
19
][
20
][
21
][
22
][
23
][
24
][
25
][
26
][
27
][
28
][
29
][
30
][
31
][
32
][
33
][
34
][
35
][
36
][
37
][
38
][
39
][
40
][
41
][
42
][
43
][
44
][
45
][
46
][
47
][
48
][
49
][
50
][
51
][
52
][
53
][
54
][
55
][
56
][
57
][
58
][
59
][
60
][
61
][
62
][
63
][
64
][
65
][
66
][
67
][
68
][
69
][
70
][
71
][
72
][
73
][
74
][
75
][
76
][
77
][
78
][
79
][
80
][
81
][
82
][
83
][
84
][
85
][
86
][
87
][
88
][
89
][
90
][
91
][
92
][
93
][
94
][
95
][
96
][
97
][
98
][
99
][
100
][
101
][
102
][
103
][
104
][
105
][
106
][
107
][
108
][
109
][
110
][
111
][
112
][
113
][
114
][
115
][
116
][
117
][
118
][
119
][
120
][
121
][
122
][
123
][
124
][
125
][
126
][
127
][
128
][
129
][
130
][
131
][
132
][
133
][
134
][
135
][
136
]
Sustainable Investment Research Platform
Provided by Webforum