US Companies at Top in Corporate Governance

GovernanceMetrics International is a company that advertises itself as “the world's first global corporate governance ratings agency.” The purpose of such ratings is debatable, but the company does have a significant depth of knowledge about corporate governance. It has just put out a study that says US businesses offer investors, as a general rule, better corporate governance than any others. The Sarbanes-Oxley Act, about which so many top executives whine, has helped American’ firms overtake those in the UK and Canada.

Because of the Act, the report says that 95% of rated US firms have a qualified financial expert on the audit committee (and one wonders what the other 5% are thinking), and 83% of audit committees engage in self-evaluations. Also, “73% have hiring policies concerning employees or former employees of auditor firms,” compared to about 1 in 6 back in 2002. And just over half, up from 8% in 2002, rotate their auditor personnel.

The legislation has also bred some voluntary improvements in US corporate governance. Nine out of ten rated firms in the US, up from 35% in 2002, have adopted board evaluation policies; 4 out of 5 offer director training, up from 14%; and only 11% of rated firms pay auditors fees for non-audit work, down from 48% in 2002.

At the top of the table, after the US, are Canada, the UK, Australia, and the Netherlands. At the other end, Greek firms get the lowest marks, with Japanese only slightly better, then Belgian, Portuguese and Danish firms bunched just above them.

So what? Well, those with GMI’s highest rating of 10 (which includes 3M, Coca Cola, and Dow Chemical) outperformed the S&P 500 in the latest one-, three- and five-year periods measured by total returns. Gavin Anderson, GMI’s CEO said, “This suggests a correlation between corporate governance practices and portfolio returns when measured across a number of variables and across a multi-year period.” Or if one prefers, honest business leaders make more money for their shareholders.



© Copyright 2004 by The Kensington Review, J. Myhre, Editor. No part of this publication may be reproduced without written consent.



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