Subject
Poor governance linked to poor performance
Companies that breach
corporate governance best practice tend to be bad investments, a study by the
Association of British Insurers (ABI) has
found. The study discovered that of the 14 companies receiving two or more ABI red
top warnings for breaches of the Combined Code over the last three years, 11
underperformed their sector. Four of these companies underperformed their peers
by over 50%, the worst by 62%.
Furthermore, these 14
companies showed a boardroom preponderance of executive as opposed to
non-executive directors. Although most of the sample are smaller companies
outside the FTSE 350, and are therefore not subject to the Code’s recommendation
for at least half the board to comprise of independent non-executive directors,
12 did not meet the smaller companies’ requirement for at least two: nine had no
independent non-executive director, and three had only one.
Peter Montagnon, ABI director
of investment affairs, said “Our study … shows that a persistent imbalance in
board composition tends to go hand-in-hand with a reduced ability to create
value”.
However,
The Guardian’s Julia Finch (15
February) emphasised that the size of the ABI’s sample is only 14 companies, and
suggested more work is needed.
Links
Association of British Insurers
The Guardian
March 2007 |
