Good Governance May Not Equal Best Bottom-Line Performance

by TK Kerstetter for Boardmember, March 8th, 2011.

I expect this blog to have its share of controversy, but what’s an informative read without a little excitement? It all started for me when I had a chance to review Corporate Board Member’s article in the latest issue titled “The Bottom Line on Good Governance.” In this article, our editors and writers took a look at 10 large companies who have performed at the top of their class in bottom line performance and shareholder value and then compared those top performers to a list of governance practices and issues that are often contested and discussed by today’s companies and investors. This analysis resulted in a matrix that attempted to define a pattern of governance practices inherent in all top-performing companies over the last five years. As the chart shows, CBM looked at nine governance categories ranging from board size to majority voting. And the results… will be shared following this important message.

The CBM editors, writers, in addition to the author of this blog, recognize that this is not an in-depth study into the cause and effect of good governance to the bottom line of today’s companies, and without controlling all the variables associated with performance, no viable statistical conclusions can be drawn. Also before any followers get too wacky about any unstated references that good corporate governance isn’t an important exercise for all boards to practice… nothing could be further from the truth. We support all the benefits and values of companies following good corporate governance. What we are trying to get our arms around is the theory that 1) board success can be measured by checking the boxes, and 2) that there one governance formula or list of approved practices that truly fits all companies reaching for the holy grail of bottom-line performance. Finally, our aim was to determine, once the boardroom doors close the rest of the world out of the affairs of the company, what are the most important characteristics that helps boards ensure long-term, bottom-line success and growth of shareholder value? A lofty set of goals! (continue reading… )

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