US - An overwhelming majority of North American institutions say they value fuller disclosure in corporate financial statements above all else when it comes to the most important governance initiatives corporations can undertake.
In contrast, nearly a third of the corporations say they have not adopted more comprehensive disclosure practices and have no plans to do so.
In another key governance area, guaranteeing the independence of boards of directors, which most institutions say is likewise important, companies are even less responsive, with 77% saying they have neither instituted such a change nor plan to.
These are key findings of a recent Greenwich Associates survey in which more than 100 institutional investors and corporate executives in the US and Canada were asked about corporate governance concerns today.
“It’s very possible these corporations we spoke to are all solid citizens who have been doing the right thing for years,” Greenwich Associates consultant Jay Bennett said.
“But they need to bear in mind the attitude of institutional investors overall is that corporations haven’t been doing enough, and now more than ever for corporations, it is the institutional investor who is determining your stock price. Corporations may need to push the envelope here.”
Of the institutions surveyed, 58% hold over US$10bn in assets, and close to half over US$20bn. Total assets under management represented by survey respondents was well over half a trillion dollars.
Four fifths of institutions said it is critical to them that a company discloses important details in the footnotes of their financial statements, and 57% say companies need to have a majority of independent directors on their boards.
Further, 47% name independent executive compensation committees, 33% name expensed stock options, and 29% name CEO certification of financial statements as key corporate governance initiatives.
Both corporations and institutions do agree companies are adopting more conservative accounting practices that will meaningfully impact reported earnings, and that the emphasis on corporate governance will be sustained beyond the next 12-24 months.
Two-thirds of corporations, and close to half of institutions, disagreed that sell-side analysts have been unfairly made the scapegoats for investors’ losses, suggesting that they blame analysts at least in part for troubles in the North American markets.
The survey was conducted with 62 senior finance executives at corporations and 49 equity investment professionals at buy-side institutions in the US and Canada.
*Insight Investment, the asset manager of HBOS, has called for companies to comply with internationally recognised business principles with regard to their global activities, while the OECD has launched a drive to strengthen corporate governance practices world wide.
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