Good governance pays, even when it slips under the radar.
“Corporate governance is not acknowledged enough when it works well, though it is frequently assailed when it fails dramatically,” says Michael O’Sullivan, Credit Suisse’s Chief Investment Officer, International Wealth Management, in a new report launched in Davos by the Credit Suisse Research Institute.
An independent board, strong controls, transparency and shareholder rights generally increase market value. But precise impacts of ‘good governance’ can be hard to pin down. Exact linkages to share price are not often obvious, governance is more important in some periods than in others, and it affects some industries more than others.
An examination of some 1,200 companies by Credit Suisse analysts Giles Keating and Antonios Koutsoukis shows that in some sectors a focus on corporate governance can reward investors with market outperformance. Usually it’s a few-points advantage in valuation, which can make a significant difference over time.
Some industries are more sensitive to good practice – namely telecoms, basic materials, oil and gas, and financials. As Credit Suisse Group’s Chairman Urs Rohner notes: “Robust corporate governance is a must in any industry, and for banks in particular.