| Survey shows strong link between effective governance and corporate reputation
The survey of more than 200 high-net-worth investors and professional financial advisors, administered by independent research firm Affluent Dynamics, revealed that clear majorities (61 percent of financial advisors and 64 percent of high-net-worth individuals) say that boards operate in the interests of management, rather than those of shareholders. Based on these findings, corporations have significant work to do to reassure investors and their advisors about the effectiveness and quality of corporate governance practices and whether these practices are appropriately safeguarding corporate reputation, which both groups consider to be crucial in the creation of shareholder value. More specific findings of the survey follow: - A strong link is seen between effective governance and corporate reputation. The overwhelming majority (87 percent of advisors and 88 percent of investors) see a close connection between effective corporate governance and a company's reputation. Thus, the perception of boards as operating in management's interests - not shareholders' - is problematic for corporate reputation, as boards' alignment with shareholders is a fundamental corporate governance issue. - Both advisors and investors ascribe significantly more market value to corporate reputation than they do to board quality. Eighty-two percent and 71 percent of financial advisors and high-net-worth investors respectively believe reputation accounts for more than 20 percent of a company's market value, compared to only 29 percent and 20 percent respectively who think boards account for more than 20 percent of market value. "Given Wall Street's increased focus on improving corporate governance and having more effective risk management programs in place, corporate boards concerned with an enterprise-wide approach to risk management should heed the findings of this study," said Jack Dunn, president and chief executive officer of FTI Consulting. "Reputation risk is clearly an important component of overall enterprise risk, and clearly the perception of the board as acting in the interest of management rather than shareholders represents a significant enterprise risk. The gap between perception and reality is not always very significant, so ignoring the connection between the perception of a company's governance practices and its link to a company's overall corporate reputation can be a serious omission." Five years later, Sarbanes-Oxley is perceived to have had a limited impact in driving improved corporate governance. Despite the time and cost invested in Sarbanes-Oxley compliance since the law's passing in 2002, a relatively small percentage of respondents (13 percent of financial advisors; 12 percent of high-net-worth investors) believe that corporate governance practices have improved "a great deal" since the act's passage, while 45 percent of financial advisors and 43 percent of high-net worth individuals think that post-Sarbox governance practices have improved only "a moderate amount." These findings track with a survey of institutional investors conducted by FD just following Sarbox's passage, which showed that a plurality of respondents (40 percent) did not think the bill's provisions were adequate to significantly strengthen corporate accountability.
•Date: 19th October 2007• Region: World •Type: Article •Topic: Operational risk
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