Looking across a global sample of 1,600 companies, the governance ratings study conducted by GovernanceMetrics International (GMI) found only 1% of companies received a perfect score of 600. However, those companies were heavily concentrated in the United States, with 15 of the top 17 companies domiciled stateside.
Companies in the United States – which comprise nealry two-thirds (62%) of the GMI universe – were in the top three in governance among companies based in 15 different countries. Overall, US companies trailed only firms in Canada and the United Kingdom, but were ahead of companies located in Australia, number four on the list.
At the other end of the spectrum was Japan, ranked at the bottom, with 10 of its companies receiving the lowest score for corporate governance. France, Switzerland and Spain rounded out the lower level of rankings.
Noticeable differences were found in how companies performed in particular categories. For example, in the area of potential dilution, Japanese companies scored well since stock options are generally not a feature of compensation practices in that country. On the other hand, of the 483 companies in the ratings universe with potential options dilution of 15% or more, all but seven were American.
In financial disclosure, Japanese and European companies tended to score lower than US, Canadian, UK and Australian companies because of fewer disclosure requirements.
Overall though, American companies fared well. The 15 American companies with perfect scores included:
- Allstate Corp.
- ChevronTexaco Corporation
- Chubb Corporation
- Colgate-Palmolive Co.
- E.I. DuPont de Nemours & Co.
- Eastman Kodak Co.
- Exxon Mobil Corp.
- Gillette Company
- McDonald’s Corp.
- PepsiCo Inc.
- Petroleum Corporation
- Pfizer Inc.
- Pinnacle West Capital
- Praxair Inc.
- SLM Corporation
Canadian firms Alcan Inc. and BCE Inc. filled out the other two top scorer spots.
Broken down per industry, the highest scorers were Utilities, Energy and Insurance, with Construction, Autos and Media at the opposite end of the scale. More regulated industries tended to have better governance practices overall, the study found.
Not All Clear
However, investors in United States companies still need to retain a discerning eye, according to Gavin Anderson, chief executive of New York-based GMI. Specifically, Anderson points to U.S. mortgage finance company Freddie Mac as a red flag. Freddie Mac’s low score comes on the heels of the company’s admission of massaging earnings and breaching accounting principles.
Much of the United States’ success might be attributed to the climate of corporate scandals in the US. This has driven lawmakers to craft new governance and sparked a boom in the corporate governance business, a development critics charge has come too late in the game.
“It would have been interesting to see how US companies would have done if we’d done this a year ago. As a matter of fact, the conventional wisdom was that governance was best in the UK,” according to Gavin Anderson, chief executive of New York-based GMI in a Reuters interview.
GMI’s rating system incorporates more than 600 data points across seven broad categories of analysis, including board accountability, disclosure, executive compensation, shareholder rights, ownership base, takeover provisions and corporate behavior and social responsibility.
You can find out more at http://www.gmiratings.com/