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Corporate governance: The continuing revolution
A new white paper on corporate governance written in cooperation with KPMG; includes results of a survey of more than 300 senior managers around the world.
Boardrooms are wielding more clout, investors are becoming more demanding and senior company managers have become more conscious of the key issues facing their business. These are all trends resulting from the sharper focus on corporate governance in the business world and identified in Corporate governance: Business under scrutiny, a new white paper from the Economist Intelligence Unit published today and sponsored by KPMG.
The paper argues that corporate governance is still a front-burner issue for senior executives. In a survey of 310 senior managers around the world, executives reported that top management is spending more time on governance now than it did 12 months ago, and will be devoting even more attention to the issue in 12 months' time.
All this effort has not been in vain:
- A majority of survey respondents believe that senior managers have a better grasp of the business realities within their company as a result of the governance focus. And over 60% think that governance procedures have a positive impact on the ability of organisations to form alliances and partnerships. Research for this report shows that the largest companies are becoming more transparent in their provision of information.
- Investors are getting pushier. Almost three-quarters of the survey respondents agreed that shareholders are more active now than they were before in pursuit of information. Cynics argue that a rise in stock prices will quickly erase worthy concerns over governance, but public rows over executive compensation at stormy shareholder meetings point in the opposite direction.
- Boards are becoming more powerful. Over half of the executives we surveyed agreed that the board wields more clout now than it did before. But as the responsibilities of the board have increased, so the hunt for top-quality directors has become more energetic. Good non-executive directors are harder and more expensive to recruit, in the view of almost two-thirds of the survey group.
"Beneath the surface of business, the dynamics of the relationship between boards, managers and shareholders are changing-boards are becoming more powerful, shareholders more aggressive, managers more circumspect," says Daniel Franklin, Editorial Director for the Economist Intelligence Unit.
"It is clear that companies are beginning to realise the tangible benefits of governance reforms. Those at the vanguard are beginning to exploit this as a point of competitive advantage," says Alistair Johnston, Head of Global Markets at KPMG.
The future focus
The white paper identifies three areas of potential focus for the governance issue over the next 12 months:
- The measurement problem. Good governance is still hard to gauge-complying with all the rules doesn't necessarily mean a firm is being well run. Organisations that rate governance need to develop more meaningful and measurable yardsticks and firms need to communicate their governance processes even more effectively. Managers themselves are finding it hard to gauge exactly what the reforms mean precisely for their companies. Asked whether companies are better governed now than they were before Enron became a household name, the largest group of respondents - 45% of the executives - said that the was no way of telling.
- Japan. Whereas the wounds inflicted on the reputation of US business have started to heal, the survey group clearly pegs Japan as the country with furthest to go in improving standards of governance; our research into corporate transparency reinforces the point, with Japanese firms making only marginal improvements since last year.
- Executive pay. Compensation is the last area most companies have wanted to touch as they refurbish their governance platforms. Yet the appearance of greed at the top may be the easiest way to damage a corporate reputation in the current climate. Pay that properly relates to performance is likely to be the next, and most volatile, frontier in shareholder activism.
Corporate governance: Business under scrutiny
is available free of charge from our Executive Briefing website (http://eb.eiu.com)
For further information please contact:
Economist Intelligence Unit
New York: Louisa Vinton +1 212 554 0656 or louisavinton@eiu.com
London: Sheila Allen +44 20 7830 1010 or sheilaallen@eiu.com
KPMG
London: Gavin Houlgate +44 20 7694 3902 or gavin.houlgate@kpmg.co.uk
Sydney: Kate Dennis +61 (02) 9335 7360 katedennis@kpmg.com.au
About the Economist Intelligence Unit
The Economist Intelligence Unit is the business information arm of The Economist Group, publisher of The Economist. Through our global network of over 500 analysts, we continuously assess and forecast political, economic and business conditions in 195 countries. As the world's leading provider of country intelligence, we help executives make better business decisions by providing timely, reliable and impartial analysis on worldwide market trends and business strategies.
About KPMG:
KPMG is the global network of professional services firms whose aim is to turn understanding of information, industries, and business trends into value. With nearly 100,000 people worldwide, KPMG member firms provide audit and risk advisory, tax and legal, and financial advisory services from more than 750 cities in 150 countries.
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