Good governance = good investment returns – GSJBW
By Oliver Wagg 1/5/2008 |
The stock markets may have been volatile of late, but companies with good governance records have shown significant resilience, according to research released by Goldman Sachs JB Were (GSJBW).
“It makes intuitive sense that the lower risk attributes offered by better governed companies would perform well in such a volatile period, where investors became increasingly risk averse,” Andrew Gray, GSJBW said in an April 21 research note.
Between the end of November 2007 and March 2008, when stocks recorded big losses, companies with good overall governance recorded returns of 6.7 per cent better than the ASX 200 benchmark, the research showed. Between August 2001 and March 2008, analysis showed that companies with a strong governance record outperformed by 12 per cent.
“People should really be focusing on remuneration, audit and board issues – these give the best returns,” Gray says. Between 31 August 2001 and 31 March 2008, those companies rated by CGI Solutions as having good remuneration policies outperformed by 46.7 per cent; audit outperformed by 37.1 per cent, and board by 20.6 per cent. CGI rates 156 companies on the quality of audits, board structure, directors' skills, transparency of remuneration policies and accounting practices
“We believe seven years of data provides strong evidence of the performance track record for corporate governance," Gray says.
“For those who are looking to ‘mainstream ESG’ as part of their investment process (e.g. as per PRI requirements and the general increase in awareness of ESG), corporate governance should be a linchpin of broader ESG analysis”.
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