Companies with potentially unscrupulous dealing and a lack of transparency have gotten slammed in this decline. But exemplars of good governance don’t exactly have much to show for themselves. In theory, things like good internal controls, an accountable board and an aversion towards poison pills should be good for shareholders (again, in theory). Law prof Jeff Lipshaw looked at the top 30 best-governed companies compiled by the IR Global Ranking, which uses these standards. How’d they do over the last year (conveniently from the market’s peak to its nadir)? Here’s the numbers and how they match up:
Decline in “good governance” portfolio: 50%
Decline in S&P500 Index Fund 42%
Decline in NYSE Composite Index Fund 43%
Decline in Dow Jones Industrial Average 39%
You can quibble with the size of the data set, the timeframe and his methodolgy (he assumed by just one share of each company, rather than some type of market cap weighting). And of course, past returns are no guarantee of future results.
There’s one other thing to consider here. Take a look at the top 30 companies: Nexen, Royal Philips, Telekom Austria, Bayer, Infosys, Procter & Gamble, Deutsche Post, Satyam, Total, GE, Totvs, Norsk Hydro, ICICI Bank, Banco BPI, Wachovia (!), Bursa Malaysia, Global Payments, Kotak Mahindra Bank, JDS Uniphase, Perdigao, Deutsche Telekom, Life Time Fitness, Grasim, BASF, Indra, Pengrowth, Masisa, IC RUSS-INVEST, Hysan, ICA.
Besides the obvious sore thumb, Wachovia, that’s a pretty motley collection of stocks there (JDS Uniphase, Kotak Mahindra Bank?). Focusing heavily on these rankings leads you into a pretty bizarre collection of companies.
(via Larry Ribstein)