Bad Boards, Bad Stocks

Physician's Money Digest, October15 2003, Volume 10, Issue 19

Lousy corporate governance isclosely linked to lousy stock performance,according to a study by GovernanceMetricsInternational (www.governancemetrics.com). Over the past 3years, corporations with the worst governanceratings lost an average of 13.3% ayear, while the Dow dropped an averageof 3.7% annually during the same period.Companies with top governance ratings,on the other hand, had an annualaverage gain of 5.3% over the 3 years.Businesses are rated on 600 criteria, withadded importance given to areas likeboard accountability, which looks atboard member independence and possibleconflicts of interest, and financial disclosureand internal controls, whichfocuses on auditor independence and theaccuracy of financial reporting.