Corporate governance is a measure of how well companies are run and keep their promises. The Globe and Mail has done an annual study for the last 10 years. Here are some of the biggest scandals: Enron (2001), Worldcom (2002), Nortel (2003), Parmalat (2003), Tyco (2005), HP (2006), RIM (2006-2007) and Olympus (2011). Do you remember why? For highlights, check out this slideshow.We last looked at the 2007 rankings. It's time for an update.
Lots has changed since 2007. That's when the iPhone was introduced. That novelty is gone and the devices are commonplace. Not all changes have such happy evolutions.
We have endured financial turmoil. Major companies have had difficulty keeping promises. Countries too. Financial services are especially important since they are intangible. You can't touch the return on an investment or feel the quality of an insurance policy by holding the contract.
Canadian companies have proved resilient. That’s a sign of being well-run. The regulators deserve credit for setting high standards and ensuring they are enforced.
Trends
The best 15% of boards did well before Enron and would have done well without any reforms. The 70% in the middle have benefitted most from the governance revolution, and the 15% at the bottom are unchanged.Corporate governance has improved. We’ll focus on financial services. In 2007, only 12 companies scores 80% of more. Now there are 16, despite the tough times and higher standards.
— TD Bank chairman Brian Levitt (Corporate Canada sees a quiet revolution in governance)
Rankings
Here are the five highest ranked companies in financial services:- Manulife (#2 overall, down from #1 in 2007)
- Scotiabank (#4 overall, up from #18)
- Sun Life (#7 overall, up from #8)
- tie: BMO (#10 overall, down from #5) and TD Bank (#10 overall, down from #3)
- tie: CIBC (#12 overall, up from #18) and Industrial Alliance Insurance (#12 overall, up from #21)
The Bottom
As in 2007, Power Corporation of Canada is at the bottom at #237 (a drop from #178). This group owns companies like Canada Life, Great-West Life, Investors Group, Investment Planning Counsel, Mackenzie Financial and London Life.For more details, click on the table. You’ll find much more about corporate governance on the Board Games 2011 microsite. The University of Toronto prepared the data at the Clarkson Centre for Business Ethics and Board Effectiveness. How do you fit that on a business card? You can download the full results in a spreadsheet to do your own analysis.
No Guarantees
We can't predict the future until tomorrow becomes yesterday. That doesn't make us helpless. We can take steps to put the probabilities on our side. You might want to support larger companies which rank high in corporate governance — especially leaders in 2007 and now. Thanks to competition, you rarely pay more but get extra peace of mind. What’s the downside?Even well-run companies may have products with poor promises. For instance, you’ll find pitfalls in mortgage life insurance and investments with high expense loads. You might do better as a shareholder than a customer.
Corporate governance is also a way to gauge whether your advisor is putting your interests first. If you were sold or shown products from companies with low scores, did you get tires with less tread? On a warm sunny day, you won't notice the difference but freak storms strike. When the roads get treacherous, it's too late to change your tires.
Nothing stops companies from scoring high on corporate governance. Do they? Nothing stops advisors from recommending those companies. Does yours?
Links
- Board Games 2011 (Globe and Mail microsite)
- Keeping Promises Corporate Governance 2007
- What are you doing about your high investment expenses?
- The wealthy reveal how their advisors fail them
- The pitfalls of mortgage life insurance
- Is the best advice free or for-fee?
- image courtesy of Nick Cowie (Australia)
Podcast 148 (6:39)
direct download | Internet Archive page | iTunes
PS How good are you at keeping your promises?
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