November 30, 2014


chess: the king has fallen
We can’t predict the future but can take steps to put the odds on our side.

Corporate governance is a measure of companies keeping promises. Since life and health insurance is a long term promise that may last decades, isn’t that important?

Unlike car/home insurance, well-designed protection for mortality, morbidity and disability tends to have premiums guaranteed for life. That provides peace of mind since you can’t easily switch insurers: you’re older and your health may have deteriorated. In addition, newer products may fewer options and weaker guarantees. If the government changes the rules governing insurance, old policies may be “grandfathered” (exempt from the changes).

Similarly, financial advice can have lasting implications even when of high quality.

Lucky 13

The Globe and Mail has compared corporate governance for 13 consecutive years. Board Games 2014 includes 247 major companies in a searchable table. Data was prepared by the Clarkson Centre for Business Ethics and Board Effectiveness at the University of Toronto.

Not much changes, as you’ll see by looking at results for 2011 and 2007.

Selected Rankings

Let’s look at the financial sector, which historically ranks low in trust in comparisons like the annual Edelman Trust Barometer. Here are the banks, insurers, mutual fund manufacturers and advice givers. You’ll likely recognize the names.

 Rank Company Score
1 Bank of Montreal (includes BMO Insurance) 98%
2 Sun Life Financial 97%
3 tie Bank of Nova Scotia 96%
3 tie Royal Bank of Canada (includes RBC Insurance) 96%
6 Manulife Financial 95%
8 Intact Financial Corp (belairdirect, Grey Power, Jevco) 94%
13 tie CIBC / National Bank / TD Bank 93%
30 Industrial Alliance Insurance and Financial Services 89%
62 Western Canadian Bank 81%
69 Laurentian Bank 79%
81 CI Financial Group (CI Investments, Assante Wealth Management, Stonegate Private Counsel) 76%
185 Power Financial Corp (Great-West Lifeco, IGM Financial) 58%
197 tie Canaccord Genuity Group / Fairfax Holdings Inc 55%
197 tie IGM Financial Inc (Investors Group, Investment Planning Counsel, Mackenzie Investments)  
205 AGF Management 54%
221 Great-West Lifeco (Canada Life, Great-West Life, London Life) 48%
231 Dundee Corp 46%
237 Power Corp of Canada 44%
Look at the range. Some companies are at the very top with near-perfect scores. Others are closer to #247 (Fortuna Silver Mines, scoring 35%).

Missing Companies

You may be dealing with companies which aren’t rated. That doesn’t mean they’re “bad”. How would they score f they were included? That’s very tough to say. You can’t really tell. You can ask them if they are ranked by credible independent parties in a transparent way. You may get measures of financial strength. Maybe that shows they’re great at making money but doesn’t mean they’re great at keeping promises.

As usual, buyer beware!


PS Is there any downside to buying from a leader or any upside from supporting a laggard?

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