The importance of the application of corporate governance principles is not only to conform to JSE requirements, nor should it be seen as yet another internal 'exercise'. The value of applying corporate governance principles extend far beyond those benefits. A recent Global Investor Opinion Survey (GIOS) conducted by McKinseys during April and May this year focussed on institutional investors attitudes towards corporate governance. It included responses from over 200 institutional investors whose organisations manage an estimated USD 9 trillion. The GIOS reveals that Investors put corporate governance on a par with financial indicators when evaluating investment decisions and are prepared to pay a premium for companies exhibiting high governance standards - the premium for South African investments was recorded as being as high as 27%!
A second survey was also conducted by McKinsey to see does good governance pay in practice? They sampled 188 companies from 6 emerging markets (South Africa was not included in the sample countries) and tested the link between the market valuation and the corporate governance practices of these companies in 2001.
This survey found that companies with good corporate governance not only had a higher price-to-book ratios, but on average there was a 10 to 12% increase in their market valuation! This confirmed the finding do the first survey. As a result, improving corporate governance can be an effective strategy for securing and edge on competitors.
Bearing in mind that the second study focussed on emerging markets only, the results of these studies show that investors world-wide look for corporate governance standards and conclude that high standards of corporate governance are crucial to the value of companies, particularly in emerging markets.
As further proof of the value of good governance, The Mercanto Italiano di Borsa, the Italian stock exchange, has recently launched the STAR exchange, a separate market for small and medium sized companies that follow strict governance requirements. To qualify for listing on this exchange, a company must comply with certain corporate governance and disclosure requirements. STAR currently comprises 37 companies with a total market cap of $7,5 billion. They have outperformed their counterparts on the Borsa by 16.5% for the period April 2001 to March 2002 and the weighted average of their market-to-book ratios is 3.8 compared with 2.1 for all companies listed on the Borsa.
Encouraged by this success, Brazil's stock exchange has launched a similar exchange called the Novo Mercado.
Note: See Latest News for more details of the studies.
Benefits
of Certification
The CGA corporate governance certification process has been developed
to provide the organisation with a wide range of benefits. Some of these
benefits include the provision of:
- An independent, objective assessment of conformance with King III
- An official recognition of conformance
- An independent early warning of any governance oversights
- A positive indicator for analysts and institutional investors
- An indicator to statutory and regulatory authorities of conformance with King III
- A stimulus for the inculcation of corporate governance principles and best practice in management
- Comfort to all stakeholders
- Providing companies with competitive edge
