An excerpt from a March 28 New Yorker article by James Surowiecki (page
25)seems appropriate here:

"Local stardom [in the hometowns of currently successful CEOs] is
destructive because it exacerbates one of the biggest problems that modern
American CEOs face: hubris. A recent study by the finance professors Ulrike
Malmendier and Geoffrey Tate, for instance, shows that companies run by
'superstar' CEOs--those who've won major awards from the business
press--underperform their competitors and the market as a whole in the years
after they win their awards, while the CEOs themselves begin spending more
time on things that don't help shareholders (such as writing books or making
country-music records). A study of a hundred recent corporate crises
suggests that bosses who are charismatic autocrats are 'a major source of
organizational decline.' Too much publicity and self-congratulation, in
other words, can be bad for business."

"Tad Borek" <borekfm[at]pacbell.net> wrote
- quote -

In article <9%42e.2697$FN4.2646[at]newssvr21.news.prodigy.com> ,
borekfm[at]pacbell.net says...
- quote -

Well, maybe. It's counterintutitve, but the companies who have returned
the highest returns over the last 25-40 years are all your old solid
consumer staples companies who have been solid for a half century or
more.

- quote -

See, that comes a little too close to "timing the market" for my tastes.
Besides, how would you know if, after the hit on governance issues, if
the company will rebound, bankrupt, or liquidate?
- quote -

Yea, that's what Jeremy Siegle calls "The Growth Trap." If a company is
hot and exciting and in a fast growth field, all that is already
factored into the price, and your chance for good returns are higher.
- quote -

Coudn't say. I looked at the website, and they're not altruistic. They
wanted money for their data.
- quote -

Yup.

Mike

- quote -

In article <4248D6DA.9090906[at]paragondynamics.com> ,
wwtrice[at]paragondynamics.com says...
- quote -

Governance ratings are fairly new, so likely not, and assuming that the
conmpanies were so managed prior to the ratings would be a bad mistake.
For instance, there were some governance issues (although it was mostly
due to a bad acquisition) when Jill Barad took Mattel down the rabbit
hole in 1998, IIRC.

An ETF like this would ideally buy and sell annually according to was
added and removed from the list, I would hope.
Mike

Michael E Craney wrote:
- quote -

I'd be more interested in the bad-governance ETF on the rationale that
when bad governance has been identified, the company is probably in the
pits, and facing shareholder pressure to clean house. Turnarounds are
where I see the opportunity for additional returns, not solid companies
that keep being solid. Like, Tyco and Cendant were excellent investments
at the time that their governance would have earned an F, and the
headlines were spilling all the ugly details.

There's a study of excellent vs. unexcellent companies, based on the
criteria in the book "In Search of Excellence." The excellent companies
ended up being lousy investments, as it turned out. Similar kind of
thing, once you're excellent all you can do is fail to meet the inflated
expecations.

I wonder whether this governance study's data worked looking forward -
meaning, were these companies that outperformed the S&P selected as "A"
grade five years ago, or now, in hindsight?

And of course the standards are somewhat arbitrary and so may not relate
at all to investment returns. Berkshire Hathaway does poorly in these
things because of its lack of disnterested board members (among other
things) but hey, the long-term shareholders aren't complaining and
prefer it that way.

-Tad

Michael E Craney wrote:

- quote -

I think it's hard to make these conclusions based on 5 years of data.
Do they have data going back further?

-Will

In article <9%_1e.6665$H06.1321[at]newsread3.news.pas.earthlink.net> ,
elle_navorski[at]nospam.earthlink.net says...
- quote -

Well, nothing's perfect, but it testifies to a strong correlation
between good business execution and ethical business management (a
correlation which does not suprise me).

It also suggests a good investment strategy with above average returns
and below average risk. Could we hope for a governance ETF someday?

Mike

I think the most interesting datum here is that General Motors made the
"highest rated" list, ranking right after General Electric. Meanwhile, GM
hybrids (and I presume its bonds) are rated one level above junk.

So I don't know if this survey on "Corporate Governance" should inspire
confidence in a company. It's certainly interesting, when compared to other
measures of a company's "strength."

"Michael E Craney" <mcraney[at]hotpop.com> wrote
snip
- quote -

The 34 companies that received the highest marks for corporate
governance according to Governance Metrics International (GMI),
outperformed the S&P 500 by 15.9% over the last 5 years. GMI recently
released new corporate ratings on 3,220 global companies, rating them
between 1 and 10. Only 27 American, 3 Canadian, 3 British and 1
Australian company received a perfect score of 10.

The average score for all US companies was 7.03, the third highest
average behind the United Kingdom (7.39) and Canada (7.14). The three
lowest country averages were for Belgium (3.93), Japan (3.49) and Greece
(2.37).

The GMI ratings incorporate hundreds of data points across six broad
categories including, board accountability, financial disclosure and
internal controls, executive compensation, shareholder rights, ownership
base and takeover provisions and social responsibility. The majority of
corporate governance red flags for US companies came from the executive
compensation category. The other categories where US companies had the
most trouble were "ownership base and takeover provisions" and "board
accountability".
***********

For the record, the highest rated US companies on governance that
returned these killer market results are as follows:

3M COMPANY, AIR PRODUCTS CHEM, CIT GROUP INC (DEL), COLGATE PALMOLIVE,
COOPER INDS, EASTMAN KODAK CO, ENTERGY, GEN ELECTRIC CO,
GEN MOTORS, GILLETTE, GREAT LAKES CHEM, JOHNSON CONTROLS,
LOCKHEED MARTIN, MATTEL, OCCIDENTAL PET, PEOPLES ENERGY, PEPSICO, PG&E,
PRAXAIR, PUB ENTRPR GP, REGENCY CENTERS CORP, ROHM HAAS,
SLM CORPORATION, DOW CHEMICAL, PROCTER GAMBLE, UNITED TECH, WISCONSIN
ENERGY CP

Mike