VALUATION WISE: Governance laggards, 15 years on
In 2009, AlphaValue set out to redefine investor protection with innovative governance metrics. Today, we're uncovering the journey of 44 stocks that have quietly improved their governance scores over time. Delve into the subtle yet impactful changes driven by regulatory shifts and meticulous standards for board independence. Join us as we explore how these advancements are shaping the future of responsible investing.
Back in 2009, AlphaValue had already deployed its governance metrics, geared to protecting the interests of minority investors in the secondary market. These metrics have now been accepted as essential by most ESG-driven investors, with a keen eye about the genuine independence of board members.
In that same year, one of AlphaValue’s short daily paper had converged on the bottom decile of stocks with poor governance credentials. It is interesting to see where they stand today. This list comes to 44 names 15 years later.
Scores are computed out of 10. In today’s AlphaValue universe no firms reach a score of higher than 9.6. None is worth an outright zero. The average score of this 44-strong universe has improved from 3.4/10 in 2009 to 4.4/10. That is the good news.
There are gains hiding losses as in any average. The most significant winners are the following:
The point worth mentioning is that gains have been achieved where the control is not too tight. Family control is deemed to be a friction on governance matters from the point of view of minority investors. Many investors disagree with that view though.
Losers over the same period are few and far between. Here they are, with again the observation that corporates with deteriorating governance metrics tend to be under family influence.
That was the aggregate view. The next question is really what the gainers did to improve their governance scores.
The following table will help. Bluntly put, its is thanks to regulation that provides for a floor to female representation on boards. For the stocks below, this criterion jumped from 7% to 44% computed as the proportion of women of total board members. That was a low hanging fruit. The firms in the following table have only posted a marginally stronger gain as the total AlphaValue universe woman representation has risen from 9% to 44%.
Where the above firms disappoint is in their ability to open their boards to different cultures. The % of domestic board members is 73% and has actually deteriorated a bit. This is sad at a time when the planet is an ever-more-global proposition.
From AlphaValue's standpoint, what matters are gains in terms of independence of board members. AlphaValue does not rely on what boards affirm in that respect. A set of strict AlphaValue rules help take a more discerning view on this most sensitive issue. The good news is that, for the table above, the average ratio of independent board members has gone up from 24% to 42%. Another positive is that, on average, boards have contracted from 15 to 13 members. This is good news in terms of their ability to make decisions.
This progress on governance matters must be saluted. It is however worth highlighting that the firms making good progress on this front were rather solid firms in the first place. For ESG investors we can also confirm that the stocks highlighted above have outperformed substantially the Stoxx600 on an equal weighting basis. Obviously better Governance may not be the only reason.
In that same year, one of AlphaValue’s short daily paper had converged on the bottom decile of stocks with poor governance credentials. It is interesting to see where they stand today. This list comes to 44 names 15 years later.
Scores are computed out of 10. In today’s AlphaValue universe no firms reach a score of higher than 9.6. None is worth an outright zero. The average score of this 44-strong universe has improved from 3.4/10 in 2009 to 4.4/10. That is the good news.
There are gains hiding losses as in any average. The most significant winners are the following:
The point worth mentioning is that gains have been achieved where the control is not too tight. Family control is deemed to be a friction on governance matters from the point of view of minority investors. Many investors disagree with that view though.
Losers over the same period are few and far between. Here they are, with again the observation that corporates with deteriorating governance metrics tend to be under family influence.
That was the aggregate view. The next question is really what the gainers did to improve their governance scores.
The following table will help. Bluntly put, its is thanks to regulation that provides for a floor to female representation on boards. For the stocks below, this criterion jumped from 7% to 44% computed as the proportion of women of total board members. That was a low hanging fruit. The firms in the following table have only posted a marginally stronger gain as the total AlphaValue universe woman representation has risen from 9% to 44%.
Where the above firms disappoint is in their ability to open their boards to different cultures. The % of domestic board members is 73% and has actually deteriorated a bit. This is sad at a time when the planet is an ever-more-global proposition.
From AlphaValue's standpoint, what matters are gains in terms of independence of board members. AlphaValue does not rely on what boards affirm in that respect. A set of strict AlphaValue rules help take a more discerning view on this most sensitive issue. The good news is that, for the table above, the average ratio of independent board members has gone up from 24% to 42%. Another positive is that, on average, boards have contracted from 15 to 13 members. This is good news in terms of their ability to make decisions.
This progress on governance matters must be saluted. It is however worth highlighting that the firms making good progress on this front were rather solid firms in the first place. For ESG investors we can also confirm that the stocks highlighted above have outperformed substantially the Stoxx600 on an equal weighting basis. Obviously better Governance may not be the only reason.
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