Is Pension Governance a Stretch or a Rewarding Practice?
I love the challenge of an intermediate/advanced yoga class and attend as often as my schedule permits. Executing splits and flips like Gumby (am I dating myself here?) comes easy to me so the appeal is likely due to my comfort level in taking stretches to the limit. Not surprisingly, many of us indulge in hobbies and sports that exploit an existing aptitude or strength. Is this a coincidence?
Do we adopt activities that help us enhance what we already do relatively well ("preaching to the choir")? If true, does that mean that companies with anemic corporate governance policies and practices are unlikely to "walk the pension governance walk" because it's too hard or different from the comfortable status quo?
It's a provocative idea.
At a time when new accounting rules and regulations have the potential to materially impact share price, it would be nice to know if corporate governance precedes pension governance or if the two activities are independent of each other. Indeed, quantifying how much companies care about their stewardship responsibilities is an attention-grabber.
Mounting evidence suggests that a solid reputation matters to the bottom line. According to a July 9, 2007 Business Week article, corporate reputation that is "able to deliver growth, attract top talent, and avoid ethical mishaps" may explain "much of the 30%-to-70% gap between the book value of most companies and their market capitalizations." This statement ignores some of the measurement issues that determine the book value - market value gap but merits review. Click here to access the article. (Registration may be required.)
- How much is a good name worth and what exact governance policies and procedures tend to drive up stock prices?
- Do investors care more about compliance or do they reward going beyond what is minimally required by law?
- Is the relationship symmetric in the sense that stock issued by corporate baddies should be avoided at all costs while "hero equity" makes for good buys?
Wall Street Journal reporter Phred Dvorak quotes CEO of GovernanceMetrics International, Howard Sherman, as saying that "Good governance translates into trust, and trust determines what you're willing to pay for a company's shares." That makes sense but a further read of the July 2, 2007 article informs readers that ratings can and do vary. Audit Integrity and other rivals end up with a different "you go gal" list, in part because they employ alternative measures. Click here to read "Finding the Best Measure Of 'Corporate Citizenship' Governance Trackers Use Various Rating Criteria, Leaving Users Confused." (Registration may be required.)
One thing is certain. The business of governance is far from trivial. In a July 2, 2007 press release, Ethan Berman, chief executive officer of RiskMetrics explains the rationale for its announced acquisition of the Center for Research & Analysis ("CFRA"). Proud owner of proxy advisory firm Institutional Shareholder Services ("ISS"), RiskMetrics will name CFRA CEO Rich Leggett as head of ISS. Click here to read the full text announcement.
Note: In the spirit of full disclosure, Pension Governance, LLC currently resells CFRA products, including its PPM (Pension Portfolio Monitor) product. Click here to learn more. We are also developing a three-day in-person workshop about pension risk management with RiskMetrics. Click here to get more details about the debut September program.
