Ignoring corporate governance is not an option for managers

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90Baruch Lev is a world class thinker on accountancy and corporate operational matters.  I have long admired his work and am very much taken with his new book.  Writing from the view of corporate management, he recognizes the legitimacy of corporate governance efforts and believes in the essential role that shareholder activists can play in corporate – and societal – function.  He writes,

“It’s impossible to clarify all aspects of corporate governance. In recent years, we’ve seen a huge amount of academic research on the link between governance and performance.  And the lessons from it aren’t always clear or consistent. But ignoring the debate on corporate governance is not an option for managers. It’s constantly in their face. Highly visible commercial scorecards rank most US companies and many in Europe and Asia on governance strength, and to lag your competitors in governance quality is embarrassing. Moreover, perceived governance weaknesses invite distracting shareholder proposals and proxy contests to rectify the alleged weaknesses such as the 2008 highly publicized campaign of the Rockefeller descendents to strip Exxon’s chief of the board chairmanship. Furthermore, low governance ratings often affect the recommendations of proxy advisors to mutual funds and other institutional investors on how to vote on proxies and shareholder proposals. And they may even affect the investment decisions of some institutions. And pesky hedge funds often use governance deficiencies as a justification for intervention in company affairs and demand for board and strategic changes.”

Winning Investors Over: Surprising Truths About Honesty, Earnings, Guidance and Other Ways to Boost Your Stock Price by Baruch Lev (November 2011).