Board Risk: List of Companies With Low Corporate Governance Risk

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(List compiled by Andrew Dominguez. Article by Andrew Dominguez and Eben Esterhuizen, CFA)

The ongoing News Corp wire-tapping debacle has highlighted the importance of having accountable and responsible leadership at the helm of any organization.

Nick Summers of Newsweek and The Daily Beast explains how “lax oversight” by the News Corp. board allowed James Murdoch and News of the World to insulate its heinous activities from shareholders.

“But News Corp. is not a typical corporation. It employs a dual-class stock structure that concentrates voting rights and accountability in the hands of a few, namely Rupert Murdoch and a family trust he controls. Murdoch selects and discards his board members, and if Class A shareholders don’t like them, they cannot vote, only sell,” writes Summers.

The board is the highest governing authority within a company's management structure, charged with a number of important tasks like selecting CEOs, voting on executive pay packages, overseeing the preparation of financial statements, and evaluating mergers and acquisitions. Essentially, corporate board members are the protectors of shareholder rights. 

Unfortunately, corporate boards can't always be trusted.

To summarize, here are five main reasons why corporate boards fail:

1. No Repercussions: Shareholder lawsuits don't pose much of a threat to an incompetent board. Most U.S. companies incorporate in Delaware, where state laws exempt board members from financial liability for their actions.

2. Poor Data: Some boards receive too little or too much information - or just plain bad information. This often occurs when a company's management is trying to manipulate the board.

3. Lack Of Time: It's actually quite common for members to sit on the boards of several companies--which means they don't have the time to properly fulfill their fiduciary duties.

4. Lack Of Expertise: Board members don't always have the same level of expertise as management, especially in highly specialized industries, making effective government all but impossible.

5. Dual CEO / Chairman Role: It's actually quite common for CEOs to act as the chairmen of their boards--but this gross imbalance of power also puts the company at risk. 

When it comes to separating the good from bad among corporate boards, to whom do you turn? For today's post, we're listing the ratings of the MSCI RiskMetrics Group.

To help you with your own research, here is a list of S&P 500 companies with top-ranked corporate boards in addition to positive audit, compensation, and shareholder rights metrics. Do you think these boards have shareholders’ interests as a top priority?

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List sorted by market cap.

1. Exxon Mobil Corporation (XOM): Major Integrated Oil & Gas industry with a market cap of $415.61B. Its Governance Risk Indicator is: Board (Low Risk), Audit (Low Risk), Compensation (Low Risk), Shareholder Rights (Low Risk).

2. Apple Inc. (AAPL): Personal Computers industry with a market cap of $374.B. Its Governance Risk Indicator is: Board (Low Risk), Audit (Low Risk), Compensation (Low Risk), Shareholder Rights (Low Risk).

3. Microsoft Corporation (MSFT): Application Software industry with a market cap of $236.79B. Its Governance Risk Indicator is: Board (Low Risk), Audit (Low Risk), Compensation (Low Risk), Shareholder Rights (Low Risk).

4. International Business Machines Corp. (IBM): Diversified Computer Systems industry with a market cap of $221.56B. Its Governance Risk Indicator is: Board (Low Risk), Audit (Low Risk), Compensation (Low Risk), Shareholder Rights (Low Risk).

5. Chevron Corp. (CVX): Major Integrated Oil & Gas industry with a market cap of $216.24B. Its Governance Risk Indicator is: Board (Low Risk), Audit (Low Risk), Compensation (Low Risk), Shareholder Rights (Low Risk).

6. General Electric Co. (GE): Conglomerates industry with a market cap of $196.84B. Its Governance Risk Indicator is: Board (Low Risk), Audit (Low Risk), Compensation (Low Risk), Shareholder Rights (Low Risk).

7. Wal-Mart Stores Inc. (WMT): Discount, Variety Stores industry with a market cap of $186.09B. Its Governance Risk Indicator is: Board (Low Risk), Audit (Low Risk), Compensation (Low Risk), Shareholder Rights (Low Risk).

8. Johnson & Johnson (JNJ): Major Drug Manufacturers industry with a market cap of $180.7B. Its Governance Risk Indicator is: Board (Low Risk), Audit (Low Risk), Compensation (Low Risk), Shareholder Rights (Low Risk).

9. AT&T, Inc. (T): Domestic Telecom Services industry with a market cap of $177.3B. Its Governance Risk Indicator is: Board (Low Risk), Audit (Low Risk), Compensation (Low Risk), Shareholder Rights (Low Risk).

10. Procter & Gamble Co. (PG): Personal Products industry with a market cap of $176.1B. Its Governance Risk Indicator is: Board (Low Risk), Audit (Low Risk), Compensation (Low Risk), Shareholder Rights (Low Risk).



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks


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