On the 'value add' of good governance.

• Author: Kristie, James
• Position: LEADERSHIP

From Corporate Valuation for Portfolio Investment by Robert A.G. Monks and Alexandra Reed Lajoux. Copyright 2011 by the authors. Published by Bloomberg Press, a Wiley imprint (www.wiley.com/go/ bloombergpress).

THERE IS LITTLE EVIDENCE that "good corporate governance," as currently defined, adds value. We can prove conclusively that weak corporate governance puts shareholder value at risk, and will, over time, in most cases result in actual value loss. We can prove this with regard to total shareholder returns, and also with regards losses as defined through successful securities litigation. We can infer from this that good corporate governance is essential to achieving and maintaining maximum value. But this is still not the same thing as proving that good corporate governance adds value.

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The main flaw in this premise is that there cannot possibly be one single model of good corporate governance that can be applied equally well to all public corporations; both ownership and corporate maturity must be taken into consideration, and a flexible spectrum of good corporate governance models supported. The typical...