Category Archives: Corporate Governance

Corporate Governance prudence converts to market value.

market-value-grows-with-good-corporate-governance..since the year 1900, the Australian share market has delivered the best performance in the developed world.

At a recent briefing to financial planners, one of Fidelity’s Fund Managers (Paul Taylor, Fidelity Australian Equities Fund) surprised many assembled in the room with the ‘revelation’ that over the period since the year 1900, the Australian share market has delivered the best performance in the developed world. Paul showed a chart that included more than 20 markets (including the USA, UK and all of ‘the usual suspects’) and Australia recorded a real return (after removing the effects of inflation) of 7.3% per annum for that 112 year period!

What triggered my interest was that Paul made the point that our success in this chart came about because of stable government – and sound Corporate Governance. He spoke of countries that had higher GDP than Australia over many of these years, but much poorer corporate governance frameworks and practices, resulting in poorer returns.

In checking the statement I have found that whilst Paul’s contention is not readily found in the published research, there is plenty of innuendo and inference: take the following extract from Succurro Corporate Services’ article ‘Does good corporate governance really make a difference?’ for instance:

‘The OECD (Principles of Corporate Governance 2004) notes the presence of an effective corporate governance system, within individual companies and across an economy as a whole, assists in providing the confidence necessary for the proper functioning of a market economy. As a result, the cost of capital is reduced and firms are encouraged to become more efficient in the use of company resources.

Therefore good corporate governance and better financial performance may form a virtuous circle where improvement in one facilitates the improvement in the other.’

If there was any doubt that there is a cost-benefit weighting to the Benefit side, this has certainly inspired me to support the measured continuance of the growth and development of corporate governance guidance – particularly that driven by the practitioners in the field: the company directors and associated support teams.