US leads in corporate governance

A Financial Times report says that US companies have risen to the top of a global comparison of corporate governance standards, overtaking the UK and Canada for the first time.

A study of more than 2,500 international companies found the Sarbanes-Oxley Act (SOX) and other reforms implemented following recent scandals such as Enron and WorldCom had succeeded in improving the relative performance of large US companies by more than 10%.

Researchers compared up to 500 publicly-disclosed measures for each company, each designed to assess factors from boardroom accountability and financial disclosure to the strength of national regulatory controls and corporate environmental behaviour.

Countries with Anglo-Saxon legal traditions (Canada, Australia, the US and UK) consistently fare best in the twice-yearly study by Governance Metrics International (GMI), which said it was looking for factors that gave investors greatest transparency in judging behaviour.

Analysis of the results also confirmed recent academic studies showing a link between share price performance and adherence to corporate governance best practice. Twenty of the 26 companies achieving the top score under the system are listed in the US and include 3M, Coca-Cola, Eastman Kodak, General Motors, Gillette, Dow Chemical and Target.

Financial Times | US at the top of governance table (subscription required).

In a separate report, the FT said that companies are still finding that the expected costs of complying with the US’s new governance laws are soaring, highlighting why the corporate backlash is growing almost two years after legislation was passed.

A survey by Financial Executives International (FEI) says companies are reporting costs of compliance with certain parts of SOX over 60 per cent higher than even in January this year.

The reason is that companies and their advisers are only now starting to do their sums, in particular with regard to requirements that they overhaul and check their internal controls, the systems that ensure that their financial data and rule compliance regimes are reliable.

FEI said employee hours needed to comply with one of the key elements of SOX, Section 404, were estimated to be over 25,000, up from 12,000 in January.

Financial Times | Companies balk at cost of compliance (subscription required).