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The best performing companies are those who take governance seriously

Governance | Tesse Akpeki | 12 Sep 2011

The value of good leadership is without question and needs to be assessed over a period of years. Often the question is asked about the impact of good governance on the performance of an organisation and the evidence that investing in governance makes a difference. 

A new report by Opus Executive Partners, a specialist advisory and executive search firm examined the financial and governance performance of 130 AIM listed oil and gas companies in the sector between 2006 and 2011.

The study links corporate governance to performance.  The comparator against the UK Corporate Code study was with the company’s financial performance. Demonstrated is a positive link between corporate governance performance and compliance with the June 2010 UK Corporate Governance Code.

Companies with better corporate governance produced a better return for shareholders. While the overall compliance with corporate governance requirements was poor, interestingly ten companies that topped the corporate governance tables had an average governance score of  90 per cent and delivered a growth in shareholder value of 49 per cent -  above-average shareholder returns.  Companies that performed poorly in the governance tables had a financial performance well below average. The bottom ten companies had an average corporate governance score of only 13 per cent and decreased share value by 55 per cent.

Other findings were that how a company structures itself to address those challenges can help to reduce risks.  Board composition also matters.  In poorly performing organisations, the representation of women at board level was virtually non-existent. Despite most of the companies studied stating their commitment to good governance, there was uncertainty as to what these standards actually are.  

The bottom line? Strengthening governance allows for changes in the board and gauging the team’s effectiveness. 

The welcome news?  Good governance can help to mitigate risk and deliver better shareholder value.

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Who's Who: Tesse Akpeki