Keep it transparent.COULD vigilant investors have detected the troubles that besieged be·siege tr.v. be·sieged, be·sieg·ing, be·sieg·es 1. To surround with hostile forces. 2. To crowd around; hem in. 3. Parmalat SpA, Enron Corp. and other companies whose accounting practices turned them into corporate pariahs? Recent research shows that companies practicing transparent corporate governance Corporate Governance The relationship between all the stakeholders in a company. This includes the shareholders, directors, and management of a company, as defined by the corporate charter, bylaws, formal policy, and rule of law. , and which have independent chairmen and directors, not only are less likely to have accounting blow-ups, but also are more profitable than firms with opaque boardroom policies. Corporate governance issues such as executive compensation, for example, were the most popular topics for shareholder resolutions on a list compiled by the Interfaith Center on Corporate Responsibility The Interfaith Center on Corporate Responsibility (ICCR) is a coalition of 275 faith-based institutional investors. Founded in 1973, the organization advocates for corporate social responsibility and files shareholder resolutions and engages in dialogue with corporate management on , a social investing social investing Limiting one's investment alternatives to securities of firms whose products or actions are considered socially acceptable. For example, an investment manager might decide to eliminate from consideration the securities of all firms engaged group whose Web site is found at iccr.org. Sister Patricia Wolf, executive director of the ICCR, estimated that various groups filed more than 1,000 corporate governance shareholder resolutions this year. "When you look at the research, non-financial factors and good corporate performance seem to be a sign of a well-run company," Wolf said. Parmalat, the Italian food company forced into insolvency insolvency Condition in which liabilities exceed assets so that creditors cannot be paid. It is a financial condition that often precedes bankruptcy. In the context of equity, insolvency is the inability to pay debts as they become due; insolvency under the balance-sheet afteran accounting scandal, is an example of opaque accounting and management. The company received a below-average corporate governance rating from Governance Metrics metrics Managed care A popular term for standards by which the quality of a product, service, or outcome of a particular form of Pt management is evaluated. See TQM. International, a governance rating firm (gmiratings.com). The company scored 2.5 out of 10 (6.5 was the median score) on one of its measures of board accountability. Only three of 13 Parmalat directors were classified as independent by GMI GMI Governance Metrics International (New York, New York) GMI Giant Magneto-Impedance GMI Global MSF Interoperability GMI General Motors Institute GMI General Mills, Inc. . The company also was rated below average in the areas of financial disclosure and internal controls. And only one of the three members of the company's audit committee was considered to be independent. Transparent companies tend to be less prone to scandals because they are less likely to hide accounting irregularities and unprofitable decisions. When investors have greater access to management decisions, there will be fewer blunders and less outright fraud, the theory goes. Transparent boardrooms are also good for the bottom line. A landmark study published last year provides evidence that investor-friendly companies are more profitable than management-dominated firms. --John F. Wasik, Bloomberg News |
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