Corporate Governance Benchmarking for McBride Financial

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McBride Benchmarking

It is difficult not to notice the seemingly constant media commentary about the lack of trust in today's business climate. In the past decade the business community has suffered some of the worst corporate crises, both financially and ethically, since the Great Depression. This crisis of faith brought about through numerous corporate scandals beginning with Enron, and carried on by a variety of other companies on various scales, has been a valuable wake-up call for the business community. It has alerted companies to the link between ethical behavior and corporate efficiency which has always existed, but has been swept under the carpet by other seemingly more exigent business matters (Davis, 2004).
These scandals, however, have demonstrated that ethical behavior and what it takes to make it standard business behavior should be at the top of every company's agenda. Research and analysis show that there is a link between corporate efficiency and various aspects of corporate governance such as the independence objective, roles of key corporate governance players, especially that of the Chief Executive Officer (CEO), and the role of ethics in compliance with regulations.

The independence objectives of corporate governance

While it is a part of good governance structures and practices within companies to have independent boards, and all-independent key committees in place, such policies are not a panacea for all corporate governance issues in and of themselves. Although such practices ensure that directors have the necessary independence to perform their oversight functions over corporate performance, and the chief executive and other senior managers, their effectiveness should not be measured with a one size fits all yardstick for all corporations. For example whether a company has a lot of insiders on its board or if a board's chairman is also the company's chief executive do not necessarily point to bad governance in an organization although on the surface they give the impression that managers control the company unchecked and can enrich themselves at the expense of outside shareholders without fear of consequences (Wharton School of the University of Pennsylvania, 2004).

Other issues such as whether the CEO's family, close friends and associates dominate the board, how much board members and managers are paid and whether their pay and incentives are linked to raising the company's earnings and stock price also factor into a company's independence evaluation and have different degrees of relevance for different companies. There is no one formula that can measure whether a company's governing body has a sufficient measure of independence. Each company's needs are different in this area and each company should tailor its policies to what works in its particular setting. Before making any adjustments to ensure the independence of its governing body, each company should benchmark such adjustments by finding other companies that have made similar changes and see whether the benchmarked companies experienced a rise in their stock prices as result (Wharton School of the University of Pennsylvania, 2004).

Governance-ranking research is another more scientific way to determine whether there is a link between one or more governance standards and a company's performance. Research that focuses on only one standard, like composition of boards, may lead to incorrect conclusions because single governance standard may be unrelated to the performance of a given company in a given market during a particular period of time. The most plausible research focuses on a core set of governance standards and attempts to identify which standards are directly related to performance. A published research study by Bebchuk, Cohen and Ferrell in 2004, as well as other governance-ranking research provides support for the proposition that good corporate governance does in fact improve performance and thus is worth undertaking (Hermes Investment Management Limited, 2005).

GE and JC ...