global investor opinion survey on corporate governance - 2002 irbri seminar são paulo, december 3,...
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Global Investor Opinion Survey on Corporate Governance - 2002Global Investor Opinion Survey on Corporate Governance - 2002
IRBRI SeminarIRBRI Seminar
São Paulo, December 3, 2002São Paulo, December 3, 2002
Copyright 2002
This report is solely for the use of client personnel. No part of it may be circulated, quoted, or reproduced for distribution outside the client organization without prior written approval from McKinsey & Company. This material was used by McKinsey & Company during an oral presentation; it is not a complete record of the discussion.
CONFIDENTIAL
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GLOBAL INVESTOR OPINION SURVEY 2002 – KEY FINDINGS
Corporate governance remains of great concern for institutional investors according to McKinsey's 2002 Global Investor Opinion Survey
• Corporate governance is at the heart of investment decisions
– Investors state that they still put corporate governance on a par with financial indicators when evaluating investment decisions
– An overwhelming majority of investors are prepared to pay a premium for companies exhibiting high governance standards.
– More than 60% of investors state that governance considerations might lead them to avoid individual companies with poor governance
• Reform priorities focus on rebuilding the integrity of the system
– The quality of market regulation and infrastructure is highly significant, along with enforceable property rights and downward pressure on corruption
– Specific policy priorities include strengthening shareholder rights, improving accounting standards, promoting board independence and tighter enforcement of existing regulations
– Shareholder equality (protection of minority shareholders) and accounting disclosure are highly valued by investors
Corporate governance remains of great concern for institutional investors according to McKinsey's 2002 Global Investor Opinion Survey
• Corporate governance is at the heart of investment decisions
– Investors state that they still put corporate governance on a par with financial indicators when evaluating investment decisions
– An overwhelming majority of investors are prepared to pay a premium for companies exhibiting high governance standards.
– More than 60% of investors state that governance considerations might lead them to avoid individual companies with poor governance
• Reform priorities focus on rebuilding the integrity of the system
– The quality of market regulation and infrastructure is highly significant, along with enforceable property rights and downward pressure on corruption
– Specific policy priorities include strengthening shareholder rights, improving accounting standards, promoting board independence and tighter enforcement of existing regulations
– Shareholder equality (protection of minority shareholders) and accounting disclosure are highly valued by investors
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CONTENT
• Respondents to the investor opinion survey come from a wide range of types and size of investing institutions and are in most cases key investment decision markers
• Corporate governance remains a great concern for institutional investors and still is at the heart of investments decisions
• Reform priorities focus on rebuilding the integrity of the system with policy priorities such as strengthening shareholder rights, improving accounting standards, and enforcing regulations
• Respondents to the investor opinion survey come from a wide range of types and size of investing institutions and are in most cases key investment decision markers
• Corporate governance remains a great concern for institutional investors and still is at the heart of investments decisions
• Reform priorities focus on rebuilding the integrity of the system with policy priorities such as strengthening shareholder rights, improving accounting standards, and enforcing regulations
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CONTENT
• Respondents to the investor opinion survey come from a wide range of types and size of investing institutions and are in most cases key investment decision markers
• Corporate governance remains a great concern for institutional investors and still is at the heart of investments decisions
• Reform priorities should focus on rebuilding the integrity of the system with policy priorities such as strengthening shareholder rights, improving accounting standards, and enforcing regulations
• Respondents to the investor opinion survey come from a wide range of types and size of investing institutions and are in most cases key investment decision markers
• Corporate governance remains a great concern for institutional investors and still is at the heart of investments decisions
• Reform priorities should focus on rebuilding the integrity of the system with policy priorities such as strengthening shareholder rights, improving accounting standards, and enforcing regulations
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RESPONDENTS PROFILE - TYPES OF INVESTING INSTITUTIONS% of respondents
*Investment banks with asset management activities, family offices, holdings, development financing, international financial institutions, proxy agencies
Source: McKinsey global investor opinion survey on corporate governance, 2002
100% =
Asia Latin America
North America and Europe
Overall Africa
179 28 31 117 4
Bank
Mutual funds
Insurance
Brokers/trade
Others*
Pension fundsMoney manager
Private equity/venture capital
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RESPONDENTS PROFILE - SIZE OF ASSETS UNDER MANAGEMENT% respondents; US$ billion
Source:McKinsey global investor opinion survey on corporate governance, 2002
50+
10–50
5–10
1–5
0.1–1
<0.1
Asia Latin America
Overall Africa
N = 177 28 31 114 4
North America and Europe
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RESPONDENTS FUNCTION% of valid responses (N = 181)
*E.g., NED, investor relations, corporate function, investment monitoring and advisersSource: McKinsey global investor opinion survey on corporate governance, 2002
Fund manager
Others*
Corporate governance specialist
Analyst
Investment professionals/ generalmanagement
CEO
CFO
Directors/principals
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CONTENT
• Respondents to the investor opinion survey come from a wide range of types and size of investing institutions and are in most cases key investment decision markers
• Corporate governance remains a great concern for institutional investors and still is at the heart of investments decisions
• Reform priorities focus on rebuilding the integrity of the system with policy priorities such as strengthening shareholder rights, improving accounting standards, and enforcing regulations
• Respondents to the investor opinion survey come from a wide range of types and size of investing institutions and are in most cases key investment decision markers
• Corporate governance remains a great concern for institutional investors and still is at the heart of investments decisions
• Reform priorities focus on rebuilding the integrity of the system with policy priorities such as strengthening shareholder rights, improving accounting standards, and enforcing regulations
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CORPORATE GOVERNANCE* IMPORTANCE RELATIVE TO FINANCIAL ISSUES
*Defined as effective boards of directors; broad disclosure, and strong rights and equal treatment for shareholders
Source: McKinsey global investor opinion survey on corporate governance, 2002
Less important
More important
Equally important
Eastern Europe/ Africa
Latin America
Asia North America
Western Europe
100% = 19 41 39 33 54
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CORPORATE GOVERNANCE IMPACT ON INVESTMENT DECISIONS
Source:McKinsey global investor opinion survey on corporate governance, 2002
Decrease/increase holdings in certain companies
Avoidance of certain companies
Avoidance of certain countries
Decrease/increase holdings in certain countries
No impact
% of respondents selecting this option, multiple responses possible, N = 189
• Only 3% think that corporate governance does not affect their investment decision
• More investors take actions on a company level than just on a country level
• Only 3% think that corporate governance does not affect their investment decision
• More investors take actions on a company level than just on a country level
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PERCENTAGE OF RESPONDENTS WILLING TO PAY A PREMIUM Percent saying yes*
*Important note: several investors who ticked "no" added comments that they just would not invest in companies with "bad" governance, hence, "no" answers are in some cases the most radical ones (see quotes and question how corporate governance affects investment decision)Source:McKinsey global investor opinion survey on corporate governance, 2002 and 2000
China (34)
India (29)
Indonesia (26)
Japan (36)
Malaysia (29)
Asia
Philippines (26)
Singapore (30)
South Korea (35)
Taiwan (33)
Thailand (31)
Argentina (26)
Brazil (29)
Chile (21)
Columbia (19)
Mexico (34)
Latin America
Venezuela (19)
East Europe/Africa
Canada (46)
US (75)
France (47)
Germany (51)
Italy (43)
North America/West Europe
Spain (41)
Sweden (41)
Switzerland (41)
UK (49)
Egypt (16)
Morocco (14)
Poland (22)
Russia (23)
South Africa (20)
Turkey (18)
( ) Number of data points
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PREMIUM FOR "GOOD" CORPORATE GOVERNANCEAverage premiums of those saying yes, %
Source:McKinsey global investor opinion survey on corporate governance, 2002
Eastern Europe/Africaaverage 32
Eastern Europe/Africaaverage 32
Eu/North Americaaverage 13Eu/North Americaaverage 13
Asia/Latin Americaaverage 13Asia/Latin Americaaverage 13
80% of investors would be willing to pay a premium for Brazilian companies with "Good Governance"80% of investors would be willing to pay a premium for Brazilian companies with "Good Governance"
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DO YOU BELIEVE THAT THE IMPORTANCE OF CORPORATE GOVERNANCE VARIES BY INDUSTRY/SECTOR?
Source:McKinsey global investor opinion survey on corporate governance, 2002
Percent of respondents, N = 154
Asia
Latin America
Eastern Europe/Africa
North America
Western Europe
Average 38%RegionRegion
"… It depends on the industry structure (such as openness and competition), more than the industry itself. If it is dominated by a few family owned conglomerates, for example, the importance of corporate governance increases"
– CIO, US $5 billion AuM
Latin America Trader
"… It depends on the industry structure (such as openness and competition), more than the industry itself. If it is dominated by a few family owned conglomerates, for example, the importance of corporate governance increases"
– CIO, US $5 billion AuM
Latin America Trader
Yes
No
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CONTENT
• Respondents to the investor opinion survey come from a wide range of types and size of investing institutions and are in most cases key investment decision markers
• Corporate governance remains a great concern for institutional investors and still is at the heart of investments decisions
• Reform priorities focus on rebuilding the integrity of the system with policy priorities such as strengthening shareholder rights, improving accounting standards, and enforcing regulations
• Respondents to the investor opinion survey come from a wide range of types and size of investing institutions and are in most cases key investment decision markers
• Corporate governance remains a great concern for institutional investors and still is at the heart of investments decisions
• Reform priorities focus on rebuilding the integrity of the system with policy priorities such as strengthening shareholder rights, improving accounting standards, and enforcing regulations
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IMPORTANCE OF CORPORATE FACTORS IN INVESTMENT DECISIONS
Developed markets
N = 56
Emerging markets
N = 93
Brazil
N = 38
Percentage of investors who think that factor is very important for investment decision
Accounting disclosure
Board practices
Independent board
Aligned incentives
Shareholder equality
Prudent debt/equity ratio
Non financial disclosure
Stakeholder participation
Source:McKinsey global investor opinion survey on corporate governance, 2002
Average 26% Average 33% Average 28%
Top 10 factors
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IMPORTANCE OF CAPITAL MARKET FACTORS IN INVESTMENT DECISION
Developed markets
N = 56
Emerging markets
N = 93
Brazil
N = 38
Percentage of investors who think that factor is very important for investment decision
Source:McKinsey global investor opinion survey on corporate governance, 2002
Take-over market
International acco-unting standards
Private equity market
Strong investor community
Market regulation and infrastructure
Market Liquidity
Average 26% Average 33% Average 28%
Top 10 factors
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IMPORTANCE OF BROAD COUNTRY LEVEL FACTORS IN INVESTMENT DECISION
Developed markets
N = 56
Emerging markets
N = 93
Brazil
N = 38
Percentage of investors who think that factor is very important for investment decision
Source:McKinsey global investor opinion survey on corporate governance, 2002
Top 10 factors
Average 26% Average 33% Average 28%
Credit information
Banking system
Insolvency and bankruptcy regulation
Competitive intensity
Fiscal environment
Efficient government
Property rights
Pressure on corruption
SW-ZXK895-2002-05-15-MIH-GS
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TOP CORPORATE GOVERNANCE CHANGES THAT COMPANIES SHOULD PURSUE
Source:McKinsey global investor opinion survey on corporate governance, 2002
Percent of those highlighting change by region
Top 5
More timely, broad disclosure
1.
More independent boards
2.
More effective board practices
3.
Adopt performance- related director/management compensation
4.
Protect minority shareholder rights
5.
Asia
North America
Europe
Latin America
Brazil
N= 2828 3030 4545 2626 2929
Most significant change by region
SW-ZXK895-2002-05-15-MIH-GS
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TOP CHANGES THAT POLICYMAKERS SHOULD IMPLEMENT TO IMPROVE CORPORATE GOVERNANCEPercent of those highlighting change by region Most significant change by
region
Top 5
Strengthen shareholderrights
1.
Improve accounting standards
2.
Mandate greater disclosure
3.
Stronger enforcement4.
Promote/mandate independent directors
5.
Asia
North America
Europe
Latin America
Brazil
N= 2828 3131 4545 2727 3030
*Highlighted as most significant as more marked this factor in the "most important" categorySource:McKinsey global investor opinion survey on corporate governance, 2002
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WOULD YOU BE WILLING TO PAY A PREMIUM FOR "GOOD" CORPORATE GOVERNANCE AND IF YES, WHAT PERCENTAGE PREMIUM WOULD YOU BE WILLING TO PAY?
Source:McKinsey global investor opinion survey on corporate governance, 2002
Suppose you are considering investing in the following companies, A and B, in the same country. Past performance has been virtually identical and future market potential appears to be similar for both companies. However, they differ in board governance practices. B has put in place "good" board governance practices
Suppose you are considering investing in the following companies, A and B, in the same country. Past performance has been virtually identical and future market potential appears to be similar for both companies. However, they differ in board governance practices. B has put in place "good" board governance practices
• Minority of outside directors• Outside directors have financial ties
with management• Directors own little or no stock• Directors compensated only with cash
• No formal director evaluation process• Very unresponsive to investor requests for
information on governance issues
• Minority of outside directors• Outside directors have financial ties
with management• Directors own little or no stock• Directors compensated only with cash
• No formal director evaluation process• Very unresponsive to investor requests for
information on governance issues
Company A "Poor" governanceCompany A "Poor" governance
• Majority of outside directors• Outside directors are truly independent;
no ties with management• Directors have significant shareholdings• Material proportion of directors' pay is
stock-related• Formal director evaluation in place• Very responsive to investor requests for
information on governance issues
• Majority of outside directors• Outside directors are truly independent;
no ties with management• Directors have significant shareholdings• Material proportion of directors' pay is
stock-related• Formal director evaluation in place• Very responsive to investor requests for
information on governance issues
Company B "Good" governanceCompany B "Good" governance