Board Risk: List of Companies With Low Corporate Governance Risk

Before you go, we thought you'd like these...
Before you go close icon

The ongoing News Corp. wire-tapping debacle has highlighted the importance of having accountable and responsible leadership at the helm of any organization. Nick Summers of Newsweek and The Daily Beast explains how "lax oversight" by the News Corp. board allowed James Murdoch and News of the World to insulate its heinous activities from shareholders.

"But News Corp. is not a typical corporation. It employs a dual-class stock structure that concentrates voting rights and accountability in the hands of a few, namely Rupert Murdoch and a family trust he controls. Murdoch selects and discards his board members, and if Class A shareholders don't like them, they cannot vote, only sell," writes Summers.

The board is the highest governing authority within a company's management structure, charged with a number of important tasks like selecting CEOs, voting on executive pay packages, overseeing the preparation of financial statements, and evaluating mergers and acquisitions. Essentially, corporate board members are the protectors of shareholder rights.

Unfortunately, corporate boards can't always be trusted.

To summarize, here are five main reasons why corporate boards fail:

1. No Repercussions: Shareholder lawsuits don't pose much of a threat to an incompetent board. Most U.S. companies incorporate in Delaware, where state laws exempt board members from financial liability for their actions.

2. Poor Data: Some boards receive too little or too much information -- or just plain bad information. This often occurs when a company's management is trying to manipulate the board.

3. Lack of Time: It's actually quite common for members to sit on the boards of several companies -- which means they don't have the time to properly fulfill their fiduciary duties.

4. Lack of Expertise: Board members don't always have the same level of expertise as management, especially in highly specialized industries, making effective government all but impossible.

5. Dual CEO / Chairman Role: It's actually quite common for CEOs to act as the chairmen of their boards -- but this gross imbalance of power also puts the company at risk.

When it comes to separating the good from bad among corporate boards, to whom do you turn? For today's post, we're listing the ratings of the MSCI RiskMetrics Group.

To help you with your own research, here is a list of S&P 500 companies with top-ranked corporate boards in addition to positive audit, compensation, and shareholder rights metrics. Do you think these boards have shareholders' interests as a top priority?

List sorted by market cap. (Click here to access free, interactive tools to analyze these ideas.)

1. Exxon Mobil (NYS: XOM) : Major Integrated Oil & Gas industry with a market cap of $415.61B. Its Governance Risk Indicator is: Board (Low Risk), Audit (Low Risk), Compensation (Low Risk), Shareholder Rights (Low Risk).

2. Apple (NAS: AAPL) : Personal Computers industry with a market cap of $374.B. Its Governance Risk Indicator is: Board (Low Risk), Audit (Low Risk), Compensation (Low Risk), Shareholder Rights (Low Risk).

3. Microsoft (NAS: MSFT) : Application Software industry with a market cap of $236.79B. Its Governance Risk Indicator is: Board (Low Risk), Audit (Low Risk), Compensation (Low Risk), Shareholder Rights (Low Risk).

4. International Business Machines (NYS: IBM) : Diversified Computer Systems industry with a market cap of $221.56B. Its Governance Risk Indicator is: Board (Low Risk), Audit (Low Risk), Compensation (Low Risk), Shareholder Rights (Low Risk).

5. Chevron (NYS: CVX) : Major Integrated Oil & Gas industry with a market cap of $216.24B. Its Governance Risk Indicator is: Board (Low Risk), Audit (Low Risk), Compensation (Low Risk), Shareholder Rights (Low Risk).

6. General Electric (NYS: GE) : Conglomerates industry with a market cap of $196.84B. Its Governance Risk Indicator is: Board (Low Risk), Audit (Low Risk), Compensation (Low Risk), Shareholder Rights (Low Risk).

7. Wal-Mart Stores (NYS: WMT) : Discount, Variety Stores industry with a market cap of $186.09B. Its Governance Risk Indicator is: Board (Low Risk), Audit (Low Risk), Compensation (Low Risk), Shareholder Rights (Low Risk).

8. Johnson & Johnson (NYS: JNJ) : Major Drug Manufacturers industry with a market cap of $180.7B. Its Governance Risk Indicator is: Board (Low Risk), Audit (Low Risk), Compensation (Low Risk), Shareholder Rights (Low Risk).

9. AT&T (NYS: T) : Domestic Telecom Services industry with a market cap of $177.3B. Its Governance Risk Indicator is: Board (Low Risk), Audit (Low Risk), Compensation (Low Risk), Shareholder Rights (Low Risk).

10. Procter & Gamble (NYS: PG) : Personal Products industry with a market cap of $176.1B. Its Governance Risk Indicator is: Board (Low Risk), Audit (Low Risk), Compensation (Low Risk), Shareholder Rights (Low Risk).

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.


 

Kapitall's Andrew Dominguez and Eben Esterhuizen does not own any of the shares mentioned above.  Data sourced from Finviz and Yahoo! Finance.)

At the time this article was published The Motley Fool owns shares of Apple, Wal-Mart Stores, Microsoft, and Johnson & Johnson. Motley Fool newsletter services have recommended buying shares of Apple, Microsoft, Johnson & Johnson, Procter & Gamble, Chevron, Wal-Mart Stores, and AT&T. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. Motley Fool newsletter services have recommended creating a diagonal call position in Johnson & Johnson. Motley Fool newsletter services have recommended creating a covered collar position in Microsoft. Motley Fool newsletter services have recommended creating a diagonal call position in Wal-Mart Stores. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Read Full Story

Want more news like this?

Sign up for Finance Report by AOL and get everything from business news to personal finance tips delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.

From Our Partners