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MAY 17, 2004
Governance: A Movement Builds In this issue, BusinessWeek presents its second annual ranking of corporate governance for Europe and Asia. Based on analysis done by Institutional Shareholder Services, we were able to identify companies with the best and the worst governance standards, using criteria such as independent directors and executive compensation. Today, most large Asian and European companies still lag their counterparts in the U.S. on governance issues. Corporate boards on both continents are more likely to be dominated by families or a small number of shareholders, and accounting practices tend to be less transparent. Nevertheless, there is momentum building globally for stronger governance standards. The reasons are varied: increased activism from international institutional investors, the shock of big scandals at companies such as Parmalat and Royal Ahold (RD ), and pressure from U.S. and local regulators. In recent years, almost every European country has instituted mainly voluntary corporate governance codes where companies need to either comply with recommendations or explain why they don't. It's important that this move toward improved corporate governance continue. Europe needs to implement more transparent and tougher accounting standards. In Asia, governments such as Korea should keep up their efforts to crack down on companies where the founding families try to maintain control with small amounts of stock. And while there's no correlation between good governance standards and a rising stock price, over the long run, companies that are more responsive to shareholders will be more competitive -- and more likely to be rewarded by the financial markets. When it comes to governance, virtue pays. 
BW MALL
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