Governance and investment

Corporate governance experts are still trying to determine whether governance reforms, such as increased board independence, the chairman-CEO split, and greater executive accountability have any measurable effect on performance.

According to some investors, companies with good corporate governance are already worth more. An often-cited study by the consulting firm McKinsey & Co. reported that most global investors said they'd pay a premium for companies with good corporate governance practices — an average of 11% more. And according to another study by the same firm, the reforms that directors and institutional investors believe are most needed are splitting the chairman and CEO roles, increasing the accountability of directors, and reducing executive compensation.

Cost vs. benefit

One of the controversies in corporate governance is whether the additional cost of complying with stricter reforms provides a benefit to shareholders. For example, some companies are spending thousands of dollars with executive search firms to find qualified independent directors. Many companies are also investing in new technology to meet reporting requirements.

Partly because it's difficult to measure the effect that reforms have on earnings or stock prices, some companies claim that governance regulations harm shareholders by diverting money that could be spent more profitably. But regulators argue that the improvements that will result from good corporate governance outweigh the initial costs of compliance.