Not long ago, I pointed to Eric Jackson's Breakout Performance blog post on the correlation between the makeup of a company's board of directors and that company's level of success, both in terms of revenue and in terms of reputation. This week, along a similar vein, Motley Fool contributor Chris Jones discusses the link between a company's corporate governance practices and its stock prices. Generally, he says, there is a wealth of evidence that companies with good governance practices yield better returns for their investors.
Jones points to three specific examples of said evidence:
All that said, of course, good governance practices don't guarantee high stock prices (a.k.a. success), and high stock prices don't necessarily translate to a good corporate governance quotient. But it's a good place to start for investors who are a bit gun shy given the current economy.
The lesson for businesses is simple: If your stock prices, valuations and/or returns on equity aren't as high as you'd like, take a good hard look at your corporate governance practices. Chances are you'll find room for improvement.