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STUDIES LINK CORPORATE GOVERNANCE PRACTICES TO STOCK PRICES

There has been much recent talk about the costs behind implementing the kinds of corporate governance practices recommended by the Sarbanes-Oxley Act and many of the stock exchanges. But there is also a growing body of evidence that good corporate governance measures are linked to stock performance

and shareholder value.

A panel of speakers at the recent Deloitte oil and gas conference tackled this topic. Some academic studies have examined the issue. And one financial association held a workshop in late November that looked at corporate governance as an investment strategy and analyst tool.

"While good governance may not be enough to fix a lousy business, it's clear that bad governance can easily ruin a good business," said Howard Sherman, chief operating officer of GovernanceMetrics International (GMI), at the Deloitte conference. He said the evidence has become pretty dramatic that, over time, "governance does matter."

GMI is a New York-based firm that issues corporate governance ratings for more than 1,600 global companies. In September, it compared the performance of its top 10 percent-rated companies versus its bottom 10 percent-rated companies. GMI looked at the companies' total returns to shareholders (return on investment, including income from dividends and interest, as well as appreciation or depreciation in the price of the security) for the past one-, three-, five- and, sometimes, 10-year periods.

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