Practical Applications of Corporate Governance and Its Impact on Equity Performance

Abstract

In Corporate Governance and Its Impact on Equity Performance, from the Spring 2023 issue of The Journal of Impact and ESG Investing, Carmine de Franco, Johann Nicolle, and Lan-Anh Tran of Ossiam, and Alain Demarolle of Proxinvest find that equity performance is positively affected by three key corporate governance attributes: board composition, CEO compensation, and equity capital structures that include super-voting shares. Positive elements for board composition include 1) diverse backgrounds, 2) small number of directors, 3) demonstrated director independence, 4) long tenure of directors, 5) shorter terms for directors, and 6) low to moderate director compensation. Positive elements for CEO compensation include 1) a high proportion of CEO compensation in the form of base salary and 2) a relatively low cap on CEO bonuses. The authors analyzed companies from developed European countries covering the period January 2017 to December 2021. The authors concluded that investors would profit by incorporating corporate governance considerations in their investment strategies.