Transcript Fact pack: Global Investor Opinion Survey on Corporate
Copyright 2002
CONFIDENTIAL
Global Investor Opinion Survey on Corporate Governance - 2002
IRBRI Seminar São Paulo, December 3, 2002
This report is solely for the use of client personnel. No part of it may be circulated, quoted, or reproduced for distribution outside the client organization without prior written approval from McKinsey & Company. This material was used by McKinsey & Company during an oral presentation; it is not a complete record of the discussion.
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GLOBAL INVESTOR OPINION SURVEY 2002 – KEY FINDINGS
Corporate governance remains of great concern for institutional investors according to McKinsey's 2002 Global Investor Opinion Survey
•
Corporate governance is at the heart of investment decisions
–
Investors state that they still put corporate governance on a par with financial indicators when evaluating investment decisions
–
An overwhelming majority of investors are prepared to pay a premium for companies exhibiting high governance standards.
–
More than 60% of investors state that governance considerations might lead them to avoid individual companies with poor governance
•
Reform priorities focus on rebuilding the integrity of the system
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The quality of market regulation and infrastructure is highly significant, along with enforceable property rights and downward pressure on corruption
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Specific policy priorities include strengthening shareholder rights, improving accounting standards, promoting board independence and tighter enforcement of existing regulations
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Shareholder equality (protection of minority shareholders) and accounting disclosure are highly valued by investors
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CONTENT
• Respondents to the investor opinion survey come from a wide range of types and size of investing institutions and are in most cases key investment decision markers • Corporate governance remains a great concern for institutional investors and still is at the heart of investments decisions • Reform priorities focus on rebuilding the integrity of the system with policy priorities such as strengthening shareholder rights, improving accounting standards, and enforcing regulations
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CONTENT
•
Respondents to the investor opinion survey come from a wide range of types and size of investing institutions and are in most cases key investment decision markers
• Corporate governance remains a great concern for institutional investors and still is at the heart of investments decisions • Reform priorities should focus on rebuilding the integrity of the system with policy priorities such as strengthening shareholder rights, improving accounting standards, and enforcing regulations
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RESPONDENTS PROFILE - TYPES OF INVESTING INSTITUTIONS
% of respondents
Others*
100% =
Money manager Pension funds
179
14 9 6
28
11 4 11 4 11
31
13 3 16
117
16 12 3
4
25 Private equity/ venture capital 27 23 25 34 Brokers/trade 8 43 6 25 Mutual funds Insurance Bank 21 8 7
Overall
11 7 Asia 29 10 Latin America 8 13 9 5 North America and Europe 25 Africa
* Investment banks with asset management activities, family offices, holdings, development financing, international financial institutions, proxy agencies Source: McKinsey global investor opinion survey on corporate governance, 2002 4
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RESPONDENTS PROFILE - SIZE OF ASSETS UNDER MANAGEMENT
% respondents; US$ billion N =
50+
177
20 28 7 31 3 13 114 30 13 10 29
10 –50 5 –10
4 52 12 11
1 –5
27 39 19
0.1
–1
10 16 7
<0.1
20
Overall
14 7
Asia
16
Latin America
Source: McKinsey global investor opinion survey on corporate governance, 2002 21
North America and Europe
4 25 25 50
Africa
5
RESPONDENTS FUNCTION
% of valid responses (N = 181)
Others* Directors/ principals CEO Investment professionals/ general management 7 6 CFO 8 6 11 8 Analyst 9 Corporate governance specialist 45
* E.g., NED, investor relations, corporate function, investment monitoring and advisers Source: McKinsey global investor opinion survey on corporate governance, 2002
Fund manager
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CONTENT
• Respondents to the investor opinion survey come from a wide range of types and size of investing institutions and are in most cases key investment decision markers •
Corporate governance remains a great concern for institutional investors and still is at the heart of investments decisions
• Reform priorities focus on rebuilding the integrity of the system with policy priorities such as strengthening shareholder rights, improving accounting standards, and enforcing regulations
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CORPORATE GOVERNANCE* IMPORTANCE RELATIVE TO FINANCIAL ISSUES
100% = 19 41 20 39 33 15 54 7 23
More important
42 50 43 66 59
Equally important
47 42 43
Less important
11
Eastern Europe/ Africa
14
Latin America
18
Asia North America Western Europe
* Defined as effective boards of directors; broad disclosure, and strong rights and equal treatment for shareholders Source: McKinsey global investor opinion survey on corporate governance, 2002 8
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CORPORATE GOVERNANCE IMPACT ON INVESTMENT DECISIONS
% of respondents selecting this option, multiple responses possible, N = 189
Avoidance of certain companies Decrease/increase holdings in certain companies Avoidance of certain countries Decrease/increase holdings in certain countries No impact 3 31 28
Source: McKinsey global investor opinion survey on corporate governance, 2002
57 63
•
Only 3% think that corporate governance does not affect their investment decision
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More investors take actions on a company level than just on a country level
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PERCENTAGE OF RESPONDENTS WILLING TO PAY A PREMIUM
Percent saying yes* ( ) Number of data points
Asia Latin America East Europe/Africa North America/West Europe China (34) India (29) Indonesia (26) Japan (36) Malaysia (29) Philippines (26) Singapore (30) South Korea (35) Taiwan (33) Thailand (31)
72 73 70 80 79 74 79 76 69 83
Argentina (26) Brazil (29) Chile (21) Columbia (19) Mexico (34) Venezuela (19)
63 77 80 71 74 68
Egypt (16) Morocco (14) Poland (22) Russia (23) South Africa (20) Turkey (18)
64 69
Canada (46) US (75) France (47) Germany (51)
64
Italy (43)
74
Spain (41) Sweden (41)
70
Switzerland (41)
72
UK (49)
* Important note: several investors who ticked "no" added comments that they just would not invest in companies with "bad" governance, hence, "no" answers are in some cases the most radical ones (see quotes and question how corporate governance affects investment decision) Source: McKinsey global investor opinion survey on corporate governance, 2002 and 2000 70 80 77 76 73 79 76 82 82 10
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PREMIUM FOR "GOOD" CORPORATE GOVERNANCE
Average premiums of those saying yes, % 41 3938
80% of investors would be willing to pay a premium for Brazilian companies with "Good Governance"
27 2525242424 2323 222222212121 20201919 18 1615 1414131313 1211
Eastern Europe/Africa average 32 Asia/Latin America average 13 Eu/North America average 13
Source: McKinsey global investor opinion survey on corporate governance, 2002 11
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DO YOU BELIEVE THAT THE IMPORTANCE OF CORPORATE GOVERNANCE VARIES BY INDUSTRY/SECTOR?
Percent of respondents, N = 154 Yes No
Region
Average 38%
Asia Latin America Eastern Europe/Africa North America Western Europe 32 26 42 52 57 68 74 58 48 43 "… It depends on the industry structure (such as openness and competition), more than the industry itself. If it is dominated by a few family owned conglomerates, for example, the importance of corporate governance increases"
– CIO, US $5 billion AuM Latin America Trader
Source: McKinsey global investor opinion survey on corporate governance, 2002 12
CONTENT
• Respondents to the investor opinion survey come from a wide range of types and size of investing institutions and are in most cases key investment decision markers • Corporate governance remains a great concern for institutional investors and still is at the heart of investments decisions •
Reform priorities focus on rebuilding the integrity of the system with policy priorities such as strengthening shareholder rights, improving accounting standards, and enforcing regulations
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IMPORTANCE OF CORPORATE FACTORS IN INVESTMENT DECISIONS
Percentage of investors who think that factor is very important for investment decision
Accounting disclosure Shareholder equality Developed markets
N = 56
38 70 Board practices 27 Emerging markets
N = 93 27
Aligned incentives
27 25
Independent board 29
22
Prudent debt/equity ratio Non financial disclosure Stakeholder participation
4 7 13 9 15 29 Average 26% Average 33% Source: McKinsey global investor opinion survey on corporate governance, 2002
54 73 Brazil
N = 38 3 5 14
34 29
26 Average 28% Top 10 factors
61 63
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IMPORTANCE OF CAPITAL MARKET FACTORS IN INVESTMENT DECISION
Percentage of investors who think that factor is very important for investment decision Top 10 factors
Developed markets
N = 56
Emerging markets
N = 93
Brazil
N = 38
Market regulation and infrastructure International acco unting standards Market Liquidity Take-over market Strong investor community Private equity market
7 21 25 18
41 36
14 23 25
46 48 47
13 11
42
26
30 39
Average 26% Average 33% Source: McKinsey global investor opinion survey on corporate governance, 2002 Average 28% 15
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IMPORTANCE OF BROAD COUNTRY LEVEL FACTORS IN INVESTMENT DECISION
Percentage of investors who think that factor is very important for investment decision Top 10 factors
Developed markets Emerging markets Brazil
N = 56 N = 93 N = 38
Property rights 49 45 50 Pressure on corruption Fiscal environment 31 29 35 35
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27 Banking system Insolvency and bankruptcy regulation Credit information
20 27
30 35
30
35
26 26
32 Efficient government
14 22
Competitive intensity
7 23 Average 26% Average 33% Source: McKinsey global investor opinion survey on corporate governance, 2002 21 5 Average 28% 16
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TOP CORPORATE GOVERNANCE CHANGES THAT COMPANIES SHOULD PURSUE
Percent of those highlighting change by region Most significant change by region
Top 5 Asia North America Europe Latin America Brazil 1.
More timely, broad disclosure 2.
More independent boards 3.
More effective board practices 4.
Adopt performance related director/ management compensation 5.
Protect minority shareholder rights
14 29 29 61
71
23 17 33 37
50
14
N= 28 30 45
Source: McKinsey global investor opinion survey on corporate governance, 2002
30
28 28 28 19 14
26
38 38
50
21 27 38
29 48 48
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TOP CHANGES THAT POLICYMAKERS SHOULD IMPLEMENT TO IMPROVE CORPORATE GOVERNANCE
Percent of those highlighting change by region Most significant change by region
Top 5 Asia North America Europe Latin America Brazil 1.
Strengthen shareholder rights 2.
Improve accounting standards 3.
Mandate greater disclosure 4.
Stronger enforcement 5.
Promote/mandate independent directors
18 29 29 25
57
15 15 21 27
36
20 22 27
27*
27 26 22 15 37
N= 28 31 45
* Highlighted as most significant as more marked this factor in the "most important" category Source: McKinsey global investor opinion survey on corporate governance, 2002
27 48
13 10
30
18
40
33
40
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WOULD YOU BE WILLING TO PAY A PREMIUM FOR "GOOD" CORPORATE GOVERNANCE AND IF YES, WHAT PERCENTAGE PREMIUM WOULD YOU BE WILLING TO PAY?
Suppose you are considering investing in the following companies, A and B, in the same country. Past performance has been virtually identical and future market potential appears to be similar for both companies. However, they differ in board governance practices. B has put in place "good" board governance practices Company A "Poor" governance Company B "Good" governance
• • • •
Minority of outside directors Outside directors have financial ties with management Directors own little or no stock Directors compensated only with cash
• •
No formal director evaluation process Very unresponsive to investor requests for information on governance issues
• • • • • •
Majority of outside directors Outside directors are truly independent; no ties with management Directors have significant shareholdings Material proportion of directors' pay is stock-related Formal director evaluation in place Very responsive to investor requests for information on governance issues
Source: McKinsey global investor opinion survey on corporate governance, 2002 19