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The High Cost of Governance Deficits: A Case For Modern Governance

At a time when digital disruption, complexities in the geopolitical landscape, and the speed of information are all increasing, companies are under an incredible amount of pressure to perform well for shareholders and stakeholders alike. Corporate governance, at its best, serves as the guardrail that keep companies and their boards of directors on track while they move full speed ahead. But in the wake of a corporate crisis or scandal, public and media attention increasingly focuses on directors, asking: “How could the board let this happen?”

The report employs two approaches to examine the relationship between corporate governance and
company performance:

1. A composite measure of strong corporate governance was created and then applied to the S&P 500. Then, the equity returns for 2017 and 2018 of the top 20% of S&P 500 companies exhibiting strong corporate governance and the bottom 20% were compared.

2. A series of companies that underwent corporate crises fueled by governance deficits was assembled. Their performance one or two years down the line was then compared to the industry average.

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