The Good Guys Finish First
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More than 1,000 analysts and portfolio managers, on both the buy and sell sides, nominated companies across 41 industry sectors for the Institutional Investor survey. Investors said that transparency and quality of financial disclosures were the most important factors in determining the effectiveness of investor relations communications. Also important are the credibility, integrity and candor of the Investor Relations team, followed by access to senior management, the magazine said.
Comments from those investors back academic studies that show that investors can profit if they buy stocks of companies with good governance practices. That means an independent board, pristine accounting, executive compensation that matches performance and few antitakeover rules, the Wall Street Journal reported.
A study by Georgia State, and data compiled by the Corporate Library, found higher returns for stocks of well-governed companies, compared with the overall market.
In the Institutional Investor survey, PepsiCo ranked first in investor relations on the buy side in the beverages sector. The Journal called the company a “poster child for good governance” because of its strong management and straight talk. It also offers employees flexible, comprehensive benefits and promotes diversity in its work force.
“It's the harmonic convergence of everything you'd want as an investor," says Herb Achey, senior consumer-goods analyst for U.S. Trust.
Richfield, Minn.-based Best Buy Co. Inc. topped the rankings on both the buy and sell sides in the retailing/hardlines sector. Also, Procter & Gamble Co., with its headquarters in Cincinnati, was listed tops in the cosmetics, household and personal care products sector, on both the buy and sell sides. Colgate-Palmolive ranked two and three on the buy and sell sides, respectively.
The Journal noted that Colgate-Palmolive Chief Executive Reuben Mark refused to throw his hat in the ring for re-election to the board in 2003 because he opposed the company's murky succession plans, a move that won him the respect of good-governance watchdogs. The company is committed to transparency and openness, and analysts expect long-term earnings growth of 10 percent to 12 percent.
Other companies that ranked No. 1 on both the buy and sell sides: In the large-cap banks sector, it was Wachovia Corp. The Goldman Sachs Group Inc. ranked first in the brokers and asset managers sector. Accenture topped the computer services and IT consulting sector. Cisco Systems ranked first in the communications equipment sector, and Eli Lilly was tops in pharmaceuticals.
The full list can be found at www.institutionalinvestor.com.