Board Oversight is Positive for Both Profit and Non-Profit Companies

A new study shows non-profit boards that practice good governance and stress accountability contrary to groups urging more oversight of non-profit organizations. The Johns Hopkins University Listening Post Project issued the report in which a vast majority of the 247 boards surveyed “are highly or significantly involved in the key strategic oversight functions that non-profit boards are expected to perform,” according to the study cited in the Fort Worth News-Sentinel.


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“This is not to say that all non-profit organizations are paragons of organizational virtue. However, the dire assessments emanating from alarmist media accounts seem significantly overdrawn," the report’s authors are quoted as writing by the Fort Worth News-Sentinel. The authors, Lester Salamon and Stephanie Geller, went on to say that, “[t]he non-profit sector is well along toward getting its organizational house in order, and legislative fixes premised on worst-case scenarios should therefore be approached with considerable caution.”

The oversight functions covered in the study included approval of significant monetary transactions (81 percent), reviews of auditing and accounting standards (83 percent), and setting executive compensation (88 percent). Certain practices leading toward the setting of ethical standards ranked 73 percent and higher in the study. These practices include the recording of conflict of interest, retention, and travel expenditures.

Another study released by GovernanceMetrics International shows that companies exercising less board oversight were more likely to restate earnings or be found out of accounting compliance than well-governed companies according to MarketWatch.

“There seems to be a strong correlation between governance and performance,” said Gavin Anderson, president and CEO of GovernanceMetrics speaking in MarketWatch. He offered a suggestion for investors to reduce their shares in poorly governed companies in order to see better overall portfolio performance. The company started rating companies in 2002.

The company watches and rates 3,200 companies of which, almost three dozen companies were given the highest score possible, a 10. GovernanceMetrics also looks for companies with the most improvement. Tyco International took top numbers in this study.

The company found a correlation between ratings and the shareholder returns. Poorly rated companies performed at 8.73 percent while well rated companies returned 15.93 percent through September 1, 2005 according to MarketWatch. The S&P 500 average for the same period was 11.91 percent according to GovernanceMetrics.

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