Investors are revolting against poor corporate governance, demanding tighter controls that will boost earnings and stock price.
Kevin Genieser is an executive director in the Investment Banking Division of Morgan Stanley and a member of the firm’s Global Energy and Utility Group. He has worked on a range of financing and strategic advisory assignments in the domestic and international power and energy sectors.
A new wave of activism has risen in corporate America, driven by large institutional shareholders who claim companies have not gone far enough in their efforts to embrace good governance. These institutional shareholders maintain that good governance leads to superior financial performance and will not be satisfied unless the companies do more to implement good governance policy.
The utility industry has suffered its share of the same scandals that have marred much of corporate America over the past few years, including improper accounting, market manipulation, and executive corruption. With the dramatic destruction of shareholder value and the unveiling of extreme abuses of corporate power, U.S. legislators and market makers have legislated internal structural changes to organizations, claiming that the internal controls in the companies and boards that ran these corporations had failed. The resulting legal and regulatory directives, including the Sarbanes-Oxley Act and new New York Stock Exchange and NASDAQ listing requirements, have been put into place to drive corporations to implement measures of "good governance" (see sidebar, p. 70).
Rating agencies are advocating further change, implementing systemic procedures to evaluate governance and disclosure policies, and they have begun supplying investors with more comprehensive views and ratings criteria based on these analyses. These agencies also believe that companies with clear policies of good corporate governance are less likely to be downgraded or underperform to expectations.