Institutional investors are gradually unifying their financial and non-financial approaches, we now offer a unique and disciplined solution to support them.

In Europe :

  • the rate of independent directors per Board is 40.4% (compared to 62.5% according to companies).
  • 68% of companies have non-independent Boards (compared to 31% according to issuers).
  • 15% of the coverage has a rating “Very Good” (above 8/10).

AlphaValue’s recommendations, the leading european independent equity research house, now include an analysis of the quality of governance of the c. 480 companies covered. This innovation responds to a growing demand from investors for a stronger reading of companies that can be used in their ESG management.

Since 2008, AlphaValue’s 30 analysts have been analysing the governance of European companies for institutional investors. This disciplined inventory of governance is transparent, independent and above all does not rely on any third-party data. These statements are organized so that they can be used by minority shareholders.

Governance takes precedence. The data are abundant and interpretable in contrast to available environmental and social data that are both unstable and unstandardized.

The methodology developed is based on two pillars: the mechanisms for effective governance and the quality of the Board of Directors:

  • Effective governance is assessed through a detailed study of the articles of association, shareholders’ agreements, remuneration, openness to alternative cultures, the size of boards and average ages.
  • The quality of the Board of Directors is judged through the true independence of its members based on a proprietary analysis grid.

Inclusion rather than exclusion

Today, the integration of Governance into management processes is mainly based on data from box ticking. The latter, which is cumbersome and restrictive for issuers, amounts to delegating the analysis of governance to issuers, creating obvious situations of conflicts of interest. This standardization of companies also plays into the hands of index funds to the detriment of the best judgment of active management with a more balanced judgment.

In addition, normalization leads to exclusionary practices that, with hindsight, penalize performance (1.2% less infusion for Norges Bank between 2006 and 2015, or €13 billion).

By integrating Governance (independently and systematically analysed) into valuation (independent and disciplined), AlphaValue offers investors a way to practice inclusion, and thus to make their stock selection more flexible.

Governance and performance

While good governance does not guarantee immediate stock market performance, the reverse is also true, bad governance does not always destroy value explicitly, excluding accidents whose impact is then amplified.

Poor governance is a burden whose cost is difficult to objectify, as is by analogy excessive use of debt. The ex ante integration of governance risk into AlphaValue valuations provides a first indication of what a deadlock on this topic can cost.

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