There are governance principles that make good sense: relying on independent board members and relying on reasonably young experts.
Reality rarely meet principles however. We highlight below firms under the AlphaValue coverage where there is one or more board members which is 75 or older and more than 10 years in the position. AlphaValue own “rules” are that more than 7 years as a board member will turn an independent board member into a non-independent one. There must be an agreement that 10 year is pretty long so that the board members under review are both old and not independent which raises questions about the overall governance discipline.
As a matter of fact the average governance score of the 25 companies which have such a governance profile stands at 48% while the AlphaValue universe average is at 64%. The governance score of AlphaValue is based on a set of factual metrics that aim at measuring how far a given board is geared to defend all shareholders’ interests.
It is also a fact that the % of independent board members in that 25 universe is rather less at 33% than for the AlphaValue average (38%).
While this same universe looks a bit more risky than the average at AlphaValue (Fundamental strength metrics below), there is no way to link financial performance, share price performance and governance profiles. So that the above analytics may be looked at as a vain exercise. It does show however that claims of good governance is one thing while applying principles is another. Few investors will have in mind that Dassault Systemes, Tecnicas Reunidas and Mediaset effectively share similar key man governance issues.
Firms with too-old-in-the-job board members
|Average Age of|
|Sartorius Stedim Biotech||28,6%||64||7||31,5%||9,0|
|Bolsas Y Mercados Esp.||54,5%||67||11||73,0%||7,0|
|Mediaset España Com.||30,8%||66||13||54,8%||7,0|
|Danieli & Co||12,5%||67||8||33,0%||6,0|
|Millennium & Copthorne Hotels||22,2%||62||9||57,5%||3,0|
|AV Universe weighted avg||38,0%||60||11,6||63,8%||6,1|
Board member names can be provided on request : click here
Founded in 2007, AlphaValue is the world’s leading provider of Independent European Equity and Credit Research. We provide comprehensive, unconflicted research-only (no execution, no corporate finance) coverage of c. 480 European mid and large cap stocks. We have an average of 46% of negative recommendations at any one time. Learn more at www.alphavalue.com