GMI Rates Governance By Country

AMERICAN COMPANIES RATE fourth in the world in terms of their governance practices, according to ratings of 3,800 global companies issued by GovernanceMetrics International in late September. For the first time, GMI analyzed 321 companies from 35 emerging markets and found that they lag significantly behind world leaders. Still, there are some surprising standouts, particularly South Africa and Poland (see table, right).

The U.S. ranked behind Canada, Britain and Australia and just ahead of Ireland. Some 38 countries received GMI's highest rating of 10.0. Three companies—Colgate-Palmolive, BCE of Canada and Pepsi- Co have been among the topranked in every GMI survey since 2003.

The 321 emerging-market companies had a collective ranking of 4.30, far behind leading companies. Only two companies from those markets were above average—Taiwan Semiconductor Manufacturing and Goldfields of South Africa.

In particular, emerging market companies lagged behind in terms of having a majority of independent directors, having an audit committee consisting of independent directors and having a compensation committee of any sort.

Still, there were some surprises. Venezuela, Thailand, the Philippines, Turkey and Mexico all had higher ratings than France, for example. One possible explanation is that GMI analyzed fewer companies in Venezuela (one) than it did in France (99). Comparing a small handful of relatively strong players in emerging markets against a much larger sampling from bigger economies could account for some of the statistical curiosities.

It was also noteworthy that some of the most competitive economies in the world—Japan, China and South Korea—ranked so low, 37, 42 and 45, respectively. A plausible explanation is that Japan, China and South Korea have established that they can compete despite the fact that, and perhaps because, they have dramatically different corporate governance models.