Survey: Majority of U.S. Institutional Investors Support Further Corporate Governance Reforms

June 1, 2004

Despite the recent debate over the Securities and Exchange Commission’s (SEC) governance proposals, a survey of U.S. institutional investors indicates that a vast majority backs the proposed reforms.

Nearly 80 percent of the 120 buy side portfolio managers and research professionals surveyed by Broadgate Consultants, Inc., said they believe the SEC’s proposals to give shareholders more power to nominate corporate board directors is a good step toward better governance. About three-quarters of respondents believed that the board structures of mutual funds are in need of reform.

In general, 41 percent of respondents agreed U.S. companies should adopt corporate governance models that are designed to balance the needs of constituencies beyond shareholders, while nearly half disagreed with the statement.

Investors were somewhat divided on the state of corporate governance reform, however. More than one-third of survey respondents believed the push for governance reform has gone too far and now risks undermining the credibility of its supporters, while 12 percent were not sure. In addition, 37 percent of respondents thought that public pension funds are attempting to wield too much power, evidenced by one prominent state pension fund’s recent decision to oppose corporate directors at 2,700 companies.

Just over half of the respondents — 53 percent — believed that the Sarbanes- Oxley Act has been effective in promoting better corporate governance and protecting investors, while 21 percent of respondents believe it has not been effective.

More than 60 percent of respondents supported Google’s planned stock auction as opposed to traditional initial public offering methods; however, 51 percent believed that Google shares should be priced at a discount to reflect the fact that insiders will retain control of the company. In addition, 55 percent of respondents did not believe that dual voting structures, such as the one proposed by Google, are justified.

“While the degree of reformist activism among America’s institutional investors ranges widely, one thing is clear: they strongly support further governance reforms, and not only in the corporate boardroom but in their own ‘backyard’ as well,” said Thomas C. Franco, Chairman and Chief Executive Officer of Broadgate Consultants.

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