Strategic Intelligence: ESG - Governance Factors

Governance assesses how a company’s internal controls are used to inform business decisions, comply with the law, and meet moral obligations to external stakeholders. Repeated failures in corporate governance-from aggressive tax avoidance to corruption, excessive executive remuneration, and relentless lobbying-have led consumers to lose trust in big business.

Key Highlights

• Poor governance practices are at the root of many corporate scandals. In 2024, US regulators criticized Boeing’s board for failing to hold management accountable for a deterioration of controls around safety standards. Boeing’s share price dropped 32% in 2024.
• In the same year, Sam Bankman-Fried, founder and CEO of FTX, a cryptocurrency exchange, was sentenced to 25 years in prison for defrauding investors. The fraud was enabled by poor governance procedures.
• Between 2022 and 2024, Byju’s, an Indian edtech start-up, saw its valuation collapse from $22 billion to $1 billion. Byju’s made expensive acquisitions just as the end of the COVID pandemic led to a slowdown in the use of edtech. Its downfall was compounded by grave concerns around its opaque management structure, causing a total loss of investor confidence.

Scope

• This report provides an overview of governance, which is central to the analyst's environmental, social, and governance (ESG) framework.
• Our ESG framework helps CEOs identify potential risks and implement mitigating actions that can improve their company’s ESG performance.
• It sets out the reasons why companies must take governance seriously, looks at how corporate governance can go wrong, and highlights practical steps that companies can take to improve governance.
• Taking each aspect of governance in turn, this report provides examples of companies that are leading by example, and companies that have room to improve.
• This report describes how corporate governance has shifted as disclosure requirements have given stakeholders greater access to information. Financial disclosure reveals whether executive pay structures are equitable, for example, while other types of reporting make it harder for companies to evade responsibility for pollution and unsafe or unjust workplace practices.
• The report also provides numerous positive and negative examples that illustrate how corporate governance is inextricably tied to results.

Reasons to Buy

• The analyst’s ESG framework is a management tool that helps CEOs identify potential risks and implement mitigating actions to improve their company’s performance in environmental, social, and governance issues. The framework breaks governance down into four pillars and offers recommendations on how to mitigate the risk of poor governance.
• This report includes case studies for each pillar, showing companies displaying best practices and companies displaying poor governance practices.