Upfront: The Investor/Corporation Disconnect

Now more than ever, institutional investors determine stock prices. And they have made it clear that corporations have fallen woefully short in the governance and financial reporting arena. A recent survey by Greenwich Associates highlights what the market wants from companies and what companies are delivering in return -- and the radical disconnect between the two.

The majority of institutional investor survey respondents said they value greater disclosure in corporate financial statements above all other governance initiatives, but nearly a third of the corporations surveyed say they have not adopted more comprehensive disclosure practices and have no plans to do so. Many corporate respondents, however, agreed with the institutions that current governance structures have serious problems.

In another key governance area that most institutions identify as important -- guaranteeing the independence of boards of directors -- companies are even less responsive, with 77 percent saying they have neither instituted a change in this area nor made plans to do so.

Fully 80 percent of the institutional investors surveyed regard the disclosure of important details in the footnotes of financial statements as critical.

In addition, many institutions would like to see independent executive compensation committees (47 percent), expensed stock options (33 percent), and CEO certification of financial statements (29 percent).

Companies may have good reasons -- quite apart from maintaining the comfort level of institutional investors -- to be more aggressive in improving reporting and governance. According to a recent Parson Consulting study, organizations that release their financial results earlier than their industry peers achieve an average 15 percent premium in their price-to-earnings (P/E) ratio.