Barber (2010)

Barber, Brad. "Is Good Governance Valuable?" Presentation to The Value of Values conference, Santa Clara University, May 14, 2010.
 

(Rough notes by Lloyd Kurtz, I apologize for inaccuracies or errors of emphasis. - lk)

Barber discussed governance, “the low-hanging fruit” of SRI. In theory, investors should be willing to spend some money to monitor company managements, but need to be careful not to overspend, as that will hurt returns. 

· He showed data that showed large unexplained outperformance by the CalPERS Focus List, although the positive effects have moderated since his original 2006 paper (see Barber 2006), and results were not statistically significant. Since CalPERS tends to zoom in on stocks that have been falling, you could argue that addition to the Focus List stopped their declines, although Brad indicated he already has controls in for that (primarily associated with the value factor). 

• He also noted that CalPERS’ decision to divest tobacco in 2000 was not well-timed from an investment perspective – “tobacco has outperformed massively since that decision.” 
• Finally, he showed data from activist hedge funds demonstrating that when they get involved 1) “operating performance improves dramatically” 2) “CEO pay is cut” and 3) turnover goes up. “They’re really shaking things up at these companies.” As CalPERS has been a big supporter of these funds, they’ve had “significant indirect impact.”
• In the Q&A he questioned the original Gompers finding that high governance companies systematically outperform, saying subsequent studies suggest the ‘governance premium’ is not as reliable as their study may have made it look.