According to studies by McKinsey & Co., institutional investors are willing to pay a 12 percent to 14 percent premium for well-governed companies in North America and Western Europe. At Registered Rep.'s request The Corporate Library (TCL) has prepared a list ranking broker/dealers, asset managers and financial services companies that it follows.

The Corporate Library, the independent investment research firm, founded in 1999 by Nell Minow and Robert Monks, employs 30 financial and legal researchers, and tracks more than 2,100 companies. Relying on mostly public filings and databases, these researchers have developed a means to quantify the governance risk of investing in specific publicly held companies.

Here's a small sampling of the information contained in each company's listing, last updated at the end of the third quarter:

  • The company's state of incorporation can have a major impact on a U.S. company's business charter and takeover defenses.

  • Its overall rating — a letter grade ranging from A (highest) to F (lowest) — is the weighted average of eight categories where TCL evaluates each company, including board composition, CEO compensation, shareholder responsiveness, accounting, strategic decision-making, litigation & regulatory problems and takeover defenses.

  • Individual letter grades for CEO compensation, board composition and accounting, currently the most heavily weighted categories.

  • One-, three- and five-year total returns.

  • Annual audit-specific fees paid, plus total fees paid to the company's independent auditor.

  • The chairman's age, tenure and whether that person is also CEO or a former CEO, in some cases an especially important indicator.

  • Whether the board is “classified,” elected to staggered terms rather than all directors being subject to annual re-election. This is a key measure of shareholder “friendliness.”

  • Total number of directors.

  • Dominant shareholder percentages and dominant shareholder names, based on voting percentages, reflecting each company's basic ownership profile.

These indicators are used to help determine “which boards are most likely to enhance and preserve shareholder value and which boards might actually increase investor risk,” explains Minow, chairman of TCL.

COMPANY NAME STATE OF INCORPORATION OVERALL RATING CEO COMP BOAR D COMPOSITION ACCOUNTING 1-YEAR RETURN 3-YEAR RETURN 5-YEAR RETURN CHAIRMAN IS CLASSIFIED BOARD DIRECTORS TOTAL DOMINANT SHAREHOLDER VOTING % DOMINANT SHAREHOLDER
Citigroup Del. F D F D 3.03 38.78 21.55 former CEO No 17
Wells Fargo Del. F F F B 10.96 32.76 76.67 current CEO No 15
Wachovia N.C. F D F F 15.46 41.30 125.40 current CEO Yes 18
Eaton Vance Md. F D C B 26.77 57.44 114.65 current CEO No 7 100.00% Eaton Vance Voting Trust
Gabelli Asset Management N.Y. F D D A 7.93 26.05 84.04 current CEO No 10 96.98 Mario Gabelli
Bank of America Del. D D F C 12.05 42.89 142.90 current CEO No 17
J.P. Morgan Chase Del. D F C C -5.39 16.16 -8.68 current CEO No 16
American Express Company N.Y. D D D A 4.53 50.14 5.83 current CEO No 12
Morgan Stanley Del. D F C B 1.40 28.57 -31.33 current CEO No 11
Merrill Lynch Del. D D D B 3.17 40.67 1.30 current CEO Yes 11
Lehman Brothers Del. D D D A 32.89 61.52 114.33 current CEO Yes 10
Bank of New York N.Y. D C F C 0.51 -7.67 -29.89 current CEO No 13
Franklin Resources Del. D C D B 58.65 87.76 165.04 former CEO No 12 32.90 Charles B. Johnson and Rupert H. Johnson, Jr.
Charles Schwab Corporation Del. D B F C 18.23 2.39 -64.62 current CEO Yes 11 19.37 Charles Schwab
Bear Stearns Del. D D D A 24.41 73.77 158.35 current CEO No 12
E*TRADE Financial Del. D D B F 0.25 1.56 -0.15 an independent director Yes 9
Calamos Asset Management Del. D F A B n/a n/a n/a current CEO No 5 97.09% Calamos Family
Value Line N.Y. D B D B 11.39 44.66 59.74 current CEO No 9 86.47 Arnold Bernhard & Co. owned by Jean Bernhard Buttner, chairman of the board, president and CEO of the company
Goldman Sachs Del. C D B A 9.41 42.47 11.15 current CEO No 11 13.20 The Shareholders' Agreement of Goldman Sachs Group
Mellon Financial Pa. C C D B 0.34 -2.67 -11.94 current CEO Yes 15
Legg Mason Md. C C D A 72.50 220.28 217.57 current CEO Yes 12
Chicago Mercantile Del. C B D C 105.68 n/a n/a an independent director Yes 20
BlackRock Del. C C D A 27.76 86.12 184.31 current CEO Yes 13 84.00 The PNC Financial Services Group, Inc. — Four of BlackRock's thirteen directors are directors and/or executive officers of The PNC Financial Services Group. As of Jan. 31, PNC indirectly owned approximately 70% of BlackRock's outstanding common stock, representing approximately 84% of its combined voting power.
Nuveen Investments Del. C D B A 43.06 53.66 188.85 current CEO No 7 78.00 The St. Paul Companies
Friedman Billings Ramsey Va. C D C A -20.62 40.38 119.80 current CEO No 8
Group Jefferies Group Del. C F B B 23.97 84.47 286.82 current CEO No 5
Instinet Group Del. C C C A -0.76 -4.29 n/a an independent director Yes 11 61.90 Reuters Group
State Street Mass. B B C D -0.22 11.97 -4.08 current CEO No 14
T. Rowe Price Md. B C B A 25.95 97.35 55.53 current CEO No 11
Ameritrade Holding Del. B B B B 63.96 304.57 60.02 former CEO Yes 8 21.50 J. Joe Ricketts, chairman and founder
A.G. Edwards Del. B C B A 34.56 21.10 23.97 current CEO Yes 7
Janus Capital Group Del. B C B C -8.55 -16.92 -64.75 current CEO Yes 11
American Capital Strategies Del. B C B B 39.54 62.50 106.83 current CEO Yes 7
Federated Investors Pa. B B B C 0.50 -10.07 34.43 an executive No 7 100.00 Voting Shares Irrevocable Trust for the benefit of members of the family of John F. Donahue.
Investors Financial Services Del. B C B B -13.05 13.34 92.01 current CEO Yes 7
Affiliated Managers Group Del. B F B B 35.66 66.58 125.14 former CEO No 7
Raymond James Financial Fla. B C B A 7.98 53.21 96.97 current CEO No 10 13.50 Thomas James
Waddell & Reed Financial Del. B D A B -13.61 -11.81 -36.10 an independent director Yes 7
Greenhill & Co. Del. B D A A 95.46 n/a n/a current CEO No 7 25.40 Robert Greenhill family (see ‘Related Party Transactions in proxy’).
Morningstar Ill. B A B B n/a n/a current CEO No 6 78.03 Joe Mansueto - founder, CEO and chairman
Investment Technology Group Del. B C A A 64.35 -35.72 -20.23 current CEO No 7
Piper Jaffray Del. B C B A -32.72 n/a n/a current CEO Yes 8
LaBranche & Co. Del. B B C A -25.18 -71.44 -54.52 current CEO Yes 6
SWS Group Del. B A C B 14.90 -6.32 -37.92 former CEO No 7
Ave. Total Return (as of June 30) 18.50 41.99 60.76 Average > 10.32 20.45% have a controlling shareholder.
S&P 500 (as of June 30) 11.78 46.64 71.67 S&P 500 > 10.86 In the S&P 500, only 2.4% have a controlling shareholder.
“Bad” Companies (D and F rated) 13.31 37.57 55.01 Only 8.65% of our entire coverage universe (2082 companies) have a controlling shareholder.
“Good” Companies (A, B, and C rated) 22.03 45.40 65.42
Source: The Corporate Library

At Registered Rep.'s request, The Corporate Library has prepared a list of broker/dealers, asset managers and financial services firms, whose corporate governance they monitor. Companies are grouped according to overall corporate governance grade. There are four classes of companies ranging from those whose overall grade is an F to those earning a B. No firm gets an A for an overall grade, but several firms get highest honors for certain components, such as CEO compensation, board composition and accounting.