About one-third of investors have divested holdings in a company due to poor corporate governance.

According to a recent Wall Street Journal Online/Harris Interactive Personal-Finance Poll, more than half of U.S. adults (57%) say they invest in long-term financial service investment products, including an employer sponsored 401k, 403b, or a similar retirement plan (35%), individual retirement accounts such as Roth IRA or regular IRA (30%), mutual funds (25%), and individual company stocks (20%) or bonds (13%). Twenty percent say they invest in money market funds, while forty-two percent say they invest in none of these financial service products.

About one-third of investors (36%) say that poor corporate governance had led them to reduce or divest holdings in a company, slightly up from last year (30%). About half of investors (49%) agree that they can trust companies to provide complete and accurate financial information upon which they can make investment decisions.

These are some of the results of an online survey of 2,345 U.S. adults, of whom 1,345 invest in long-term financial service investment products. The survey was conducted by Harris Interactive® between September 19 and 21, 2006 for The Wall Street Journal Online.

Who is responsible for corporate governance?

Almost half of U.S. adult investors (49%) say that boards of directors are most responsible for corporate governance, an increase from 45 percent in 2005. Twenty-one percent of investors consider Chief Executive Officers to be the most responsible, while nineteen percent say senior management is most responsible.

About half of investors agree that boards of directors are effective at overseeing the companies they govern (55%) and at managing executive compensation (45%). Most investors say that the chairman of the board title should go to an independent director (39%) or the chief executive officer (25%), while a fair amount say they do not know (28%).

Effects of the 2002 Sarbanes-Oxley Act

The Sarbanes-Oxley Act of 2002 was enacted to restore confidence in public statements made about the value of companies by providing greater financial information about companies. When asked about what they knew or may have heard about the provisions of Sarbanes-Oxley, including its restrictions and penalties for misinterpretation or misuse of company financial information, 32 percent say Sarbanes-Oxley has been effective at improving the transparency of financial information at public companies, while about one-quarter (24%) say that it has not been effective. Twenty-one percent say that Sarbanes-Oxley has been effective at improving boards of directors' ability to manage executive compensation, and 35 percent say it has not been effective. In both cases, large minorities (44% each) are not sure about the effectiveness of the Sarbanes-Oxley Act.

"The increase in activist investment behavior may be a reflection of the combination of placing responsibility for corporate governance on the board of directors and the lack of trust in company financial information," states Robert Fronk, Senior Vice President for Brand and Strategy at Harris Interactive. "Higher income investors seem to be particularly dissatisfied with current governance efforts and the management of executive compensation and strongly encourage an independent Chairman of the Board. As these issues are more widely reported, it will be very interesting to see if these beliefs and behaviors filter into the broader investor audience."

By Harris Interactive