Assessing the C-suite risk

A few weeks ago I came across a poll on Twitter on the biggest market risk that a corporate balance sheet faces. The options were foreign-currency fluctuations, interest rate, commodities and liquidity. I was amused to find that while all kinds of other operational risks were listed out, corporate governance didn't feature anywhere on the list. When I pointed it out, I was told that corporate governance wasn't a risk. I quote this incident because investors - both large and small - tend to live in denial when it comes to this elephant in the room. Yes, nobody wants to talk about corporate governance. This is perhaps because good governance comprises countless practices and rules - analysts could end up looking for a pin in a haystack if they were to rate a company on this parameter. Therefore, not too many of them invest time on this subject. But it doesn't mean that it isn't a risk. Over the years, I have discovered some telltale signs that have never failed me when it comes to smelling trouble. In one of his columns, Bloomberg columnist and former investment banker, Matt Levine, correctly says that there are two ways to analyse a company.

This article was originally published on July 05, 2019.