BOSTON - France and Britain showed the greatest advances in corporate governance practices last year among leading global markets, according to Davis Global Advisors, a Boston-based corporate governance consulting firm.
As expected, Britain and the United States topped the ranking of five major global markets, given the strong influence of institutional investors.
But France's improved status - creating further distance between itself and Germany and Japan - comes as more of a surprise.
The survey ranked countries by 10 key indicators in four broad categories: board structure, voting rights, disclosure and takeover defenses.
As before, Britain came out on top, with a score of 8.9 out of a possible 10, while the U.S. ranked second at 7.3.
France, ranking third with a score of 5.7, stems from progress in three key areas:
One-fifth of CAC 40 companies have split the jobs of chairman and chief executive officer, up from 7% the year before, as more and more French companies have adopted two-tiered boards. Proposed legislation to permit firms to divide the jobs without having to create separate supervisory and management boards might encourage the trend, Mr. Davis wrote.
Creation of board committees is on the rise, implementing a key Vienot committee on corporate governance recommendation. Nearly three-quarters of CAC 40 companies have created compensation committees, compared with fewer than two-thirds the previous year.
France is dismantling its cross-shareholding system. Companies apparently had waited for stronger equity markets before selling large stakes, the report said.
France also retained other strengths from the perspective of international investors. Nearly four-fifths of French boards are composed of non-executives, slightly ahead of U.S. boards. (U.K. companies showed a rise to an average of 52% from 50%, which is notable because the British sample was increased by 100 smaller companies from last year.)
However, the study did not measure what percentage of non-executives in any country were truly independent. In France, it's presumed the "overwhelming majority" of non-executives are linked to the companies on whose boards they sit. For example, they might be retired executives, suppliers or customers.
What's more, French board numbers were based on a sample of only the top 60 companies. In contrast, in the United States, the top 1,336 companies were surveyed.
(In general, there were far larger samples for U.S. and U.K. companies than for French, German and Japanese companies.)
French companies also must consult shareholders before making many important decisions affecting stock prices, such as approving accounts, profit allocation, dividends, takeover defenses and limits on voting rights.
U.S. managements are not required to seek shareholder approval on these issues, and U.S. companies rank last in this category.
Also, French companies are more likely to use international or U.S. accounting standards than Germany or Japan, making it easier to evaluate their financial statements.
On the down side, it's tougher for an investor in French stocks to vote its shares.
Also, double-voting rights and voting limitations are used far more extensively by French companies than in the other markets, where the one-share, one-vote standard is more widely accepted, the report found.
France also lags the United States and Britain with regard to disclosure of executive pay. Also, French takeover barriers "are more daunting" than in U.S. and British companies, according to the report, but shareholders must approve annually poison pill-type defenses.
Britain's improvement in the scoring came largely from the growing number of British companies splitting the chairman and chief executive roles, increases in board committees, more appointments of non-executive directors, and further elimination of unequal voting rights.