Corporate governance 2006: Caveat creditor

ARE BONDHOLDERS GETTING their due from efforts to improve corporate governance? “As corporate governance specialists, we don’t often look much at the interests of creditors,” says David Paterson, head of research at RREV, a provider of corporate governance services. Paterson’s rationale is simple, and reflects the consensus among his colleagues: corporate governance is there to ensure that shareholders, as owners of a company, are able to protect their interests against failings at management level. Furthermore, shareholders are the main bearers of risk, they stand to lose their assets if a company defaults since they are subordinated to creditors.

Paterson argues, though, that the interests of debt and equity are aligned a lot of the time. “Good corporate governance is in the interest of both bondholders and shareholders,” he says, “as the basic pressure exerted on the management is on improved...