Are you wondering what all the fuss is about Stuart Rose combining the chief executive and chairman roles at Marks & Spencer (MKS)? For many, corporate governance is mindless box-ticking but a new study shows that ignoring it can hurt your investment.

The Association of British Insurers (ABI), with pension fund members who own about 20% of the UK equity market, has looked at companies in the FTSE All Share to see if breeches of corporate governance standards have any impact on share price performance.

This work analysed five years of data between 2003 and 2007 and the conclusion is that companies with poor governance underperformed those with high standards by 18% and displayed much higher share price volatility.

The ABI married up four years of information from its Institutional Voting Information Service (IVIS) with share prices to discover companies with the highest standards produced an average 20% return over five years compared with 2% from the worst.

The IVIS system flags breeches in corporate governance via colour-coded alerts and the ABI used it to rank 343 FTSE All Share companies into best and worst. The worst had received at least one ‘red top’ alert (the most severe) for every year between 2004 and 2007, the best had received no red tops during the period.

IVIS looks at a range of factors when deciding whether to red-top a company, including breeches of the Combined Code which, among other things, stipulates that the chief executive and chairman role should be separate.

Companies that ignored pre-emption rights (the right of existing shareholders to get first refusal on new shares in order to avoid dilution) performed particularly poorly.