Co-op's sin stocks

Ealier in the week The Guardian ran this piece about Co-operative Insurance not investing in six companies because of corporate governance concerns. A couple of them are very well-known (in my bit of the world) as corporate governance basket cases - French Connection and Euromoney (which I used to work for back in the dim and distant).

The interesting bit for me is the performance figures quoted in the article:

French Connection's performance is almost a negative 50% [relative to the All Share], Euromoney Institutional Investors close to 40%, N Brown almost 30% with Carnival not far behind. Amstrad's underperformance is close to 10%.

The question is what is driving that? Is poor governance the sympton, the disease, or is it a self-fulfilling prophecy? Are the companies underperforming because they have poor governance and are therefore badly-run. Or are the companies badly-run, and thus have poor governance? Or is it simply that the market believes that companies that have poor governance will underperform, and so discounts them?

Given that FCUK and Euromoney are at the extreme it is interesting to see that they are also the worst perfomers. On the face of it to does seem to suggest that investors ought to use corporate governance as a factor in investment decisions. Maybe that is enough.