Chapter 13 - Chapter 13-Corporate Governance Rating Systems...

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Chapter 13-Corporate Governance Rating Systems for Companies The quality of a company’s corporate governance is now seen as vital The standard of corporate governance is an important element in risk evaluation of a company There needs to be a way to monitor, measure and compare standards of corporate governance A reliable corporate governance rating from an independent and respected organization can reduce a company’s cost of capital, reflecting the premium that investors are now prepared to pay four sound governance A number of rating systems have been developed but use different criteria and the stores are usually not compatible and conclusions sometimes differ Standard and Poor’s (S&P): - An organization better known for its credit ratings, offers a corporate governance rating service companies - Independent and does not also offer company advisory or training services - Acts with the cooperation of the company, interviewing senior executives and directors and reviewing information in both the public domain and confidential data - Has developed a proprietary technology to produce its governance scores based on a synthesis of best practices and codes around the world - The final score is numeric and based on the following four sectors 1. Ownership structure and external influences which consider the transparency of ownership structure, the concentration and the influence of ownership, and other external stakeholders 2. Shareholder rights and relations, incl. shareholder meetings and voting procedure, ownership rights, and takeover defenses, and other stakeholder relations 3. Transparency, disclosure, and audit, such as the content of public disclosure, the timing and access to public disclosure and audit process 4. Board structure and effectiveness, including director independence, the role and effectiveness of the board, director and senior executive compensation The FTSE Group in collaboration with International Shareholder Services (ISS)
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Chapter 13 - Chapter 13-Corporate Governance Rating Systems...

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