Amid all the hand-wringing about boards of directors, several well-known--and some not so well-known--players in corporate governance have introduced board-ratings systems.
Last month, for example, GovernanceMetrics International Inc. was scheduled to launch its GMI Ratings. According to CEO Gavin Anderson, the more than 600 metrics in the start-up's database rate companies in seven categories ranging from board accountability to shareholder rights. "We issue eight scores per company--one overall and one for every subcategory," says Anderson. Subscribers pay a flat fee of $18,000 for the rating, which is accompanied by a written analysis that "red flags" areas of weakness.
GMI's offering is the latest in a crowded field. Last June, Institutional Shareholder Services introduced the Corporate Governance Quotient into its proxy reports for the Russell 3,000. Standard & Poor's jumped into the game in October, offering both governance-transparency ratings for the S&P 500 and individualized company assessments. Next year, The Corporate Library and the Investor Responsibility Research Center (in conjunction with TrueCourse Inc.) are set to offer systems.
Most of the systems are geared toward giving investors an overview of a firm's corporate-governance practices. For firms, however, they offer different insights. Aside from benchmarking a firm's own governance practices, says Anderson, GMI's rating offers a glimpse into "the governance practices of [potential acquisition] targets." And for anyone thinking of joining a board, the system is a useful due-diligence tool, he adds.
Skeptics worry about the snapshot nature of many of the ratings. Because most use only public information, says Richard M. Steinberg, corporate-governance leader at PricewaterhouseCoopers LLP, they cannot "capture how the board operates inside the boardroom." Still, says Patrick McGurn, vice president of ISS, the best thing that could come out of the flurry of mechanisms would be if companies "adopted better standards."
Who's rating whom?
|Institutional Shareholder Services|
Russell 3,000 Index*
|Governance Metrics Int'l||S&P 500*|
|Standard & Poor's||S&P 500|
|The Corporate Library**||1,700 U.S. companies|
|IRRC/ True Course**||4,000 U.S. companies|
*Soon to be expanded
**Soon to be released