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GovernanceMetrics International

Launches Corporate Governance Rating Service

 

Publishes detailed ratings on S&P 500 companies drawn from over 600 metrics

 

December 3, 2002 – New York, NY – GovernanceMetrics International (GMI), an independent corporate governance ratings agency, today announced the launch of its information service for institutional investors and the completion of its ratings for the S&P 500.

 

GMI rates companies on a scale from one to ten. Of the S&P 500 companies five received the highest rating of 10, which GMI describes as “well above average” in their governance policies and practices. These companies are ­­Johnson Controls Inc., MBIA Inc., Pfizer Inc., SLM Corporation, and Sunoco Inc.

 

GMI’s rating system, developed and tested during the past two and a half years, incorporates more than 600 data points across seven broad categories of analysis, including board accountability, disclosure, executive compensation, shareholder rights, ownership base, takeover provisions and corporate behavior and social responsibility. Subscribers to GMI are able to view a company’s overall rating, section ratings and several pages of written analysis. The firm also utilizes a “red flag” alert to identify areas that it believes investors should pay particular attention to. Ratings will be recalculated approximately every 6 months and developments are updated daily.  GMI is initially starting with the S&P 500, but plans to cover 2000 companies by the end of 2003. In October the company completed a private placement and now counts among its investors ABP, Europe’s largest pension fund, and Inter-Atlantic Fund of New York, representing a number of US and non-US institutional investors.

 

“In the post-Enron world, it is evident that a new instrument from an independent provider is needed to measure corporate accountability,” said Gavin Anderson, GMI chief executive officer. “For more than two years we have worked to perfect our rating metrics, which are drawn from securities regulations, codes of best practice, listing requirements of major exchanges and our own experience. We have also had legal, investor and corporate input,” Mr. Anderson added.

 

GMI’s objective rating methodology, based on “yes”, “no” or “not disclosed” responses to its metrics, measures how companies compare on standards of corporate governance. As a result, it highlights companies with good governance attributes, identifies deficient areas in companies with an otherwise acceptable governance profile and spotlights those with weak corporate governance architecture or practices.

 

“Institutional investors now recognize that uncertainty in corporate governance equals risk and are more willing than ever to reward companies with good corporate governance practices,” said Mr. Anderson. According to a recent McKinsey & Company study, fifty percent of investors surveyed now regard corporate governance as equal in importance to financial performance when making an investment and seventy-five percent said they’d be willing to pay a premium for companies with good governance.

 

GMI scores companies relative to each other; they are not scored against some theoretical gold standard. Accordingly, the company believes that its ratings reflect real world experience. Mr. Anderson cautioned however that “a company receiving a low score in our ratings does not necessarily mean that it has woeful governance, although that is possible. It definitely means that it has relatively poor governance features compared to others in this particular universe. It is possible that such a company may do better when compared to other companies that we have yet to rate in a larger universe”

 

GMI offers a web-based subscription service. The company has institutions with a combined $2 trillion dollars in assets under management receiving its ratings.  Initial participants have agreed to be part of a beta test.

 

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GMI was founded by Mr. Anderson, former CEO of Gavin Anderson & Co., a worldwide corporate and financial relations firm; Jon Lukomnik, former deputy controller of New York City, where he oversaw the city’s pension fund; Gary Kraut, principal at G.A. Kraut Co., Inc., an investor relations consultancy, and a founder of bigdough.com; and Stephen Davis, president of Davis Global Advisors, an international corporate governance consultancy, and advisor to the World Bank and the Euronext stock exchange. Howard Sherman, the company’s COO, joined in late 2001. Mr. Sherman is the former CEO of Institutional Shareholder Services and the former president of Thomson Financial Investor Relations.