GovernanceMetrics International
|
|
September 23, 2008
GMI Releases New Ratings for All Rated Companies
Dear Colleague,
This is to let you know that GMI has just released new ratings and rating reports for our entire universe of 4,200 companies, including 616 from emerging markets.
Today’s release includes a further enhancement to our Red Flag warning system.
Red Flags
As you know, GMI uses a red flag system to highlight new developments and corporate governance practices which we think raise the risk of lower market valuations. Flags are assigned to companies as part of each scheduled quarterly rating release and on a weekly basis as events warrant. Clients also receive a weekly e-Alert when we post non-scheduled red flags or re-rate a company based on new developments.
Many of our clients have told us they find the weekly e-Alerts and red flags an important part of the GMI service and a useful complement to our research and rating reports, especially as the market focuses more and more on risk management. Starting with the previous ratings release (2008.2), we changed the presentation of all GMI Rating Reports in order to make the flagged items more prominent and highlight companies that have multiple flags in the same section of the report.
With today’s release, we have also added more detail to the Export GMI Ratings and Export Key Metrics applications found on the subscriber site.
Under Export GMI Ratings, subscribers are now able to generate a file based on the number of research categories flagged by GMI; the total number of red flags at a particular company; and the number of flags assigned by GMI within each category.
Under Export Key Metrics, subscribers can now choose from 40 different items to identify companies that meet a single red flag criteria or any combination thereof. For example, you might want to run a report to identify companies in a particular market index or market sector that have a non-independent board, that are currently under investigation for accounting irregularities and / or are late in filing financial statements or their proxy statement. Or, depending on your need, you might want to focus on companies that are subject to signification litigation, regulatory fines or criminal investigation concerning environmental matters and / or have suffered from a series of significant workplace safety incidents. Please check the Red Flags tab under Export Key Metrics for the complete list, or contact GMI for assistance.
Clients will see the new features the next time you log into the subscriber site. We hope you find these new tools of value in your investment screening and risk management efforts and would welcome your comments.
Claw-backs
One of the many issues brought to the fore by the current credit crisis has been the link between executive remuneration and corporate risk. Paul Wilmott, founder of Wilmott, a journal of quantitative finance, recently noted “As long as people are compensated hugely for taking risks with other people’s money, and do not suffer equally on the downside, then those risks will inevitably become outrageous.” Numerous efforts are underway to try to address the issue. Some shareholders and compensation advisers advocate the adoption of longer-term performance hurdles before bonus awards can be earned. Others focus on giving shareholders a greater say in approving executive pay plans. Others are concerned with “clawing back” executive pay that is later found to have been based on financial results that were not sustainable.
One of the metrics in GMI’s system asks whether the company has a clause in the employment contract of the CEO and/or key executives, or as part of the company's published policies or bylaws, providing for claw back of any bonuses, options and/or other compensation based on accounts that end up being restated at a later date. This a relatively new feature in executive pay plans, originally spurred by the spate of Enron-era governance and accounting scandals, and is found almost exclusively in the US. Of the 1,760 US companies covered by GMI, 133, or 7.6%, currently include some form of claw-back provision. This is up from 96 the same time last year. The provisions are most often found in large cap companies: 81 of the S&P 500, or 16.2%, now include a claw-back feature.
As the inevitable reform measures make their way through the system it will be interesting to see if claw-backs become a more prominent feature of executive pay plans.
Please feel free to contact us for additional information.