GovernanceMetrics
International
FOR IMMEDIATE RELEASE: |
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GMI Launches Global Governance Ratings
New York, July 28th, 2003 GovernanceMetrics International(GMI), an independent governance ratings agency, today announced ratings on 1600 global companies. Seventeen companies - fifteen US and two Canadian, received scores of 10.0, GMI's highest rating (see below). The rating universe covers 1000 US and 600 non-US companies from a total of fifteen countries.
In the GMI sample, Canadian companies had the highest overall average rating of 7.2 followed closely by the UK, US and Australia, in that order. Companies with overall global ratings of 7.5 or more, which GMI considers above average, are almost exclusively from these four countries. In continental Europe, French companies scored the lowest with an average of 4.1, but the lowest governance performance of all was Japan, where the average rating was 3.5. US companies comprise 62% of the GMI universe and include a number of smaller corporations which skew the country results somewhat. The average rating for the top 100 US companies was 7.7 which is a more accurate comparison with the UK, Canadian and Australian companies in the universe.
Gavin Anderson, GMI's Chief Executive Officer said, "we scored companies relative to each other; they are not scored against some theoretical gold standard. It is important to note that while a company may score a 10.0, it should not be taken to mean that it is perfect, but rather that its governance and disclosure is better than other companies it is rated against. Conversely, companies with a low overall governance rating may demonstrate a potential risk. For example, last December as part of our first ratings release, we identified for our subscribers both Freddie Mac and Siebel Systems as governance risks well before they became the subject of newspaper stories."
All companies rated by GMI now have both a global rating and a "home market" rating. The global and home market ratings can vary considerably because of local listing standards and legal and regulatory requirements, or lack thereof. Thus, a company that has a high rating relative to other companies in its home market with the same standards, may fare less well compared to other companies on a global basis that have more extensive disclosure or legal requirements.
Even though US and Canadian firms scored well overall, there are still five companies from these two countries that received a global rating of 3.0 or less, which GMI considers well below average. This indicates that despite a strong legal and regulatory framework, companies can still satisfy basic requirements but represent a governance risk to shareholders. Sixteen companies received GMI's lowest rating of 1.0; of these, ten were Japanese, two were French, two were Dutch, and one Swiss and one American.
The data provided useful insights into differences between industries and markets. The highest scoring industries globally were Utilities (average rating of 7.0), Energy (6.9) and Insurance (6.8). The poorer performers were Construction (4.9), Autos (5.6) and Media (5.8). Not surprisingly, more regulated industries tended to have better governance practices overall, although GMI would have expected Financial Services as a regulated industry to have had better ratings overall than the 6.1 the industry achieved.
Noticeable differences were found in how companies performed in particular categories. In the area of potential dilution, Japanese companies scored well since stock options are generally not a feature of compensation practices in that country. On the other hand, of the 483 companies in the ratings universe with potential options dilution of 15% or more, all but seven were American. In financial disclosure, Japanese and European companies tended to score lower than US, Canadian, UK and Australian companies because of fewer disclosure requirements. In addition, 21% of the companies in the ratings do not report their accounts under US GAAP or International Accounting Standards practices, but under purely local standards. These companies are predominately Japanese and Continental European.
European corporations outperform in the area of broader stakeholder relations. In environmental, labor and social matters, European companies have far better practices and disclosure policies than US companies and consistently score better in this category. This is not surprising given the greater attention to those issues by European investment houses, governments and communities.
Legislative and regulatory initiatives this past year in the US, Europe, Japan and Australia have been designed to strengthen corporate governance practices and produce greater shareholder protection, but GMI's Chief Executive Officer, Gavin Anderson said, "that while compliance with new standards has produced improvement, there are still practices and patterns of behavior at many companies that cause shareholder concern; among the myriad of questionable practices we found are a chairman and president who were forced to resign because of bid rigging, but have now been re-hired as advisors; directors who sit on as many as fourteen public company boards as well as several committees; one director who collects a $600,000 annual consulting fee on top of his director fees, and one firm that does not designate either executive directors or a CEO and thus regulations relating to directors remuneration do not apply to them. What our ratings help determine is the culture of accountability and integrity at companies. We know from a number of studies that shareholders will pay a premium for companies with good corporate governance."
GMI's rating system 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.
