Corporate Governance Quotient CGQ

Transcription

1 Governance Matters Corporate Governance Quotient CGQ

2 Corporate Governance Ratings Governance Matters Growing interest among investment community Quantitative tool for assessing performance Several models now available ISS s Corporate Governance Quotient (CGQ) ranks approximately 7500 companies EAFE Index coverage starting July 2003

3 Uses of CGQ Scores Governance Matters Equity Research--Predictive Modeling D&O Insurance--Risk Assessment Shareholder Activism

4 CGQ General Electric Company Governance Matters Two Ratings Relative to Market Index and Industry Group

5 General Electric Case Study Governance Matters Improved board/committee independence Instituted stock ownership guidelines for executives Prohibited stock option repricing without prior shareholder approval Disclosed information about CEO succession plan and board performance reviews

6 Corporate Governance Quotient (CGQ ) Today, more than ever, investors are concerned about the quality of corporate governance and how it might affect portfolio performance. This widespread view that governance matters necessitates the creation of metrics that allow investment managers to quickly and accurately identify the relative performance of companies vis a vis their governance structures. Provided by Institutional Shareholder Services, the leading provider of proxy voting and corporate governance data services, the Corporate Governance Quotient is a rating tool that assists institutional investors in evaluating the quality of corporate boards and the impact their governance practices may have on performance. Ratings are calculated on the basis of eight core categories, including: 1) board of directors, 2) audit, 3) charter and bylaw provisions, 4) laws of the state of incorporation, 5) executive and director compensation, 6) qualitative factors, 7) ownership, and 8) director education. ISS analyzes 61 data points to derive each issuer s rating. In addition, some variables are analyzed in combination with other provisions. For example, a board with a majority of independent directors and all-independent key board panels (audit, nominating and compensation) receives a higher rating for each of these attributes than it would if it had either one of them in isolation. Approximately 7500 companies, including all of the Russell 3000 Index, are scored daily and are ranked relative to market cap and their industry peer groups. Source data is derived from public disclosure documents, press releases, and corporate websites, then reviewed and verified by ISS s corporate governance analysts. ISS continually analyzes 61 variables related to the corporate governance structure of each of the 7500 companies in its CGQ universe. A complete list of CGQ variables is available at ISS encourages issuers to use a specially-designed web portal ( to submit any material changes related to corporate governance structure, policies and/or procedures. All updates submitted by issuers are date-stamped and the information verified by ISS analysts within two business days.

7 Corporate Governance Quotient (CGQ ) Today, more than ever, investors are concerned about the quality of corporate governance and how it might affect portfolio performance. This widespread view that governance matters necessitates the creation of metrics that allow investment managers to quickly and accurately identify the relative performance of companies vis a vis their governance structures. Provided by Institutional Shareholder Services, the leading provider of proxy voting and corporate governance data services, the Corporate Governance Quotient is a rating tool that assists institutional investors in evaluating the quality of corporate boards and the impact their governance practices may have on performance. Ratings are calculated on the basis of eight core categories, including: 1) board of directors, 2) audit, 3) charter and bylaw provisions, 4) laws of the state of incorporation, 5) executive and director compensation, 6) qualitative factors, 7) ownership, and 8) director education. ISS analyzes 61 data points to derive each issuer s rating. In addition, some variables are analyzed in combination with other provisions. For example, a board with a majority of independent directors and all-independent key board panels (audit, nominating and compensation) receives a higher rating for each of these attributes than it would if it had either one of them in isolation. Approximately 7500 companies, including all of the Russell 3000 Index, are scored daily and are ranked relative to market cap and their industry peer groups. Source data is derived from public disclosure documents, press releases, and corporate websites, then reviewed and verified by ISS s corporate governance analysts. ISS continually analyzes 61 variables related to the corporate governance structure of each of the 7500 companies in its CGQ universe. A complete list of CGQ variables is available at ISS encourages issuers to use a specially-designed web portal ( to submit any material changes related to corporate governance structure, policies and/or procedures. All updates submitted by issuers are date-stamped and the information verified by ISS analysts within two business days.

8 ISS Corporate Governance Quotient Ratings Criteria Note: Some of the ratings factors are also looked at in combination under the premise that corporate governance is enhanced when selected combinations of these criteria are adopted. Board State of Incorporation 1 Board Composition Takeover Provisions Applicable Under State Law - Has Company Opted Out? 2 Nominating Committee Executive and Director Compensation 3 Compensation Committee 41 Cost of Option Plans 4 Governance Committee Option Re-pricing 5 Board Structure 44 Shareholder Approval of Option Plans 6 Board Size 45 Compensation Committee Interlocks 7 Changes In Board Size* 46 Director Compensation 8 Cumulative Voting 47 Pension Plans For Non-Employee Directors 9 Boards Served On CEO 48 Option Expensing* 10 Boards Served On Other Than CEO* 49 Option Burn Rate* 11 Former CEO s 50 Corporate Loans* 12 Chairman/CEOs Separation Qualitative Factors 13 Board Guidelines 51 Retirement Age for Directors 14 Response To Shareholder Proposals 52 Board Performance Reviews 15 Board Attendance* 53 Meetings of Outside Directors 16 Board Vacancies* 54 CEO Succession Plan 17 Related Party Transactions* 55 Outside Advisors Available to Board Audit 56 Directors resign upon job change 18 Audit Committee Ownership 19 Audit Fees* 57 Director Ownership 20 Auditor Rotation* 58 Executive Stock Ownership Guidelines 21 Auditor Ratification* 59 Director Stock Ownership Guidelines Charter/Bylaws 60 Officer and Director Stock Ownership Features of Poison Pills Director Education Vote Requirements 61 Director Education 30 Written Consent 31 Special Meetings 32 Board Amendments 33 Capital Structure * = New variables that will be included within CGQ prior to year-end update. For More Information Mark Brockway [email protected]