The Magazine of Corporate Responsibility

RiskMetrics Introduces New Governance Scorekeeping Tool

by James Hyatt

Corporate advisory firm RiskMetrics Group Inc. this week rolls out a scorekeeping tool that will provide a new benchmark for measuring a firm’s attention to governance issues of interest to institutional and other investors.

Board RoomThe new GRId, or Governance Risk Indicators, will score companies against best practices in four areas: board, compensation/remuneration, shareholder rights and audit.

Companies will be ranked with a low, medium or high “absolute level of concern” on performance in those areas, based on 60 to 80 questions.  The initial GRId assessments will cover about 8,000 companies in the U.S., Canada, U.K., France, Germany, the Netherlands and Sweden.

The indicators will replace RiskMetrics’ current CGQ, or Corporate Governance Quotient, ratings, at the end of June.  RiskMetrics said the new indicators take into account practices in local markets, as well as tie-in the proxy voting policies of its Institutional Shareholder Services proxy advisory group.

RiskMetrics stressed the ratings would reflect a company’s individual policies measured against best practices rather than “a relative score tied to peer practices.”   In a sample report, RiskMetrics graded a hypothetical Smith Co. as raising “medium” concern over its board structure, low concern over compensation and audit, but high concern over shareholder rights because directors aren’t elected annually, the board can issue blank check preferred stock, and other hot-button practices.

RiskMetrics said “high-level” ratings will be available on the Yahoo Finance!  website starting in April.  Companies don’t pay to be rated, and also have free access to a site to verify their data.  Institutional investors pay for access to underlying data factors on which the high-level ratings are based

RickMetrics on March 1, 2010, announced a $1.5 billion agreement to be acquired by MSCI Inc., a major provider of market indexes and portfolio analysis.

An explanation of the new approach is available here.


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