July 14, 2005

ISS to Acquire IRRC

Perhaps a foreboding sign that a shake-out in the governance ratings space is not far off, Institutional Shareholder Services announced yesterday it was acquiring Investor Responsibility Research Center, a proxy research firm. According to this article, ISS will pay more than $10 million to buy IRRC, which has been struggling since becoming a for-profit entity four years ago.

ISS and IRRC were often painted as bitter rivals. Until Glass Lewis opened its doors a few years ago – and then Proxy Governance late last year – institutional investors only had two choices for proxy research: ISS and IRRC. However, IRRC never provided opinions as to how to vote – it just offered research to assist investors in making their own decisions. In comparison, Glass Lewis and Proxy Governance offer voting opinions ala ISS. Now, ISS will continue to grow at a fast pace – and investor alternatives dwindle back to three.

Interestingly, many folks involved in the proxy research/ratings industry started their careers at IRRC (egs. Pat McGurn, Howard Sherman).

The Conference Board’s New Governance Handbook

This recent ISS article summarizes the new 140-page study by The Conference Board entitled: “Corporate Governance Handbook 2005: Developments in Best Practices, Compliance and Legal Standards.” As I haven’t seen it yet (it costs $495 – $125 for associates), I asked the co-authors – Carolyn Brancato and Chris Blath – to provide us with the skinny:

“We developed the first version of this Handbook after the Enron situation when we had forums across the country on what boards and companies needed to do in the wake of Enron. This Handbook represents the updated version incorporating all the SOX, NYSE and best practices governance provisions enacted since the first version was printed two years ago.

We have organized it according to how boards function, bringing together all materials for each function area, e.g. comp committees, audit committees. Many companies have purchased copies for each board member as a quick “reference” as to each director’s basic duties.

Also, we believe that, as “good faith” becomes more of a focus for directors, they need to know “best practices” in general, not just case by case law. We intend the handbook to be as ‘best practices” reference for directors coping with their new responsibilities.

We have an updated and expanded section on Strategy and ERM since we believe this is the newest “hot” topic boards need to focus on. Since boards have
been focusing on regulatory details such as 404 and compliance, many directors are now saying they want to get back to the reason they are on the board in the first place, e.g. to oversee and monitor the strategy the management devises. Strategy needs to be looked at in a new era of risk and risk needs to be located more at the full board level and not just in the audit committee. We are also starting a working group on enterprise risk management (for a description of the working group/agenda for 1st meeting on 9/15, contact”

SEC Chair Nominee Cox Discloses His Assets

According to various news reports yesterday, Rep. Chris Cox (R-Cal.) has disclosed stock, mutual fund and other assets valued at between about $2.7 million to about $5.85 million. The disclosure is required for Mr. Cox’s confirmation as SEC Chair. The report provides a range in value for each holding, making it impossible to determine a precise value for each asset. Apparently, the future Chair has a penchant for gold stocks. And me? I am a terrible stock-picker – got a tin can buried in the backyard…

US Chamber of Commerce Sues SEC Again

As could be expected, the US Chamber of Commerce filed a petition last week with the D.C. Circuit Court seeking review of the new SEC rules on investment company governance (i.e. requiring 75% independent directors and an independent chairs), following the June 29th SEC Commission meeting when the rules were essentially re-affirmed (technically it was a “response to remand by Court of Appeals“). The SEC’s re-affirmation was much to the chagrin of Commissioners Glassman (see dissent) and Atkins (see dissent). Here is the Court of Appeal’s original decision from June 21st.