March 26, 2012

Credit Ratings: S&P Considering Making Governance a Factor

Recently, Standards & Poors posted this request for comment as it proposes to score companies as “Strong/Fair/Adequate/Weak” in the area of management & governance. Here are a few items to note:

– The reason S&P is proposing to do this is to enhance transparency. Stage One would be to evaluate “Management & Governance” and assign a score. Stage Two (to likely come later this year) would be to directly link this score to a credit rating. The ultimate objective is to take the most qualitative part of their analysis and remove any mystery.

– The Management & Governance analysis would consolidate their currently separate analyses of governance, accounting aggressiveness, operational capabilities, organizational effectiveness, risk management (ERM), and strategy. The proposed criteria does not address financial policy; that likely will come later.

– S&P analysts will base their assessments on publicly observable track records of management and boards as well as observations from meetings with management.

If S&P adopts this framework, I believe it will be the only rating agency to explicitly assess corporate governance from a credit perspective. Moody’s used to publish ratings separately on governance – but these days, that agency uses its trained governance analysts to factor governance into its “normal” ratings as it deems appropriate (ie. when governance red flags arise) rather than on a separate basis.

More on the JOBS Act

A lot of members have been asking for a copy of the JOBS Act. In our “JOBS Act” Practice Area, we have posted the House version of the bill, as well as the Senate’s amendment (thanks to Lorelei Cisne of Arnall Golden Gregory). And we have announced a May 2nd webcast – “The New World of IPOs: Dissecting the JOBS Act” – featuring the two lawyers that served on the Treasury’s IPO Task Force that led to the JOBS Act, Wilson Sonsini’s Steve Bochner and Latham & Watkin’s Joel Trotter, as well as Davis Polk’s Michael Kaplan. Tune in to learn what you need to know…

2nd Say-on-Pay Failure of the Year

As noted in its Form 8-K, International Game Technology is the second company holding its annual meeting in 2012 to fail to gain majority support for its say-on-pay with only 44% voting in favor. A list of the Form 8-Ks filed by the “failed” companies is posted in’s “Say-on-Pay” Practice Area.

By the way, Semler Brossy is putting out these excellent weekly updates on the say-on-pay votes, summarizing all the latest voting results – including how they jibe with proxy advisor recommendations – and analysis of specific situations. Towers Watson also has put out this excellent memo analyzing the early vote results and how they indicate what is in store for the remainder of the proxy season…

– Broc Romanek