January 23, 2013

Governance Ratings: ISS Changes “GRId” to “QuickScore”

One of the greater challenges last proxy season was ISS rolling out an updated governance ratings service – GRId 2.0 – in the late stages of the proxy season. Last week, ISS sent out the letter below to companies explaining how GRId is changing – including its name – along with a timeline of the new QuickScore launch (it seems there is potential for another “midst of the proxy season” surprise; I’ll ask Pat about this during tomorrow’s webcast):

Most public companies in established markets worldwide are familiar with Institutional Shareholder Services (ISS) and the corporate governance research and proxy voting services we provide to global investors. One of those services is our Governance Risk Indicators (GRId) database, which was designed to assess companies’ governance practices, assigning low, medium and high risk concern levels across practices related to board, executive compensation/remuneration, audit and shareholder rights.

Effective late February/early March 2013, ISS will replace GRId with ISS Governance QuickScore™, which is the first in a suite of ISS QuickScore solutions designed to identify risk within portfolio companies. The ISS Governance QuickScore, which identifies governance risk within a company, will be made available to institutional investors and companies in late February.

Although similar to GRId in concept, ISS Governance QuickScore™ differs in the following ways:

– Methodology – ISS Governance QuickScore uses a quantitatively-driven methodology that looks for correlations between governance factors and key financial metrics, with a secondary policy-based overlay that aligns the qualitative aspect of governance with ISS policy. The methodology is based on best practices across various governance factors, with the number of factors applied varying by region. Details regarding regional factors will be included in a forthcoming technical document.

– Scoring – Moving away from GRId’s color-coded concern levels, ISS Governance QuickScore uses a numeric, decile-based score that indicates a company’s rank relative to region. Companies will still be assessed on four independent dimensions: board, compensation/remuneration, shareholder rights, and audit, and will also receive an overall Governance QuickScore and assessment. In the latter half of the year, scores relative to industry sector will be introduced.

– Coverage – Initially, ISS QuickScore coverage will encompass 4,100 companies in 25 markets, including the largest 3000 U.S. companies by market cap, the largest 250 Canadian companies by market cap and UK, Europe, Japan and Asia Pacific companies in the MSCI-EAFE index.

Companies within this QuickScore coverage universe will have access to ISS’ free data verification site, beginning Monday January 28. At that time, companies can begin to review the data ISS has collected on the QuickScore factors. Note that during this period, only the governance profile for your company will be available for review until Governance QuickScores are published in late February/early March. If you need a log-in ID to the free data verification site, please email us.

ISS Governance QuickScore Implementation Timeline

– January 24 – QuickScore Technical Document and FAQ available for download

– Today through January 25 – GRId data and concern levels remain in effect and are displayed through all current distribution channels.

– January 28 – Data review and verification site opens for companies to review their data against the Governance QuickScore factors. GRId data and concern levels are unavailable.

– February 15 – Data review and verification site closes (although the site will open again and remain open after QuickScores are calculated and released in late February/early March)

– Late Feb/early Mar – ISS Governance QuickScore launches. Governance QuickScores are applied to all 4,100 companies in the coverage universe. GRId is retired. We anticipate a Governance QuickScore launch date on or around February 25, but will confirm/update that date in subsequent communications.

For all covered companies, the ISS Governance QuickScore will be displayed on ISS’ proxy research reports beginning with the late February/early March launch.

Over the coming weeks, you will receive a series of informative communications providing additional details about ISS Governance QuickScore that should answer most of your questions. Look for communications next week that will include access to the ISS Governance QuickScore Technical Document, FAQs and sample reports. If you still have questions after receiving these materials next week, you can email us.

Starting in late February/early March, GRId subscribers will see their current GRId view within ICS’ Governance Analytics platform replaced with modeling and analytical tools based on the new ISS Governance QuickScore methodology.

ISS Updates P4P Methodology Whitepaper

Hat tip to Ed Hauder of Exequity for notifying us of this development: ISS recently posted its whitepaper detailing its pay for performance (P4P) methodology:

The Evaluating Pay for Performance white paper provides an overview of ISS’ approach in evaluating Pay for Performance alignment. Originally published prior to the 2012 proxy season [Note: a revised version of the whitepaper was published in February 2012], the document incorporates further updates for 2013 that describe ISS’ new peer selection methodology and approach to measuring realizable pay.

Webcast: “Pat McGurn’s Forecast for 2013 Proxy Season: Wild and Woolly”

Tune in tomorrow for the always entertaining webcast – “Pat McGurn’s Forecast for 2013 Proxy Season: Wild and Woolly” – Pat McGurn of ISS and the proxy season expert, will recap what transpired during the 2012 proxy season and what to expect for 2013. Please print off these “Course Materials” in advance.

– Broc Romanek