July 31, 2019

Moody’s Gets Into the “Governance Ratings” Game

Last week, Moody’s Investors Service published a scoring framework for assessing the governance characteristics of public companies not in the financial service area. Moody’s has scored governance for quite some time, but that was for their credit ratings business – this is a new “governance ratings” framework that stands alone. In other words, Moody’s has long incorporated governance issues into their credit ratings, but this is a new “Governance Assessment” which is separate from their credit ratings. But of course, the analysis for the two types of ratings will be somewhat related – you can think of it as a more comprehensive evaluation of the relevant governance factors that already contribute to a rating.

The new “GAs” provide stand-alone assessments of certain aspects of governance risk relative to defined benchmarks considered from the perspective of the potential impact on creditors. Five key components underpin Moody’s GA scores – ownership and control, compensation design and disclosure, board of director oversight and effectiveness, financial oversight and capital allocation, and compliance, controls and reporting. Each of the five components are scored by assessing several subcomponents.

GAs are expressed using a four-point scale between GA-1 and GA-4. Companies assessed at GA-1 have overall governance practices that generally score at the highest level based on our framework. Companies assessed at GA-4 have overall governance practices that generally score at a lower level.

Data used to conduct GA are sourced only from public disclosures like regulatory filings and investor presentations. Where disclosure is lacking, Moody’s GA will penalize the company and result in a less favorable score relative to the benchmark.

5 Takeways From the Proxy Season

In our “Proxy Season Developments” Practice Area,” we are posting the many reports recapping the recent proxy season as usual – including this note from EY’s Center for Board Matters that lists the top five takeaways…

Also see this blog by BlackRock’s Barbara Novick that has a host of stats for the proxy season…

More on “The Mentor Blog”

We continue to post new items daily on our blog – “The Mentor Blog” – for members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:

– What’s the “Long Term Stock Exchange”?
– Director Overboarding: The Latest Stats
– Board Recruitment: More Companies Looking for IR Expertise
– Attorney-Client: Preserving Privilege in a Crisis
– Expert Witnesses Aren’t Always Experts at Being Expert Witnesses

Broc Romanek