Corporate Governance Ratings: A Powerful Tool of Corporate Accountability

Abstract

Under the mounting pressure from the various regulatory bodies and institutional investors, the corporate-sector has been forced to re-evaluate and continuously improve their Corporate Governance (CG) systems. Conscientious boards, nowadays, want to benchmark their companies CG policies against their peers. In fact, CG rating system can provide �useful� indication of the governance environment prevalent in different countries, and across individual companies. Due to the complexity of �specific� CG matters, there is an increasingly felt need for having a �quantitative� evaluation methodology for CG and boards. To that end, some professional rating agencies have recently started offering their services and also providing ranking �scorecards� for a fee.

The ISS, GMI, TCL, S&Ps and Deminor are providing cross-border rating services to companies. Moreover, several countries have developed �CG Scorecards� that fulfills the goals defined by analysts and investors. Even though CG scorecards are not always perfect, but still they are widely accepted by the national and international financial communities. Undoubtedly, such rating systems will provide a useful �benchmark� for the investors, who identify �good� CG with a well-run and wellmanaged company. This article focuses on CG ratings as a powerful tool for evaluating the corporations & board accountability. Let us hope, �systematic� application of these rating systems, across the globe, will prove to be a �safety valve� to control fraud and mismanagement in the long-term.