GovernanceMetrics Linked In Presentation


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GovernanceMetrics helps investors compare companies on their corporate governance quality and risk

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GovernanceMetrics Linked In Presentation

  1. 1. Benefits of GovernanceMetrics International Brian Connolly, Sales Director 212-949-1313 x320 One Exchange Plaza 55 Broadway, 11th Floor New York, NY 10006
  2. 2. Who We Are • Independent corporate governance ratings agency founded in 2000 • Outside shareholders include APG/ABP (pension fund), State Street (inv mgr), UBS (sell side). All vetted GMI’s process and are users • There is no charge to the company to be rated by GMI. GMI does not offer consulting services, pension proxy vote advisory or other conflicting business to rated companies • Services include quarterly research reports, interim news updates, e-Alerts for new red flagged companies, access to GMI metrics database, and rating entire client portfolios vs. benchmark for governance quality/risk
  3. 3. Who We Are • Currently rating 4,100+ companies worldwide, including the complete MSCI World Index, Dow Jones STOXX 600, S&P 500, S&P MidCap 400, S&P SmallCap 600 and Russell 1000 North America: 1,850 companies covered Industrialized Europe: 1,000 companies covered Industrialized Asia-Pacific: 700 companies covered Emerging Markets: 580 companies covered
  4. 4. Our Research Methodology • Ratings database organized into six categories: – Board Accountability – Financial Disclosure and Internal Controls – Shareholder Rights – Executive & Director Remuneration – Market for Control / Ownership Base – Corporate Behavior / Corporate Accountability
  5. 5. Typical Data Sources 8-Ks Global Reporting Initiative 10-Qs GMI Independent Director Annual Reports / 10Ks / 20Fs Guidelines Articles and Memorandum of Association GMI List of Environmentally Bloomberg Sensitive Industries Bylaws Meeting Notice Chairman’s Letter NYSE Charter OSHA C.I.I. Alert Poison Pill Filings Company Website Proxy Statement Earnings Release SEC Rules 14a-8 and S-K EDGAR Social Accountability International Ethics Officer Association Websites on Corporate Behavior Factiva Websites on Environmental Policies
  6. 6. Examples of What Prompts a GMI Red Flag • Delayed filings, qualified audit opinion • Related-party transactions involving senior executives • Significant regulatory investigations • Significant shareholder litigation • Unified control of the board, mgmt and voting power • Potential dilution from stock option plans
  7. 7. GMI and the Investment Process GMI is a direct vs. derived measure of management structure and behavior. Also a measure of quality of information and earnings vs. just earnings growth. Poor governance can increase cost of capital and reduce the value of the corporate brand
  8. 8. New Ways to Value Companies • Now standard practice in Europe and migrating to US –Long Term Responsible Investment (LTRI) analysis, ‘ESG’ or Sustainable Investing • Principles for Responsible Investing Organization ( - $15Trillion of Buy & Sell side signatories in 2009 (double those in 2007). #1 principle is: “Incorporate ESG into portfolio analysis …” • Hedge funds “raiders” like Carl Icahn now using governance reform strategies- also long term players CalSTRS, Relational Investors, Hermes, etc • Mercer and other consultants to screen managers for attention to ESG • GMI’s data now on UBS Portfolio Analytics System (PAS)
  9. 9. Corporate Governance as a Portfolio Strategy 2003-07 5yr Analysis of GMI ratings by AXA Investment Managers: • Using CG can add alpha: companies with upgraded CG scores were more likely to outperform the benchmark index and vice versa. • Defensive tool: Companies with higher CG scores tended to outperform those with lower scores when the economic backdrop was more uncertain • Lower risk: companies with higher CG scores tended to have lower volatility, lower beta and lower value at risk than those with higher scores. Source: Pensions World, February 2008, 23-24.
  10. 10. Governance and Performance GMI Analysis of top rated companies vs. benchmark indices: Full year 2008 during the depth of the financial crisis – double digit excess return: Past three years cumulative return (below)
  11. 11. Recent 5 Year Academic Studies 2003-2008 GMI Ratings and [US] Corporate Performance – Data through June 2008 G. Kevin Spellman, CFA, Dir., Hawk Center for Applied Security Analysis, Wisc. School of Bus. And Dr. Robert Watson, Prof. of Fin. Mgt, Instituto de Empresa Bus., Madrid Buying high GMI rated US stocks produces a winning strategy.... the portfolio of top rated firms outperformed the bottom fractile firms by 27.2% over the 5 years... Given that small-cap companies tend to have lower GMI ratings and small firms outperformed large stocks for the last several years, it is surprising that in later years the high rated GMI stocks continued to perform well relative to lower rated stocks as they did in earlier years... Corp. Governance and Firm Value: International Evidence – Data through Dec 2007 Manuel Ammann, David Oesch# and Markus M. Schmid, Swiss Institute of Banking and Finance, University of St. Gallen, CH-9000 St. Gallen, Switzerland In this paper, we investigate the relation between firm-level [international] corporate governance and firm value in a large and previously unused dataset from Governance Metrics... For all three alternative index constructs we find a strong and positive relation ...
  12. 12. Engagement and Proxy Voting Applications • GMI analyst reports are a script to discuss governance issues with company management • Provides the full governance picture versus just those issues up for a vote • Helps defend a vote for/against management when the overall company rating is good/poor