Standard & Poor’s Corporate Governance service (CGS)

Standard & Poor’s concept of Corporate Governance Scores (CGS) seeks to express the rating agency’s opinion about the extent to which a company adopts and conforms to codes and guidelines of good corporate governance practices that clearly serve the interests of its financial stakeholders; the rating is on a scale from CGS-10 (highest) to CGS-1 (lowest).

 

Review Mechanisms of Corporate Governance scores (CGS):

 

Scores from 10 (highest) to 1 (lowest) are additionally awarded to the following four individual components that contribute to the overall CGS:
• Ownership Structure
• Financial Stakeholder Relations
• Financial Transparency and Information Disclosures
• Board Structure & Process

 

The Standard & Poor’s Corporate Governance service consists of two parts:

 

1. Company score: Effectiveness of the interaction among the company’s management, Board, shareholders and other stakeholders i.e. internal governance structure and processes, and

2. Country governance classification: The effectiveness of the legal, regulatory informational and market structure.

 

Corporate Governance Ratings:

 

• In India, the ICRA has developed a similar product – it is called Corporate Governance Ratings (CGR).

• CGR indicates ICRA’s current opinion on the relative level to which an organization accepts and follows the codes and guidelines of corporate governance practices.

• The focus of CGR is on corporation’s business practices and the quality of disclosure standards with respect to the requirements of the regulators and interests of the financial stakeholders.

• The rating is mandatory driven. Public ratings are disclosed only on acceptance by the company. The Company may restrict disclosure of Confidential Ratings to select clientele only.

• CGR is based on the OECD’s core principles of Corporate Governance practices i.e. fairness, transparency, accountability and responsibility.

• The ratings fall between CGR1 (highest level of CG) and CGR6 (poor level of CG).

• ICRA also benchmarks the organization against the codes and standards of Corporate Governance as spelt out by SEBI for the listed companies.

• The key variables in the rating process are: regulatory compliance, ownership structure, executive management processes, board structure and processes, stakeholder relations, transparency and disclosures and financial discipline.

• There is usually no direct linkage between CGR and credit ratings.
Suggested Review Mechanisms:

• Parameters of success to be defined: a distinction to be made between commercial failures and corporate governance failures (e.g. Enron, WorldCom. Etc.)

• Six-monthly self-review.

• Annual Review of Board functioning to be done by a committee including RBI representatives (owners), a representative of the Government, experts from ICAI and IIMs, and Directors of other institutions like LIC etc. to get a new direction.

Review Mechanisms of Corporate Governance scores (CGS)
Review Mechanisms of Corporate Governance scores (CGS)

Enabling mechanisms:

 

• Improvement in work / information flow

• Need for modifications in Systems & Procedures

• Strengthening organizational values

• Remuneration

• Training / Exposure to role related requirements

• Division of responsibilities

• Secretarial assistance

 

Penal Provisions:

• Failure on the part of the Board to regulate / supervisor should result in members being held accountable.

• Code of conduct with some outline of proposed action in case of infringement may be put in place to avoid regulatory / legal authorities taking an unduly impractical / harsh view.

 

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↑ Posted on February 28th, 2015

About Mohan Manohar

is a blogger from India who founded Ittech back in 2007. He is passionate about all things tech and knows the Internet and computers like the back of his hand.You can follow Mohan onhttps://about.me/mohanmanohar

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