About the Ratings

Over the past several years, shareholders have suffered billions of dollars in losses at some U.S. companies where weak corporate governance practices encouraged waste, fraud and abuse. As a result, investors (large and small), market regulators and mainstream business groups stepped up pressure on boards to improve their governance practices. Many boards responded by boosting director independence and creating boardroom structures that hold management teams accountable. Sadly, some boards slept through the governance revolution. The absence of meaningful boardroom oversight at these laggards often leads to their market meltdowns.

Spurred by a growing stack of studies that show linkage between good governance and company/stock performance, investors no longer limit their use of corporate governance data to proxy voting and identifying targets for proxy season campaigns. Today, many investors view governance as an issue in making investment decisions as well.

This widespread view that "governance matters" necessitates the creation of metrics that allow investors to quickly and accurately identify the relative performance of companies. To meet this rising demand, Institutional Shareholder Services (ISS)—with input from a panel of advisory board members—spent 18 months developing a tool for monitoring and comparing the corporate governance structures of America 's leading publicly-traded companies.

CGQ (Corporate Governance Quotient) ratings appear on the front page of each ISS proxy analysis along with information that provides some context for the rating. A table on the second page of each analysis provides details about the key factors that drive the rating. ISS also markets a real-time database that allows institutional investors to screen portfolio companies on the basis of their CGQ .

Eight core topics comprise the CGQ rating: (1) board structure and composition, (2) audit issues, (3) charter and bylaw provisions, (4) laws of the state of incorporation, (5) executive and director compensation, (6) progressive practices (7) D&O stock ownership, and (8) director education. The score for each core topic reflects a set of key governance variables. The current list comprises 61 of these sub issues. In addition, some variables are analyzed in combination with other provisions. For example, a board with a majority of independent directors and all-independent key board panels (audit, nominating and compensation) receives a higher rating for each of these attributes than it would if it had either one of them in isolation.

ISS hopes CGQ will foster progressive governance practices. Many governance experts advocate continuing education for board members, for example, but companies often have little reason to encourage (or pay for) such training. Going forward, directors who participate in "ISS-accredited" director education program will boost the CGQ scores for the boards where they serve. Accredited education programs are listed in the "ISS Accredited" Director Education Programs section.

Disclosure documents (proxy statements, annual reports, prospectuses, etc.) supply most of the required data. ISS analysts also review corporate web sites and press releases for governance-related information. Issuers may supplement these filings with additional data in order to create an accurate picture of each company's governance practices. To verify and update ISS governance rating data issuers may use this web site which requires a login and password.

For product support please contact support@isscorporateservices.com .

Rating Criteria

Note that some of the ratings factors are also looked at in combination under the premise that corporate governance is enhanced when selected combinations of these criteria are adopted.

"ISS Accredited" Director Education Programs

Improve your CGQ by attending education programs offered by the following groups: