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.
-Broc Romanek, TheCorporateCounsel.net July 31, 2019
