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Governance Services Standard Poor s

Corporate governance is: A mechanism that encourages efficient use of resources and equally demands responsibility for managing these resources (Sir Adrian Cadbery)A set of internal mechanisms to lead the company and control it (OECD)The system of interaction of a company's management, board of directors and shareholders designed to ensure maximization of the company's value and that all financial stakeholders receive their fair share of the company's earnings (Standard

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Governance Services Standard Poor s

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    1. Governance Services Standard & Poors

    2. Corporate Governance Score Measuring corporate governance performance

    3. Investors are the CGS target audience

    4. CGS can Push the share price and liquidity up by providing additional assurance to investors Decrease the cost of debt and equity, diversify the sources of funding Reduce the costs of D&O insurance policies Help to improve the image for clients and investors; build up reputation and corporate history Provide companies with benchmarks for internal change particularly if an enhanced comparative analytical report is produced in the framework of Corporate Governance Evaluation, or CGE Reasoning behind a companys decision to receive a CGS

    5. 200 institutional investors (collectively responsible for some USD 2 trillion of assets under management) 85% - put corporate governance on a par with financial indicators when evaluating investment decisions 78% - willing to pay a premium for a well-governed company Premium for good corporate governance may be as high as 40% (see graph on the next slide) Global Investor Opinion Survey McKinsey & Co. (July 2002)

    6. Global Investor Opinion Survey McKinsey & Co. (July 2002) Average premium investors would pay for a well-governed company by country and region

    7. Corporate Governance and Equity Prices

    9. Relation between CGS and value: Deutsche Bank study, 50 emerging-markets companies

    13. S&P Corporate Governance Score a global instrument

    14. Interpretation of Scores

    15. List of public Corporate Governance Scores (CGS) in Russia

    16. List of public Corporate Governance Scores (CGS) and Governance Assessments (GA) assigned outside Russia in 2001-2005

    18. CGS evaluates the effectiveness of co-ordination mechanisms between management, board of directors and shareholders

    19. Key analytical issues: 1. Ownership structure and external influence Transparency of ownership Disclosure of beneficiaries of large blocks, including their external interests Management shareholdings Group structure, affiliate parties Concentration and influence of ownership and external stakeholders Clear and balanced influence Existence of conflicts of interests of different shareholder groups (cross-subsidization, transfer pricing) If that exists, how it is balanced (decisions on related party transactions) Influence of external stakeholders (federal government, local authorities)

    20. Key Analytical issues (cont.): 2. Shareholder rights and stakeholder relations Shareholder meetings and voting procedures Ease of access Quality of materials provided Voting procedures and discussions Ownership rights and takeover defenses Guarantees of ownership rights Dividend policy and discipline Mechanisms impeding change of ownership Stakeholder relations Social policy Ecological policy Labor relations

    21. Key Analytical issues (cont.): 3. Transparency, Disclosure and Audit Content of public disclosure Financial reporting standards, completeness of disclosure Non-financial information (assets, strategy) Analysis of risks Management and director remuneration Auditor compensation Non-financial reporting (GRI standards) Timing of, and access to, public disclosure Timeline Ways of disclosure, non-discriminating access Timeliness of event-driven commentaries The audit process Auditor selection process Scope of services provided by the auditor Independent oversight (Audit Committee) Internal controls

    22. Key Analytical issues (cont.): 4. Board structure and effectiveness Board structure and independence Balance of interests Independent directors Skill mix and personal qualities Committees Role and effectiveness of the board Oversight and audit (related-party transactions, material transactions, investments) Strategic planning Risk management policies (incl. non-financial risks) Evaluations of efficiency, management nomination procedures Director and senior executive remuneration Adequacy of director remuneration policy; evaluation procedures Principles and forms of remuneration (BSC, KPI system)

    23. Russian companies CGS and their components

    24. Selected comparative governance data on Russian companies

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