School of Accountancy
If something is important, eventually it gets measured. The last several years clearly have demonstrated that corporate governance is important, so it is no surprise that an industry has emerged to provide ratings of companies' corporate governance. There are several governance ratings providers, and three have been chosen that illustrate the types of rating systems currently in use: 1. Institutional Shareholder Services, 2. Corporate Library-Board Effectiveness Ratings, and 3. Governance Metrics International. For each service, the rating system's purpose, methodology, and criteria are presented. What is good about governance ratings? The ratings further promote the importance of good governance, and they can focus attention on key governance elements that often are linked to positive corporate outcomes. What are the limitations of governance ratings? "Good governance" is a nebulous construct, and the inside of the boardroom is not observable to outsiders.