Corporate Governance Ratings, Got the grade… What was the test?

By David Larcker, Brian Tayan
2007 | Case No. CG08

In 2007, there were three prominent corporate governance ratings firms—The Corporate Library (TCL), Governance Metrics International (GMI), and Institutional Shareholder Services (ISS). These firms assessed the effectiveness and deficiency of the governance systems of thousands of publicly traded companies. Although members of the investing public agreed that sound policies were important to protect the interest of shareholders from potentially self-interested managers, there were many questions around the usefulness of published governance ratings themselves. Questions ranged from whether a system of governance could be adequately summarized in a single, numerical score to what a high or low rating was supposed to indicate. Furthermore, allegations that ISS engaged in a conflict of interest by selling consulting services to companies on how to improve their ratings led some to question the objectivity of the ratings process.

This material is available for download by current Stanford GSB students, faculty, and staff, as well as Stanford University alumni. For inquires, contact the Case Writing Officeopen in new window. Download