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April 25, 2011
Governance Resolution at Moody's Wins Majority Support
    by Robert Kropp

A resolution calling for the separation of the positions of CEO and Chairman of the Board receives 56% of shareowner votes.

The quality of corporate governance at the credit rating agencies has been questioned ever since the financial crisis, when their inflated ratings misled investors into believing that securities consisting of subprime mortgage loans were credit-worthy. Since then, almost all the securities have been downgraded to junk status.

As James Lardner of Demos stated in a 2010 briefing paper, "In the runup to the financial crisis, no institution more thoroughly betrayed its mission; and no single failure had a more devastating impact."

It now appears that a majority of shareowners at Moody's Investors Service, one of the three major rating agencies, agrees. At the company's annual general meeting last week, a resolution calling for an independent Chairman of the Board was supported by 56% of shareowners. The resolution was co-filed by Hermes Equity Ownership Services (EOS) and the Laborers International Union of North America (LIUNA)."

Citing both the Corporate Core Principles and Guidelines of the California Public Employees' Retirement System (CalPERS) and the Millstein Center for Corporate Governance and Performance, the resolution stated, "We believe that the recent economic crisis demonstrates that no matter how many independent directors there are on the Board, the Board is less able to provide independent oversight of the officers if the Chairman of that Board is also the CEO of the Company."

The company—for which Raymond McDaniel has served as both Chairman and CEO since 2005—called for a vote against the proposal, arguing that its Corporate Governance Principles "allows the Board the flexibility to determine whether the roles should be combined or separated based upon the Company's circumstances and needs at any given time."

The company also argued it "received identical stockholder proposals for its 2010 and 2009 annual meetings which received only approximately 33% and 30% support from Moody's stockholders, respectively."

Noting that Hermes EOS has been engaging with Moody's on the issue since 2009, Director Jennifer Walmsley stated, "The outcome of the vote demonstrates that the tide is turning in the US and that shareholders increasingly recognize the value that an independent chair can bring in providing effective oversight of management."


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