October 03, 2002
IRRC to Release Corporate Governance Rating Tool
by William Baue
The Investor Responsibility Research Center will launch a new scoring system for evaluating and
benchmarking corporate governance performance.
Yesterday, the Investor Responsibility Research
Center (IRRC) announced its plans to release a tool that will objectively rate corporate
governance. IRRC is teaming up with New York City-based TrueCourse to create a scoring system for corporate
governance. TrueCourse is a financial research firm that provides information to defend against
takeovers. The firm will tailor its Shark
Repellent technology, which compiles information on a company's mechanisms for defending
against takeovers, to develop a searchable web database that will allow clients to analyze and
benchmark a company's corporate governance performance.
"We have followed
TrueCourse since they conceived of Shark Repellent about 18 months ago and were very impressed both
with the product itself and the way TrueCourse does business," said IRRC CEO Linda Crompton. "It
has been obvious to us for a while that we should be developing some kind of governance product, so
when mutual clients started suggesting that we talk, we did and ended up deciding that this would
be a nice partnership."
A wide range of potential users expressed interest in using such a
corporate governance evaluation tool for several purposes. For example, institutional investors
are seeking to assess the degree of responsible corporate governance practiced at the companies
they are invested in, according to Ms. Crompton. Corporate counsel wants to identify leading edge
thinking on governance requirements, and companies want to see how their own corporate governance
performance compares to competitors.
IRRC and TrueCourse's product is distinguishable
from its competitors.
"The big differences between what is currently available and what
we intend to do is, first, the degree of transparency and disclosure we intend to have: no black
boxes, no mysterious computations, and results will be replicable and easy to understand," Ms.
Crompton told SocialFunds.com. "The second difference is the use of advisory panels to identify
the variables contained in the product along with appropriate weightings, ensuring that it is the
market itself that is designing this product. And lastly, there is no opportunity anywhere for
conflict of interest, with no consulting services being sold back to corporations and no mandatory
training programs, just objective research and scores."
TrueCourse is designing the product to allow clients to
choose the weightings of individual factors in order to come up with a customized score that
reflects the client's value framework. Social investors may find this aspect appealing when
comparing this tool to more standardized corporate governance rating tools. IRRC's reputation for
impartial and objective research also enhances the appeal of this tool.
"In an era of
governance ratings overload, the key isn't who has the most data, it's who has the most objective
data," said TrueCourse President Jim Sussmann. "Our process will help establish industry standards
based upon extensive market participation. Our products will provide insight and give members of
the investment community what they need when they need it."