announcing the merger on July 22 stated: “The merger creates the world’s leading independent firm dedicated to the development and sale of corporate governance risk ratings; environmental, social and corporate governance (ESG) advisory and analytical services; and a suite of online global governance information products and services for the investment market.”
Richard Bennett, the CEO and president of TCL and the new entity, which still has yet to be named, said in a press release how the merger takes advantage of an opportunity in the marketplace. “The merger of The Corporate Library and GMI fills a void in the investment and insurance markets for a global corporate governance research and ratings resource by uniting two pioneering enterprises, both widely recognized for their intellectual leadership,” Bennett said.
One can also argue that the already small field of credible governance research and ratings firms just got smaller as TCL and GMI learn to work together. While both companies have vowed not to change any of their systems or products, they did note in their July 22 press release that they will “explore potential opportunities for integrated services and products driven by market demand.”
No matter how you view the consolidation in the research and ratings marketplace, one thing is certain: corporate governance ratings will become even more relevant in the coming years. With all the enhanced disclosures required by the SEC, the increased transparency and accountability being called for in the Dodd-Frank Act and the explosion of ESG services, investors are going to need help deciphering all the information as they make investment decisions.
Before this year, for the most part investors relied on ISS (formerly Institutional Shareholder Services) to guide them on important shareholder votes. Granted, there have been other players, such as the aforementioned GMI and TCL, as well as Glass Lewis & Co. and Proxy Governance Inc. But the predominance of ISS as a brand in the governance ratings business has not been lost on directors and others involved in the corporate governance space.
At two conferences I attended this summer (The Conference Board Directors Institute Roundtable on Executive Compensation at the University of Delaware’s Weinberg Center in June and the Society of Corporate Secretaries and Governance Professionals National Conference in Chicago last month) several panelists and attendees were concerned about ISS. They were worried about how ISS could become a swing vote in director withhold campaigns especially since the end of broker discretionary voting. Many also believed decisions on how to vote for such issues as Say on Pay could be made without any input from the target companies, which could inadvertently cost some directors their seats.
Meanwhile, the new ISS owner is moving quickly to make the proxy advisory and ratings service even stronger as it separates the RiskMetrics brand from ISS. MSCI is marketing ISS as one of several entities it operates, separate from RiskMetrics. It is driving RiskMetrics Web site readers to a separate ISS Web site, www.issgovernance.com
. MSCI announced in June that it has hired Chris Cernich away from Proxy Governance Inc. to become director of M&A and Proxy Fight Research at ISS. Also, many of the products and services offered by RiskMetrics are now branded as ISS products and services. MSCI also announced last month it plans to cut up to 80 jobs related to the acquisition of RiskMetrics, most of which will be in the research and development and general and administrative areas. [See Responsible Investor article
and SEC regulatory filing
Another development in the corporate governance rating space includes the possibility that Proxy Governance may restructure itself into a not-for-profit model supported by users fees and third-party sponsorships, according to a July 22 Pensions & Investments article
If you were on vacation late last month, you may have missed one of the biggest corporate governance news stories of the summer, if not the year. No, it had nothing to do with financial regulatory reform, the BP mess or another fraud unearthed by the SEC. It was the announcement of a merger between The Corporate Library and GovernanceMetrics International.
One can argue that a merger of the leading corporate governance research firm (The Corporate Library) with an international corporate ratings firm (GMI) is good for the marketplace. For one thing, ISS will get some much-needed competition as it goes through some of its own changes after its parent company, RiskMetrics, was purchased earlier this year by MSCI.