ISS Unveils QuickScore – Review Validation Data Before February 8th

by Womble Carlyle Sandridge & Rice, LLP
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Institutional Shareholder Services, Inc. (“ISS”) last week introduced a new rating system called ISS Governance QuickScore[1] that will replace its current GRId (Governance Risk Indicators) framework[2] effective in late February / early March 2013.
In connection with QuickScore’s roll out, ISS has made a free data verification site[3] available to all covered corporate issuers to correct factual errors in company data used in the ratings. In order to receive feedback prior to QuickScore’s launch, companies must submit changes or updates to ISS before February 8th. ISS will provide feedback on submissions made prior to February 8th no later than February 15th. ISS will continue to accept submissions for consideration in a company’s initial QuickScore calculation until February 15th; however, companies will not receive feedback on their submissions until after QuickScore’s launch. The data verification portal will close on February 15th and re-open after launch. The QuickScore rating methodology is closely aligned with ISS’ benchmark proxy voting policy[4] and thus may also indirectly impact ISS proxy voting recommendations.
QuickScore is designed to help institutional investors identify and monitor potential governance risk in their portfolios and identify possible investor concerns. Like GRId, QuickScore will measure a company’s level of risk based on market practices in the four areas of (i) audit, (ii) board structure, (iii) compensation/remuneration and (iv) shareholder rights. Unlike GRId, QuickScore uses a quantitative approach where governance factor weights are based on the degree of correlation between 79 attributes (in the U.S. market) and 16 performance and risk factors. One change in the attributes considered was made in the compensation category where certain problematic pay practices were removed and a new catch-all category entitled “Controversies” was added; however, the majority of the 79 attributes remain unchanged. Under QuickScore, companies will receive a score that is a relative measure based upon a company’s raw score calculations in each of the four primary categories against those of other companies in the company’s relative index or region. Scores will range 1 to 10 (with 1 indicating lower governance risk and 10 indicating higher governance risk) and will be presented using a standardized appearance.
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Given the simplified scoring system and standardized format of QuickScore, it will likely be easier for ISS to call out those companies that it believes to have governance issues. Companies should therefore act now if possible to verify their data on the ISS website referenced above prior to the February 8th deadline – while there is time to make corrections and no cost to do so.
If you have any questions regarding QuickScore, please contact Janet Lowder, the principal drafter of this client alert, or you may contact the Womble Carlyle attorney with whom you usually work or one of our Corporate and Securities attorneys.

[1]More information about QuickScore may be found in the QuickScore Overview technical document available at
http://www.issgovernance.com/files/ISSGovernanceQuickScoreTechDoc.pdf. In the U.S., QuickScore will cover the largest 3,000 U.S. companies based on market capitalization, with the largest 500 companies compared separately.
[2] Information regarding GRId may be found in our earlier client alert available at http://www.wcsr.com/resources/pdfs/cs020910.pdf.
[3] ISS’ data verification portal is located at http://www.issgovernance.com/quickscore/dataverification. Note that access to company data requires an ID that may be obtained pursuant to instructions found on this site.
[4] More information regarding ISS’ 2013 benchmark voting policies can be found at: http://www.issgovernance.com/policy/2013/policy_information.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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