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Does Your Corporate Governance Rate?

By Matthew S. Brown

Why are companies and their boards, more than ever, aiming to assure investors of their commitment to best corporate governance practices? Significant new mandates by the SEC and stock exchanges regarding disclosure, governance, and accounting procedures are the legacy of Tyco, Enron, WorldCom, etc. Also, corporate governance issues have become matters of regular media reports and new publications focused on governance. Once passive institutional and retail shareholders have become increasingly vocal and successful on shareholder ballots. There is also an increasing amount of empirical data to support the position that better governance correlates to better shareholder value.

In the context of these developments, there have been established published rating systems that rank on an absolute basis, and analyze and compare the relative corporate governance practices of public companies. Directors should address the implications of the ratings programs and the criteria they use.

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