Last Updated Sep 8, 2008 2:57 PM EDT
RiskMetrics Group, which bought ISS last year, announced the formation of the 12-person board last week. ISS, based in Rockville, Md., has been accused in the media and by competitors of selling consulting services to the same firms it rates regarding the quality of their corporate governance. The firm has maintained it separates the two businesses.
Its move to appoint a "governance leadership council" comes about two months after the Milstein Center for Corporate Governance and Performance at the Yale School of Management recommended that proxy advisers form such groups. The Milstein center also recommended that the industry promote a code of ethics and that the Securities & Exchange Commission appoint a panel to review how the proxy service firms operate.
Glass Lewis, another proxy service firm based in San Francisco, has also appointed a similar outside review board. Glass Lewis, however, does not specifically "rate" companies and does not offer consulting services.
My Takeaway: Many CEOs and directors see ratings services as too powerful and out of control. Any measure to bring some discipline to them is a good idea. RiskMetrics is trying to put a new face on the old ISS, but until the company deals with the contradictions it faces -- rating firms while selling consulting services to them -- the real issues won't be addressed.
(Image by Kyle Kesselring via Flickr, CC. 2.0)