Risk & Compliance

Making the Grade

In the latest report on corporate-governance practices by GovernanceMetrics International, 18 companies received a score of 10 out of 10.
Kate O'SullivanMay 4, 2004

Which are the best-governed companies in America? According to GovernanceMetrics International, they include 3M, Intel, McDonald’s, Pfizer, and Target. These heavyweights, along with 13 other, received a score of 10 out of 10 in GMI’s latest report on corporate-governance practices.

The study, which analyzed 2,100 companies around the world, scored them on such criteria as executive compensation, board independence, division of leadership roles, and environmental policies.

Analysts gathered the data from publicly available sources, including Securities and Exchange Commission filings, company Websites, and government agencies. “We’re trying to do an extensive nonfinancial due-diligence check,” says Gavin Anderson, president and CEO of GMI.

By country, Canadian companies achieved the highest average rating at 7.6 out of 10, followed by U.S. companies at 7.0. Japanese businesses scored the lowest, with a 3.0, an average Anderson attributes in large part to poor disclosure.

Similar rankings are also published by The Corporate Library, Standard & Poor’s, and Institutional Shareholder Services.

While these watchdogs hope to give investors and other constituents insight into corporate governance, some companies say the scores don’t always reflect reality. “You end up with kind of a one-size-fits-all ranking,” says Norman Black, spokesperson for United Parcel Service.

And while GMI cited UPS as one of the most-improved companies and upped its score from 5.5 to 7.5, Black says UPS pays little attention to the ratings.

But investors and analysts can’t afford to ignore them, says Beverly Behan, a partner in the corporate-governance practice at Mercer Delta Consulting. She argues that the lists can act as warning signs. “they summarize a lot of information in one place,” says Behan. “You can get a sense of where they may be a problem.” GMI red-flagged Parmalat in July 2003, for example, several months before the Italian company began to unravel. Other companies that fared poorly in GMI’s most-recent report include Bristol-Myers Squibb and Halliburton.

Perfect 10s

U.S. companies awarded a top score by GovernanceMetrics International.

3M Co.
Air Products and Chemicals
Colgate-Palmolive Co.
Cooper Industries Ltd.
E.I. DuPont de Nemours & Co.
Entergy Corp.
Exxon Mobil Corp.
General Electric Co.
General Motors Corp.
Great Lakes Chemical Corp.
Intel Corp.
McDonald’s Corp.
People’s Energy Corp.
PepsiCo Inc.
Pfizer Inc.
Praxair Inc.
Target Corp.
Wisconsin Energy Corp.

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