Without specifying names, the U.S. regulator said on Nov. 15 that ratings agencies in the country experienced problems such as the failure to follow policies, keep records, and disclose conflicts of interest. Moody\u2019s and Standard & Poor\u2019s Corp. accounted for around 83% of all credit ratings, the SEC said. (This article is the second of a two-part series that already discussed corporate governance problems at The McGraw-Hill Companies (MHP), of which S&P is a part.) Each of the larger agencies did not appear to follow their policies in determining certain credit ratings, the SEC found, among other things. The regulator also said all the agencies could strengthen their internal supervisory controls.<\/p>\n
The SEC noted that Moody\u2019s has 128 credit analyst supervisors and 1,124 credit analysts, in contrast with S&P\u2019s 244 supervisors and 1,172 credit analysts. The regulator also examined the function of board supervision at ratings agencies, and implied in its report that directors should be \u201cgenerally involved\u201d in oversight, make records of their recommendations to managers, and follow corporate codes of conduct. The SEC did not specify to what extent Moody\u2019s board had fulfilled such duties.<\/p>\n
Moody\u2019s says in documentation on its website that each employee must certify adherence on a periodic basis to a business conduct code that \u201csets forth the guiding principles that we expect each employee and corporate director to follow in order to preserve the integrity of our business.\u201d It remains unclear whether Moody\u2019s directors must regularly certify adherence to this code, or are merely expected to follow it.<\/p>\n
Meanwhile, Moody\u2019s policies continue to limit the extent to which shareholders can have a say in the composition of its board. In 2006, investors asked Moody\u2019s at its annual shareholder meeting to implement the practice of electing directors each year. But as of the company\u2019s most recent proxy filing this year, Moody\u2019s requires that investors elect a group of its directors every three years. An investor again submitted a proposal to Moody\u2019s this spring, citing research that those using such board structures are associated with problems including lower firm valuation, lower sensitivity of compensation to performance, and lower sensitivity of CEO turnover to firm performance. The board countered that its structure allowed for depth of knowledge among the directors and increased stability, among other things.<\/p>\n
Moody\u2019s board has approved executive compensation plans that suggest an imbalance of power is taking place among the higher ups. For example, Moody\u2019s chairman and CEO Raymond W. McDaniel earned $11.9 million in total compensation during 2011, more than four times the median pay for the other named executive officers at the company. In addition, long-term incentive grants for Mr. McDaniel are 50% performance-based shares and 50% time-based market-priced stock options. To be effective, all equity awards granted for long-term incentives should include performance-vesting features. Moreover, market-priced stock options may provide rewards due to a rising market alone, regardless of individual performance.<\/p>\n
In part due to these concerns as well as others, such as recent regulatory fallout related to the financial crisis, Moody\u2019s is rated \u201cD\u201d on its environmental, social and governance (ESG) risk overall. The ratings agency has an AGR \u00ae score of 33, indicating higher accounting and governance risk than 67% of comparable companies.<\/p>\n
Even under scrutiny such as the SEC\u2019s recent annual report, Moody\u2019s has shown the willingness to continue with practices that many corporate governance experts consider flawed. If the SEC had enough authority to announce the results of its examination more precisely, the ratings agencies might have more incentive to make improvements beyond what the regulator recommended last year.<\/p>\n","protected":false},"excerpt":{"rendered":"
Moody\u2019s Corp. (MCO) could better safeguard itself from the business conduct failures that the Securities and Exchange Commission discovered in its second annual review of nine ratings agencies. The New York firm needs to take more steps to prevent its senior managers from abusing their powers.<\/p>\n","protected":false},"author":1,"featured_media":25971,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[1480],"tags":[1856,1859,1854,1671,1681,1848,1968,1676,1437],"_links":{"self":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts\/25973"}],"collection":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/comments?post=25973"}],"version-history":[{"count":0,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts\/25973\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/media\/25971"}],"wp:attachment":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/media?parent=25973"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/categories?post=25973"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/tags?post=25973"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}