Spring/Summer 2003
Volume No. 1

• From the Chairman
• Highlights of the Upcoming 57th National Conference in Salt Lake City, Utah
• President David Smith's Q&A with the law firm Morgan, Lewis & Bockius LLP
• Form 4 Filing "Lessons Learned" from JPMorgan Chase
• Membership Update
• Society News
• Notes on the Higgs Report
• "FTSE4Good" Index Series Overview
• Working with GMI on Basic Ratings, by Howard Sherman, Chief Operating Officer, GovernanceMetrics International

FROM THE CHAIRMAN

Dear Fellow Members:

There has always been a knowledge-sharing tradition at ASCS. Our conferences, seminars, chapter and committee meetings provide an opportunity for members to get together and compare notes.

And if you could have been present in the earliest days of the Society, the picture would have been much the same. From 1946 onward, members have met one another and benchmarked on the spot to bring back successful practices to their companies. The difference over the years has been in the pace -- pre-Internet, knowledge sharing could afford to be more leisurely.

But not any more. Today communications are instantaneous, and the time for gathering, understanding and applying knowledge from others to benefit our companies has been drastically shortened. In addition, productivity demands keep us tied much more closely to our offices, so that taking the time to attend chapter meetings, seminars and conferences is more problematic than ever before. As a result, we face a real challenge to carrying on our knowledge-sharing tradition.

The National Office of ASCS has done a great job of transferring much of the knowledge of committee meetings and seminars to the Internet site. If you have not visited www.ascs.org recently, you should.

You will find, on the Sarbanes-Oxley page, SEC releases, comment letters, law firm memos sorted by date, and a transcript from a recent benchmarking teleconference on implementing post-Sarbanes-Oxley rules. The Core Document Reference file contains updated examples of charters and policies, and the Publications section has many titles that can be downloaded directly to your desktop. And coming soon, all the material on the ASCS site will be full-text searchable.

ASCS has started to add Corporate Practices Committee minutes to its site. The Corporate Practices Committee holds a "roundtable" during its meetings, where questions and answers are shared. Adding the minutes to ascs.org was suggested by the Corporate Practices Committee and the Knowledge Management Committee. It is another way in which we can use the Internet to our best advantage. If you have any comments on the website, or suggestions on what else might be added to ascs.org, please contact David Smith at the National Office (dsmith@governanceprofessionals.org).

The key to knowledge sharing is that it has to be constantly fueled, and that's where each of us can play a part. If we don't discuss our successes and experiences; if we don't provide sample materials, then they can't be shared with other Society members. So please continue to send charters, policies, findings and your personal observations on issues of interest to the ASCS National Office. You can e-mail them to Blanca Rosbach at brosbach@governanceprofessionals.org.

Included in this newsletter as a last item is a brief survey on its content. We want to make sure that each issue contains the sort of information most helpful to you. Please take a moment to respond - you will be helping our national staff tailor communications to your needs.

Tom Sanger

Highlights of the Upcoming 57th National Conference in Salt Lake City, Utah

The Grand America Hotel, Salt Lake City, Utah is the site for the ASCS 57th National Conference. We hope that you will join us June 25 - June 29 for a timely and excellent program.

The theme of this year's conference is "New Governance, New Challenges." ASCS plans several sessions to help you leverage the expertise of ASCS members and associates. There will be panel discussions on audit committees, on liabilities for officers and directors, and on governance rating systems. Breakout sessions will address -- among other topics -- certification processes, Sarbanes-Oxley challenges for small and mid-cap companies, and new economics in the corporate secretary's office.

Panelists and speakers scheduled to appear at the conference include Glenn Tilton, Chairman, President and CEO, UAL Corporation and United Airlines; Roderick Hills, Founder and Partner of Hills & Stern law firm and former SEC Chairman; William H. Donaldson, current Chairman of the SEC; and Dr. Jeane Kirkpatrick, political scientist, former ambassador to the United Nations, and current Representative of the U.S. on the Human Rights Commission of the Economic and Social Council of the United Nations.

You may register online at http://www.ascs.org/natconf.shtml.

Please contact Suzanne Walker at 212-681-2008, or Ophelia King at 212-681-2009, with any questions -- We look forward to seeing you there!

ASCS President David Smith's Q&A with the law firm Morgan, Lewis & Bockius LLP

Republished with permission from the March 2003 issue of "Morgan Lewis on Securities."
Copyright 2003. Morgan, Lewis & Bockius LLP. All Rights Reserved.

This article is provided as a general informational service and it should not be construed as imparting legal advice on any specific matter.

Issues on the Minds of Companies and Their Counsel - Here's What We Have to Say...

David W. Smith, President of the American Society of Corporate Secretaries, posed questions about issues on the minds of companies and their counsel. The American Society of Corporate Secretaries has more than 3,800 members representing 2,500 companies in the United States and other countries. Here's what Morgan Lewis lawyers had to say:

1. Are you recommending the creation of corporate disclosure controls committees and, if so, who should serve on such a committee? Should it have a charter? To do what?

   We recommend that companies establish a disclosure controls committee as part of its disclosure controls and procedures mandated by new SEC Rules 13a-15 and 15d-15. While the SEC provided no specific guidance on how companies should address their disclosure controls and procedures, it did specifically recommend that each company form a committee to consider the materiality of information and determine disclosure obligations on a timely basis and to assist the principal officers in making their required certifications. The disclosure controls committee might also be responsible for other disclosures by the company, including press releases, investor presentations, guidance, or other information provided to rating agencies and analysts or in response to investor questions, and disclosures on the company's website. The disclosure controls committee would not be a committee of the board of directors. Its members might include the principal accounting officer or controller, the general counsel, the principal information systems officer, the principal risk-management officer, the investor relations officer, the heads of the company's major business divisions, the senior internal auditor, and, in some cases, the principal officers themselves.

   Since the disclosure controls committee would not be a committee of the board, a formal charter is not necessary. However, like all the company's disclosure controls and procedures, the responsibilities and processes of the disclosure controls committee should be fully documented.

2. Are you suggesting that clients create a separate code of ethics for the CEO, CFO and other senior financial officers or add new sections to an already broad code of conduct for all employees?

   Each company should decide which approach works best for it in light of its culture and preexisting codes, and after considering the pros and cons. By creating a separate code for "Sarbanes-Oxley" matters, a company will avoid unwittingly subjecting provisions of a preexisting code to the obligation to disclose waivers and amendments under the new rules. While the SEC has indicated that including the new requirements in an existing code will not subject other provisions to the "waive and disclose" requirement, separation of the codes will eliminate the need for difficult judgment calls in the future.

   On the other hand, including all the material in one cohesive code sends a message that all employees and directors are subject to the same set of rules. A single code, moreover, avoids the potential for duplicative provisions in multiple documents.

3. Do you advise clients to create a separate code of ethics for directors?

   Here again, each company should decide which approach will work best. On the one hand, there likely are requirements that apply to employees but not directors, such as standards that relate to dealing with suppliers. On the other hand, including directors in one comprehensive code sends a message that all employees and directors are subject to the same rules.

4. How are you advising clients to establish a mechanism for dealing with the "whistleblower" provision of Sarbanes-Oxley? Can the corporate secretary be the conduit?

   We recommend that companies adopt policies and procedures through which employees can report allegations of financial fraud and other wrongdoing. Such policies and procedures may be part of other compliance programs adopted pursuant to Sarbanes-Oxley, and should operate cohesively with them. Companies have flexibility regarding whom they appoint to be the compliance officer(s) in this area; the corporate secretary may be an appropriate choice if it makes sense for the organization. If the corporate secretary is an attorney, the company should consider how the application of the new attorney conduct rules might affect the role of the compliance officer.

   In addition to policies and procedures for employees to report allegations of financial fraud and accounting improprieties, we recommend that companies have policies and procedures for employees to raise complaints about harassment or retaliation for having reported allegations of financial fraud or other wrongdoing. Most employers already have policies and procedures in place for racial and sexual harassment complaints. We recommend expanding the scope of these policies and procedures to make sure that employees who believe that they are being harassed or retaliated against because they reported financial fraud also have available avenues to complain. This will allow the company to investigate the complaint and take whatever corrective action is necessary to end the retaliation or harassment. Of course, companies that do not already have these policies and procedures should consider developing them.

5. What are you recommending in terms of executive sessions of the board to be led by a lead director?

   Most corporate governance experts agree that, where the CEO and chairman positions are combined, the board should designate, formally or informally, an independent director who coordinates the activities of the independent directors, including, among other responsibilities, presiding over the executive sessions of the board (which sessions, under the NYSE proposed rules, would have to be scheduled regularly). Alternatively, the board may choose to appoint one of the chairs of an independent committee of the board, such as the nominating/corporate governance committee or compensation committee, to serve that function, or the director who serves that function could rotate among the chairs of each of the independent committees. In any case, each NYSE-listed company will be required to disclose the name of the director, or the process used to determine the director, who presides over the executive sessions.

6. Are you getting inquiries about director education?

   We have a seen an increased focus on new director orientation and director education generally. For example, the NYSE has proposed to require listed companies to adopt and disclose corporate governance guidelines that include, among other things, "director orientation and continuing education." In addition, the Business Roundtable stated in its May 2002 "Principles of Corporate Governance" that most companies provide new directors with materials and briefings to permit them to become familiar with the company's business, industry, and corporate governance practices, and stated its belief that companies should provide additional educational opportunities to directors "on an ongoing basis to enable them to better perform their duties and to recognize and deal appropriately with issues that arise."

   The topic of director education also arises when determining the responsibilities of the various board committees. For example, the Conference Board's Commission on Public Trust and Private Enterprise identifies as a best practice that the nominating/corporate governance committee recommend to the board the "requirements for, and means of, director orientation and training." Thus, in drafting nominating/corporate governance committee charters, companies may wish to provide specific provisions delegating this responsibility to that committee. We also understand that some D&O insurance providers may be offering discounts for those companies whose directors attend approved training sessions. Finally, director orientation and continuing education can serve to enhance a director's ability to satisfy his or her fiduciary duties, particularly with respect to the duty of care. All public companies should begin making participation in director education programs a formal part of the responsibilities of directors, especially for audit committee members.

7. Are you getting inquiries on corporate governance ratings systems like ISS?

   There are several organizations that are assigning corporate governance "ratings" to public companies. These rating services, which range in cost and comprehensiveness, can help companies understand how their corporate governance principles and disclosure practices compare to other rated companies, but are, of course, dependent upon the specific criteria used by the particular rating organization. Companies should inform themselves generally of the criteria used by these services to make informed decisions regarding recruiting and corporate governance matters. In most cases, it should not be necessary to pay for premium services.

   Institutional Shareholders Services (ISS) ranks corporate governance behavior using approximately 60 criteria, resulting in a Corporate Governance Quotient (CGQ). ISS affixes CGQ scores to the front page of proxy voting reports provided to its clients. ISS will send companies information with respect to their CGQ. Companies may review the CGQ data without charge 72 hours prior to the issuance of the ISS report that contains the CGQ score. However, the actual CGQ score is not revealed to the company until the analysis is released to ISS clients. As part of ISS's premium service, a company learns of its CGQ score immediately and is given the opportunity to make adjustments. The premium service costs approximately $17,000.

   Standard & Poor's (S&P) released its Transparency & Disclosure Study (T&D Study) in October 2002, which ranked companies' corporate governance disclosure in their annual reports, proxy statements and 10-Ks. S&P intends to issue a similar study in October 2003. In addition to the T&D Study, S&P also offers companies the ability to obtain a Corporate Governance Score (CGS). A CGS reflects S&P's interaction with certain company officers and directors, as well as a review of the company's public filings. The CGS process takes 7 to 8 weeks and costs approximately $100,000.

   GovernanceMetrics International (GMI) has published its corporate governance ratings for S&P 500 companies. For a $50,000 fee, GMI produces a comprehensive rating, a process similar to S&P's CGS. Under the rating system, a company may review GMI's analysis prior to publication and provide comments; however, GMI retains final editorial discretion.

   Investor Responsibility Research Corp. (IRRC) has announced a corporate
   governance product called "Benchmarker," which produces a fact-based summary and analysis of the critical corporate governance practices by comparing a company's practices with those of its peer group. Currently the system covers 1,500 leading US companies.

8. Are you getting questions about increased liability for audit committee members and particularly the audit committee chair?

   Concern regarding possible increased liability of audit committee members predates the Sarbanes-Oxley Act, but is heightened by the increased attention and responsibilities placed on the audit committee by the Act, as well as the SEC and stock exchange rules. These new requirements may create unreasonable expectations regarding the function of the audit committee. We recommend that the audit committee charter, and the description of that charter in the proxy statement, contain an appropriate description of the limited role of the audit committee, including that the audit committee does not serve an audit function. Overly broad disclaimers, however, are subject to potential criticism as an attempt by the audit committee members to avoid responsibility.

   The designation of one or more audit committee members as an "audit committee financial expert" likewise has raised concerns regarding increased liability of the designated directors. For example, the courts have stated that an individual's due diligence responsibilities turn on the individual's "position" with the company. The SEC attempted to address this concern by providing in a safe harbor that the financial expert will not be deemed an expert for any other purpose, including liability under Section 11 of the Securities Act, and that the designation as an audit committee financial expert does not impose any duties, obligations, and liability that did not apply to other members of the audit committee. Given the SEC's recognition that it would be contrary to the interests of investors to impose such greater responsibilities on the audit committee financial experts because of the deterrent effect such an approach would have on the willingness of qualified persons to serve on an audit committee, hopefully the courts will resist attempts to single out audit committee members and the designated financial experts in private litigation.

9. Should public companies establish mandatory channels for attorneys reporting evidence of material violations under the new attorney conduct rules?

   Several commentators on the rules as proposed argued that the rules would cause CLOs to be inundated with reports of potential violations, and suggested that the SEC allow CLOs to delegate responsibility for receiving reports. The SEC, however, did not include such a provision in the final rules. Thus, we do not believe that companies can require attorneys to report evidence of material violations to anyone other than the CLO, the CEO, or the board (or an appropriate committee of the board). We believe, however, that a company may establish procedures that recommend that attorneys who believe that they may have come into possession of evidence that would trigger a reporting obligation consult with one or more persons within the organization (including other attorneys below the CLO level) who may have more experience and insight into both legal requirements and factual information relevant to the issue presented, prior to reporting to the CLO. We believe that such consultation is fully consistent with the "prudent and competent" standard integral to the rules.

10. Do you recommend that companies establish a Qualified Legal Compliance Committee?

    The procedures that companies should adopt to implement the attorney conduct rules are not "one size fits all" and each company should consider what would work best for its particular circumstances. Although the Commission has urged companies to consider establishing QLCCs, the rules do not require it and do not provide a safe harbor or other significant advantages to companies that choose to do so. A QLCC, however, does provide companies one mechanism for considering their lawyers' reports in an informed and organized manner, and does provide a measure of insulation for CLOs and subordinate attorneys.

11. Do you expect the SEC to adopt a "noisy withdrawal" provision after the 60-day extended comment period?

    Much depends on the new Chairman. The current Commission seems enamored of its proposed alternative - that a company itself must report publicly if its attorney has withdrawn in certain circumstances. If forced to predict, we expect the SEC to adopt the alternative provision. Companies, however, must implement the existing rules within six months regardless of any action the Commission takes on the "noisy withdrawal" provision and the proposed alternative, so companies should move promptly to respond to the new rules, and monitor SEC actions to determine if any modifications to their new
    procedures might be required.

For more information, contact:
David A. Sirignano at 202-739-5420 or dsirignano@morganlewis.com,
Frank G. Zarb, Jr. at 202-739-5741 or fzarb@morganlewis.com,
Samuel S. Shaulson at 212-309-6718 or sshaulson@morganlewis.com,
Paul Huey-Burns at 202-739-5586 or phuey-burns@morganlewis.com.

Form 4 Filing "Lessons Learned" from JPMorgan Chase

One Friday night in January, as the last light went out in the office, the Corporate Secretary's department at JPMorgan Chase felt ready for transactions that were to take place the following week.

Several officers, including the Chairman, would receive vested restricted stock awards, and had elected to withhold shares to pay the taxes due. The awards vested on Saturday, and the due date for the Form 4s was Tuesday.

By Friday, the Secretary's department had prepared Form 4s for each officer, using an application residing on an in-house server. The forms would be ready to send on Monday after Friday's fair market value was calculated and "dropped in." On Monday morning, the forms were finalized and downloaded to desktops, ready to be filed. However, the staff learned that the Chairman would also exercise expiring options on Monday, so they decided to wait until Tuesday morning, when Monday's fair market value would be available, to file both transactions for the Chairman on one report. Form 4s for the other officers would also be filed on Tuesday.

On Tuesday morning, when the staff tried to access the server to update the Chairman's form, they realized they had a problem. The IT department was scrambling, but what became clear was that the "slammer" worm had infected some of the company's servers, including the server that housed the Form 4 software.

Sometimes tech problems can be solved quickly, but this problem did not go away. It was 2:00 p.m. when the Secretary's department put "plan B" into play - they would use their financial printer to get the Chairman's Form 4 to the Commission in time, by 5:30 p.m. that day. In the meantime, they were able to file all other Form 4s.

Vice President and Assistant Secretary Irma Caracciolo was on deck. She generously gave some time to talk to ASCS, and remembers for us some of the lessons learned:

• Download everything from the filing application as soon as it is ready and save it to a desktop.
  
  
• Don't delay - file reports as soon as they are ready.
  
  
• If something happens, don't wait for it to get better. Go to plan B right away.
  
  It might also be a good idea to have two plan Bs - JPMorgan Chase now backs up Form 4 information in Word, to be converted into HTML in an emergency.
  
  
• Financial printers may not be able to meet an emergency deadline, due to their workload and administrative issues.
  
  
• If the filing deadline is missed because of technical, third-party reasons, explain the problem to the SEC. They may be able to back-date the filing.

JPMorgan Chase consulted with outside counsel, sent a letter to the SEC explaining the problem, and attached to the letter accession notices for the other on-time filings. There was additional evidence from other companies who had the same problem. The Commission backdated the filing, but the Commission may not contact companies to confirm date changes.

Membership Update

This year's membership campaign ended March 31 with total ASCS membership at 3,947 -- 107 more members than one year ago.

During the campaign, a record number of current ASCS members recruited new members -- 239 members recruited 284 new members during the campaign! The top recruiter among members from non-vendor companies was J. Brian Colburn, Executive Vice President and Secretary of Magna International Inc. in Aurora, Ontario, who recruited five new members. The top recruiter among members from vendor companies was Douglas Kaminski, Regional Sales Manager for LexisNexis Document Solutions in Chicago, who recruited six new members. Congratulations to Brian and Doug, who each won a $500 American Express gift card!

Two membership prize drawings were held recently at the National Office. The winner of the "One Chance" drawing was Linda Witte, Senior VP, General Counsel & Secretary of APAC Customer Services, Inc., in Deerfield, Illinois. Linda won registration, airfare, and lodging at the 57th National Conference in Salt Lake City, Utah.

In the "Chance for Each New Member Over One" drawing, Carol Mitchell, Executive VP, Clerk & Secretary of Banknorth Group, Inc. in Portland, Maine, won registration, travel, and lodging for a regional chapter conference of her choice.

Finally, the winners of the Chapter membership campaign prizes. For the Chapter Recruitment prize, the Rocky Mountain Chapter won $1,000. There was a tie in the Chapter Retention Prize, so $500 went to the Detroit Chapter and $500 went to the Milwaukee Chapter.

Thank you for taking part in this year's membership campaign.

Patricia A. Wilkerson

Society News

Berta Czeczyk retires

ASCS Billing Coordinator Berta Czeczyk has retired after 12 1/2 years as a member of the National Office staff. Responsible for recording every dollar of ASCS revenue, Berta was so personable that many members may remember her helping them. She and her family have moved from New York City to Surprise, Arizona, but it is no surprise her fellow staff will miss her greatly! Her position has been filled by Olga Holmes, who for seven years worked so ably as Blanca Rosbach's Research Assistant.

ASCS hires Na'eema Stanton-Scarborough

The ASCS National Office recently hired Na'eema Stanton-Scarborough as Research Assistant to Blanca Rosbach in the Research & Information Services Department. Na'eema is a native New Yorker who comes to the Society from UBS Warburg/PaineWebber, Inc., where she was a sales assistant handling stock options, money management, and retirement and estate planning. Na'eema studied English Literature at Columbia University and lives in Yonkers, NY with her family. We are pleased to welcome Na'eema to the National Office!

Chapter name change

The San Fransico Chapter recently changed its name to the Northern California Chapter, to reflect the larger area of California that it serves. No matter what you call it, it is always a beautiful place to visit!

Notes on the Higgs Report

One of the main differences between Sarbanes-Oxley philosophy and that of the U.K.'s Higgs report lies in the role of the executive director. In his report, Derek Higgs concludes "there should be a strong executive representation on the board."

Higgs suggests further that "there is a greater risk of distortion or withholding of information, or lack of balance in the management contribution to the boardroom debate, when there is only one or a very small number of executive directors on the board."

Additionally, from Higgs's perspective, the Chairman and Chief Executive should be separate. Higgs writes "Separation of chairman and chief executive is one of the strengths of the UK corporate governance regime. It avoids concentration of authority and power in one individual and differentiates leadership of the board from running of the business."

The following are other highlights from the Higgs report, as well as some insight into the report from Holly Gregory, an ASCS member and a Partner at Weil, Gotshal & Manges LLP, and Caroline Phillips, Director of the Policy Unit, ICSA UK.

Senior Independent Director

"A senior independent director should be identified who meets the test of independence set out in the Review. The senior independent director should be available to shareholders, if they have concerns that have not been resolved through the normal channels of contact with the chairman or chief executive."

Company Secretary

The corporate secretary is featured prominently in the Higgs report, and the importance of the job is highlighted. The following are two excerpts.

"The company secretary should be accountable to the board as a whole, through the Chairman, on all governance matters."

"The company secretary should act as a conduit for contacts from major shareholders to non-executive directors."

Holly Gregory, an ASCS member and a partner at Weil, Gotshal & Manges, said in a phone interview that in the UK, the corporate secretary is seen as providing staff support for the board. Gregory said that up until now corporate secretaries in the U.S. have been viewed as part of the management team, but now the mindset may shift, just as it has with the general counsel. Gregory said, "The mindset is becoming more about ensuring that the board has the information it needs. That's the attitude the UK has adopted for the corporate secretary, and maybe we are going in that direction." Gregory noted that some companies are engaging corporate governance officers, who are hired and report directly to the board.

Caroline Phillips of ICSA UK said in an e-mail that as a result of the statements on the importance of the company secretary, ICSA has issued a sample job description for the corporate governance role of the company secretary, which is available, together with other information, on the ICSA "News/Views and Guidance - Guidance Notes" section of the ICSA website - www.icsa.org.uk.

Stock Options

"Non-executive directors should not hold options over shares in their company. If, exceptionally, some payment is made by means of options, shareholder approval should be sought in advance and any shares acquired by exercise of the options should be held until one year after the non-executive director leaves the board."

Institutional Shareholders

"A company should state what steps it has taken to ensure that the members of the board, and in particular the non-executive directors, develop a balanced understanding of the views of major investors."

Higgs recommended that the Senior Independent Director should be involved in this area - specifying that the Senior Independent Director attend occasional meetings with institutional investors. Caroline Phillips of ICSA UK told ASCS that some chairmen are against this idea, and that they have "react[ed] very strongly" to the suggestion.

Independent directors role in wealth creation

"My view of the role of the non-executive director in [promoting business prosperity] contrasts with that of US regulators, who have tended to emphasise the monitoring role at the possible expense of the contribution the non-executive director can make to wealth creation. These two roles are, I believe, complementary and should be seen as such."

Ongoing governance work in the U.K.

Caroline Phillips told ASCS that ICSA is working with the corporate community to help resolve companies' concerns about some of the provisions of the Higgs report. Phillips noted that one of the most important areas for ICSA is acting as a bridge between companies and institutional investors so that there can an understanding of viable noncompliance accompanied by an acceptable explanation. "The concern of companies is that if institutional investors and investor bodies/proxy agents do not have access to knowledge of how companies run (not just of the corporate governance theory), then they are not in a position to be able to determine whether a company is complying," Phillips said in an e-mail.

Phillips also noted that the Financial Reporting Council, which is charged with maintaining the UK's Combined Code on corporate governance, is due to report in July on what elements of the Higgs report will go into the revised Code. Phillips said that it is expected that there will be some watering down of the proposals.

The full Higgs report, as well as the related Smith report on Audit Committees, can be found online. The Higgs report is at http://www.dti.gov.uk/cld/non_exec_review; the Smith report at http://www.frc.org.uk/publications.

"FTSE4Good" Index Series Overview

ASCS member companies may be receiving some communication from FTSE4Good, a Socially Responsible Investing (SRI) index series based in the UK. The FTSE4Good series recently updated its environmental and human rights criteria, and as a result some US companies may be coming on or off the list. FTSE4Good sent letters to companies about the development. ASCS spoke with David Harris, Corporate Social Responsibility (CSR) Executive at FTSE Group, to learn more about FTSE4Good.

Harris told ASCS that FTSE4Good comprises four tradable and four benchmark indexes in four markets: UK, Europe, US and Global. Currently, approximately $1.5 billion is held in the series, and 15 institutional investors have funds based on the indexes.

FTSE Group started FTSE4Good in July 2001 to compete with the Dow Jones Sustainability Index. Dow Jones works with a Swiss firm, Sustainability Asset Management, in order to get data about companies' environmental and social policies. FTSE works with UK-based Ethical Investments Research and Information Service (EIRIS), who recently entered into a partnership with IRRC to better understand US companies.

Harris told ASCS that FTSE4Good strives for transparent and objective criteria. Companies are analyzed for the index by starting with the FTSE All World Developed Index (about 1600 companies) and removing certain sectors - tobacco, arms, and nuclear power. FTSE4Good then looks at three categories related to SRI: stakeholder relations, environmental sustainability, and human rights. Companies who meet the FTSE4Good criteria "make it in" to the index.

Currently, about 200 US companies meet FTSE4Good's requirements. The FTSE4Good criteria can be found at the following web address: http://www.ftse.com/ftse4good/FTSE4GoodCriteria.pdf (Acrobat Reader required).

Harris told ASCS, "One of the aims of the series was that the selection criteria would evolve over time. As we've raised standards, we've realized that we have to go out and talk to companies to make sure they know they're constituents." To learn more about FTSE4Good, visit http://www.ftse.com/ftse4good/companies.jsp, or contact David Harris, CSR Executive, FTSE Group, Ph: 44 20 7448 1862.

Working with GMI on Basic Ratings

By Howard Sherman, Chief Operating Officer, GovernanceMetrics International

GovernanceMetrics International, Inc. (GMI) is an independent corporate governance research and ratings agency. The company was founded in 2000 by two corporate advisers: Gavin Anderson and Gary Kraut, and two shareholder advisers: Stephen Davis and Jon Lukomnik. Howard Sherman, former CEO of ISS and former President of Thomson Financial Investor Relations, is GMI's chief operating officer. GMI ratings are modeled on the Organization for Economic Cooperation and Development (OECD) Corporate Governance Principles and are built on a database of 600+ metrics, which examine corporate governance and corporate accountability from a wide range of perspectives. GMI's first Rating Reports, covering the S&P 500, were released December 3, 2002. The next release, planned for this summer, will encompass 1,000 US companies plus a number of non-US companies. Please see www.gmiratings.com for additional information.

This communication is meant to help members of the American Society of Corporate Secretaries understand the process GMI uses to generate it Basic Ratings and how best to work with GMI.

Data Entry

Given the importance of these issues, GMI has assembled a research team of talented men and women who had an average of 8 years professional experience before joining GMI. All are college graduates and more than half hold graduate degrees. They include MBAs, CPAs and JDs, CFA candidates, and members of the New York Society of Securities Analysts and AIMR.

GMI research analysts start the rating process by developing a detailed database profile for each company in the system. We review SEC filings, charters and bylaws, company websites, and other public sources to answer the 600+ metrics on corporate governance and corporate accountability used to generate GMI ratings. GMI repeats this process with each ratings cycle.

Data Review

Once the database profiles are complete, GMI sends end each company a copy of their Data Entry Report. (A GMI Data Entry Report is sent to companies in our system each time we update our database, approximately every six months.) These reports allow the company to review the data collected by our analysts in advance of GMI calculating the ratings. If a company disagrees with a particular item and can show us where the information is disclosed, GMI will update the database accordingly, provided we receive comments in time. GMI expects to distribute the Data Entry Reports for the next ratings cycle the first two weeks in June.

• If you are a company included in the S&P 500 or S&P MidCap 400 Index and have not yet designated a point of contact at your organization for the GMI data review, please send your information to Howard Sherman by email at hsherman@gmiratings.com. Please include a single point of contact with the individual's name, salutation, mailing address, e-mail address, phone number and fax number. There is no charge to the company for the data review process.
• GMI will also be rating certain companies included in the Russell 1000 and S&P/TSX 60 Index the next cycle. Please contact Howard Sherman to find out if your company will be included in the next rating cycle. If so GMI recommends you designate a contact person for the data review process.

Once the data review period has concluded, GMI ratings are generated using a proprietary scoring algorithm that is designed to emphasize outliers. Companies are initially assigned eight ratings: an overall rating and a separate rating for each of GMI's seven research categories. Once GMI adds non-US coverage, companies will receive two sets of scores: home-market ratings and ratings against a larger, global universe. All GMI ratings are relative and are on a scale of one to ten, ten being the highest.

Companies are able to receive a courtesy copy of their Rating Report the first time they are rated by GMI. This is the report seen by GMI's subscribers. It includes the company's ratings and explanatory text discussing its perceived corporate governance strengths and weaknesses. GMI Rating Reports also highlight issues of particular concern such as stock option dilution with a "red flag".

• Please contact Howard Sherman by email if you would like your company's designated contact to receive a copy of your company's first Ratings Report. While there is no charge to the company for this initial report, GMI does require a non-disclosure agreement before we can send the report. Subsequent reports will be furnished upon request for a nominal fee for each subsequent rating.

Companies are also entitled to receive a copy of their Ratings Summary from GMI each time GMI calculates its ratings. The Ratings Summary includes the GMI ratings for the company but does not include explanatory text. There is no charge to the company for a Ratings Summary, but as above, GMI asks that each company sign a nondisclosure agreement. These agreements are meant to protect company interests as much as GMI's. As you may have seen on our website, GMI does not advertise the numerical scores for any company in our system other than those rated "10".

• Please contact Howard Sherman by email if you would like your company's designated contact to receive your company's Ratings Summary when the Ratings are posted. There is no charge to the company for a Ratings Summary.

All of the information above concerns the Basic Rating process from GMI. We hope you have found it useful. GMI also offers a Comprehensive Rating service, which is a more in-depth review of governance practices based on a review of internal documents and personal interviews. This is a fee-based rating.

• Please contact Gavin Anderson, CEO of GMI, by calling 212-949-1313 or by email at ganderson@gmiratings.com if you are interested in learning more about the Comprehensive Rating service.

The Corporate Secretary is published throughout the year as a service to members of the Society of Corporate Secretaries and Governance Professionals. Articles or statements appearing herein do not constitute legal opinion, advice or judgment and should not be relied upon as such. Inquiries regarding information contained in this newsletter should be directed to Geoff Loftus, at (212) 681-2000 or by e-mail: gloftus@governanceprofessionals.org. Inquiries regarding membership or publication orders should be addressed to:

Membership               Publications
Deborah Fox              Olga Holmes
(212) 681-2014           (212) 681-2015

Society of Corporate Secretaries and Governance Professionals
521 Fifth Avenue New York NY 10175
212-681-2000 - Fax 212-681-2005

membership | search | help | site map | contact us
Copyright & Privacy Statement