GMI Analyst: ESG and Accounting Metrics for Investment Use: Entrenched Board

The followingsummary appeared as part of Governance Metrics International’s GMI Blog. GMI is the leading independent provider of global corporate governance and ESG ratings and research. Corporate stakeholders – including leading investors, insurers, auditors, regulators and others – use GovernanceMetrics services to identify and monitor risks related to non-financial measures covering key environmental, social, governance and accounting risk factors.

“…long-tenured directors may form relationships with the company and its management that can compromise their independence.

Executive Summary: Many investors believe that long-tenured directors may form relationships with the company and its management that can compromise their independence. Similarly, some investors support mandatory retirement ages for directors. GMI Ratings believes that while individual directors can perform well at any age and stage of their service, a board with a concentration of long-tenured and/or aging directors may raise entrenchment concerns. This is particularly the case if company performance is poor and directors are not easily accountable to shareholders (for example, due to governance structures such as board classification and plurality election standards). GMI Analyst’s Entrenched Board metric allows subscribers to identify firms where director tenure and/or age may be a concern, as a spur to further investigation of the company’s governance quality.

GMI Analyst's Entrenched Board metric is flagged if at least a third of the board (or at least five directors) are over seventy or have over 15 years’ tenure. The metric is also flagged if one-fifth of the board’s directors are over seventy and one fifth have at least fifteen years’ tenure.

Introduction: GMI Analyst’s key metrics form the inputs for two ratings: the Accounting and Governance Risk (AGR®) rating, which focuses on the integrity of a firm’s financial statements, and the ESG rating, which ranks firms on environmental, social and governance criteria. Because GMI Analyst has been designed with an investment orientation, the platform focuses on those areas of sustainability and accounting most relevant to operational and stock price performance.

Download the Summary(click on name ofile)

The Board Director Training Institute (BDTI) is a "public interest" nonprofit in Japan dedicated to training about directorship, corporate governance, and related management techniques. It is certified by the Japanese government to conduct these activities as a regulated nonprofit. Read a summary about BDTI here, and see a menu of its services for both corporations and investors here.

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