RiskMetrics: Big Educational Change

Many of you saw in the paper that RiskMetrics was rumored to be for sale, which might well have some extended ramifications for corporate directors but actually wasn’t the most significant news to impact today’s boardrooms. That news is RiskMetrics’ announcement (formerly known as ISS) that it will stop accrediting board education programs as of March 1, 2010.

This is pretty significant, since RiskMetrics has been accrediting director programs since 2001 making the accreditation a part of its Corporate Governance Quotient (CGQ) rating system. The fact that it had the power to recommend board or director withhold votes to the 1,500-plus institutional investor client organizations it advises when voting shareholder proxy ballots made most boards and directors aware that there was a “premium” that they attend board educational events accredited by RiskMetrics. When ISS (Institutional Shareholder Services) launched the accreditation program, it felt that education that met its guidelines offered exposure to broader debate around corporate governance best practices. As most of you know, Corporate Board Member is a significant provider of boardroom and governance education and welcomed the review of our boardroom programs. We were always happy to report that RiskMetrics and its predecessor, ISS, viewed the quality of our programs in a very favorable light.

Why the RiskMetrics change you may ask? Well here is their stated reason:
“Over the past several years, we have seen tremendous improvements in the quality and quantity of such programs. Director education programs are also becoming more specialized, looking at finance, risk oversight and other aspects of the director's job in addition to corporate governance. Recent changes in disclosure requirements will provide investors with more detailed information about the qualifications and backgrounds of board members. In light of the increased professionalism and specialization in Director Education, we have decided that there is no longer a need for us to accredit such programs.”


RiskMetrics went on to say that it will soon be introducing the successor to CGQ, titled Governance Risk Indicators™. Governance Risk indicators presents a new, transparent global methodology for rating corporate issuers on their corporate governance structures, based on best practices as encapsulated in RiskMetrics’ benchmark policies. Market participants will also be able to identify and suggest improvements to the methodology, which will be evaluated annually in parallel with RiskMetrics’ policy updates. As it is closely aligned with the organization’s proxy voting policies, the new rating methodology does not include a factor related to director education. Find more information on Governance Risk Indicators.

So what does all this mean and should we be happy, sad, or indifferent? Well, I assume if you’re a corporate director then you are mostly happy. None of us like being told we have to do something, so obtaining some relief from the CGQ is liberating. At the same time, none of us really knows what to expect from the SEC’s new qualifications and experiences disclosure, which might eventually evolve into a similar emotional weight. Some directors, who really value the focus that ISS brought to getting educated in the boardroom will feel like I do—a little sad.

With all the things that RiskMetrics/ISS did that got on companies’ nerves, their focus on education was a good and important thing they championed. This may sound selfish, being in the board education business, but I will miss its commitment to quality education. I have a fear that every opportunistic provider will now hang his or her shingle out as an expert board trainer or, worse yet, we will see numerous groups creating certification programs that lack merit and/or muscle. Frankly I hope the stock exchanges or the SEC will consider how best to fill this void.

To RiskMetrics and ISS, its predecessor, I say thanks for the moving the snowball down the hill for the last nine years and we’ll do our best to take it from here. At the same time, I know you’re not just walking away from the importance of board education, even if it is not a direct part of your new Governance Risk Indicators. Good or bad… you just weren’t created to act that way!