ABSTRACT
The first thing to recognize is that there is a problem – or a challenge. Some concepts, like road safety, are readily amenable to statistical analysis, if not to complete unanimity over results. Others, such as beauty, are evidently in the eye of the beholder. Our subject matter falls somewhat in between: like style, corporate governance is hard to define but easy to recognize. Demand for corporate governance ratings has certainly increased in the new millennium, so for example credit rating agencies such as Moody’s and Standard & Poor’s moved into rating corporate governance alongside agencies such as the ACGA and firms such as KPMG. This clearly underscores the growing importance of corporate governance in global investment decision-making, but precisely because of the proliferation of methodologies and suppliers there is no universal acceptance of the way to measure it. KPMG China observed in 2003 that good governance is still hard to gauge, stressing that complying with all the rules does not necessarily mean a firm is being well run. KMPG argue that it follows that organizations
mean precisely for their companies. Asked whether companies are better governed now than they were before Enron became a household name, the largest group of respondents – 45 per cent of the executives – said that there was no way of telling. Mostly this seems reasonable, except that the proliferation of different measurements of corporate governance – including, be it said, KPMG – has made it more difficult for this to be achieved. It is very likely that different firms, and indeed countries, will score differently depending on the type of measurement used and the weighting within it of different aspects of corporate governance. Clearly there are conceptual problems with measurement: for example, should an otherwise exemplary Indian company be penalized for not presenting its accounts in IAS format, when it is specifically required to do otherwise under Indian accounting regulations? These issues are producing factional adherence to different methodologies, although there has not yet been sufficient track record for these methodologies to be able to study how this factional adherence is working in practice. But what is important to recognize is that corporate governance evaluation, measurement and scoring has now become itself a competitive marketplace.
