Corporate Governance Matters, 3rd Edition

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Corporate Governance and ESG Ratings

Governance ratings is a relatively new industry in which consulting companies develop quantitative metrics to measure the effectiveness of a company’s governance system. The inputs in these models are based on governance attributes that we have discussed throughout this book, including the structure of the board, elements of the executive compensation plan, antitakeover provisions, and other features. Academic researchers have also developed indices that rely on similar inputs. In the case of ESG ratings, the variables relate to a company’s impact on environmental, societal, and workforce-related metrics, in addition to their governance-related attributes. The question remains whether governance ratings ...