GMI Ratings signed a licensing agreement with Global Index Group to develop corporate governance indices. The new set of indices will incorporate non-traditional risk metrics developed by GMI Ratings.
Mr. James Kaplan, Chief Executive of GMI Ratings, stated:
Following the merger of the three leading governance firms that pioneered non-traditional measurements of investment value and risk, the logical next step was to apply the Accounting and Governance Risk (AGR®) rating to the creation of an index that reflects the impact of corporate governance practices.
The AGR rating reflects accounting and governance practices statistically associated with SEC enforcement actions, litigation, and other events likely to cause precipitous contractions of equity value. Therefore, GIGHGI is a logical investment vehicle for asset owners and managers who want to reduce exposure to these risks.
Kelly Haughton, Chief Executive Officer of the Global Index Group and, formerly, the creator of the Russell index family, said:
This agreement gives us what we feel is the best data for corporate governance with which to build an index that will allow institutional funds and others to incorporate this important risk factor into portfolio strategies. For fiduciaries truly concerned about avoiding the next Enron or Lehman, using the index to integrate governance insights more fully into the investment process is an essential step.
GMI and GIG expect to have the index available for licensing within the next 60 days and are already in discussion with one investment management organization interested in licensing the new index to run an index fund.
This is a very important development that could do more to further improvement of corporate governance than most others. If investors can earn higher returns, more companies will feel pressured to initiate reforms in order to obtain capital at lower cost.