On January 27, 2014, Institutional Shareholder Services, Inc. released updates to QuickScore, its tool for assessing corporate governance risk. While ISS Governance QuickScore 2.0 is generally similar to the prior version, ISS states that the update “features additional key factors and enhanced scoring methodology to help institutional investors identify and monitor potential governance risk in their portfolios, and help companies identify possible investor concerns based on signals of governance risk.” One of those enhancements is “event-driven data updates” -- meaning that scoring will be updated on an ongoing basis in light of publicly available information, including company regulatory filings and other publicly disclosed materials, which will be “proactively tracked.”
QuickScore ratings are constructed from weighted questions in four areas – board structure, audit, shareholders’ rights, and compensation. Companies receive five QuickScore ratings: ratings in each of these four areas, plus an overall rating. Each rating is on a scale of 1 to 10, with 1 being the most favorable rating. Ratings for U.S. companies are based on approximately 88 questions or "data points." The relative weight of each data point is not publicly available. A company’s QuickScore rating is included in ISS’s proxy research reports and is available in the company profile on Yahoo! Finance.
The QuickScore 2.0 questions related to the audit pillar of its rating system are –
1. Non-audit fees represent what percentage of total fees?
2. Did the auditor issue an adverse opinion in the past year?
3. Has the company restated financials for any period within the past two fiscal years?
4. Has the company made non-timely financial disclosure filings in the past two fiscal years?
5. Has a securities regulator initiated enforcement action against the company in the past fiscal two years?
6. Has a securities regulator initiated enforcement action against a director or officer of the company in the past two years?
7. Is the company, or any of its directors and officers, currently under investigation by a regulatory body?
8. Has the company disclosed any material weaknesses in its internal controls in the past two fiscal years?
9. How many financial experts serve on the audit committee? (This factor, which is new for 2014, has a zero-weight impact on the scoring model for U.S. companies and is included for informational purposes only.)
Comment: With the exception of the non-audit fees question and the financial
experts question (which does not affect scoring), the audit pillar questions are
relatively objective and generally reflect either compliance with regulator
requirements or matters (such as regulatory investigations) that audit committees
do not have direct ability to control. Companies subject to QuickScore coverage
should however verify that ISS is using accurate information. Companies can
review and, if necessary, submit corrections to, their QuickScore data by using
ISS’s Corporate Services' Governance Analytics platform. Data verification is not
available during the period between the filing of a company's proxy statement and
the publication of ISS's proxy analysis for the company's annual meeting.