September 13, 2005
S&P Gets Out of the Governance Audit Business
Standard & Poor's Corporation has thrown in the towel in its new corporate governance rating business. S&P, for a fee, offered to rate a firm's corporate governance systems. S&P would score only those companies will to pay and the client had the options of reporting or not reporting the score. Surprise, surprise... the business failed. The service got off to a bad start when it rated Fannie Mae a 9 out of 10 on the eve of Fannie Mae's disclosures of problems with accounting and executive compensation. An embarrassed S&P reduced the score to a 6. Folks...audits work this way too. The difference is that audits are required of publicly traded companies and that results must (in some fashion) be disclosed. Otherwise the basic conflict -- the rating of paying clients -- is the same.
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