Can credit rating agencies play a greater role in corporate governance disclosure?

DOIhttps://doi.org/10.1108/CG-04-2018-0150
Pages954-964
Date23 August 2018
Published date23 August 2018
AuthorDaniel Cash
Subject MatterCorporate governance,Strategy
Can credit rating agencies play a greater
role in corporate governance disclosure?
Daniel Cash
Abstract
Purpose The EuropeanCommission (EC) is currently examiningmethods to increase the effectiveness
of corporate governance disclosures. This paper aims to examine whether the credit rating agencies
(CRAs),both on account of their influence withinthe marketplace and also their methodologicalapproach
to ratingGovernance, may have a greater role toplay in the EC achieving those particularobjectives.
Design/methodology/approach This paper is basedupon a normative methodology, upon whichthe
issue is contextualisedand a proposal is put forward regarding a methodological alteration that canbe
institutedby the CRAs.
Findings The paper findsthat the CRAs may have a much greater role to play in meeting the objectives
of the EC. Whilstthe EC is focusing upon regulatorymonitoring, the paper finds that thereis a potential for
a more efficientmodel within which the CRAs adapt their methodologiesto include corporate governance
disclosureinto their rating processes.
Originality/value In presentingthe idea that the comply or explainprinciples put forward by the EC are
proving to be somewhat ineffective, the paper contributes to the field by suggesting there are private
endeavours which may adda sense of impact to disclosure proceedings, ratherthan the purely public
regimebeing envisioned.
Keywords Corporate governance, Credit rating agencies, Corporate governance statement,
Financial third-parties
Paper type Research paper
1. Introduction
When making their investment decisions, investors use a variety of measures to assess
where they should invest their resources. With the current trend being to focus on what is
colloquially termed “ESG” (environmental, social and governance) criteria, mainstream
investors have made clear that the most important element for them is the Governance
criteria, with a recent survey suggesting that nearly three-quarters of respondents find
“Governance [to be] the main factor incorporated” (CFA Institute, 2017, p. 5). It has been
noted in the literature that a short-term approach was taken towards the concept of
Governance in the lead-up to the Financial Crisis (McCluskey, 2012, p. 26), and as such,
legislators and regulators have since aimed to address this issue. The European
Commission (EC), in focusing upon the information companies provide to the marketplace
with regards to their compliancy with corporate governance regulations, have enforced that
where companies deviate from governance codes, they must give details as to why
(EC Directive 2006/46/EC). However, there have been a number of problems identified
since this approach has been taken. Whilstcompanies have, by and large, failed to comply
with the spirit of the regulatory endeavour, it has also been noted that there is an insufficient
framework that surrounds the compliance-related regulations, with the EC being unable to
clearly identify who may take responsibility for monitoring and the private marketplace
being recognised as inadequate for providing a private solution; there exists in the
marketplace specialist agencieswho provide such monitoring services, but they have been
Dr Daniel Cash is a Lecturer
in Law in the Law School at
Aston University,
Birmingham, UK.
Received 17 April 2018
Revised 3 June 2018
3 June 2018
Accepted 4 June 2018
PAGE 954 jCORPORATE GOVERNANCE jVOL. 18 NO. 5 2018, pp. 954-964, ©Emerald Publishing Limited, ISSN 1472-0701 DOI 10.1108/CG-04-2018-0150

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