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Northern Trust to provide corporate governance data to custodial clients

The Northern Trust Company, a custody, asset administration and investment management services firm, is offering institutional clients using its Global Investor Passport portal access to Corporate Governance Quotient (CGQ) scores set by Institutional Shareholder Services (ISS), a Maryland-based provider of proxy voting and corporate governance services. Clients can then incorporate these scores into their overall portfolio management strategies.

    • Stewart Eisenhart
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ISS’s CGQ system rates 7,500 companies based on the quality of their corporate boards and how their governance policies affect their stock performance; scores are calculated on the following factors:

• Board of directors
• Audit
• Charter and bylaw provisions
• Anti-takeover provisions
• Executive compensation
• Progressive practices • Ownership
• Director education

ISS uses companies’ individual scores to rank them relative to their industry and peer groups.

Northern Trust vice-president Matthew Tushman says the corporate governance scores will become available at the end of this month (March) through Compliance Analyst, the firm’s exception-based compliance tool. During the course of the year, the firm will gradually incorporate the scores and their underlying backup data into other areas of the Global Investor Passport.

Tushman says Northern Trust will use data from ISS to provide investment managers with weighted average portfolio scores, enabling them to determine how ISS’s scores affect individual investments and portfolios. "We’re taking individual CGQ data and producing a weighted average portfolio score," he says. "For example, when you’re looking at an index or a portfolio, you can come up with a weighted average price-to-earnings ratio for that index or portfolio. This works the same way, but instead of using an equity characteristic-like price-to-earnings, we would use the CGQ scores and come up with a weighted average portfolio governance score.

"So a plan sponsor could look at a manager and get a sense of the overall governance quality within its portfolio, then compare those scores between managers to see how well or poorly they’re using this type of information."

Monitoring tool

Bill Puckett, chief investment officer at the Teachers’ Retirement System of Oklahoma, a pension fund with nearly $7 billion in assets under management, plans to use the ISS scores to monitor investments and to develop a better understanding of corporate governance information at his organisation.

"We’re going to use it as a monitoring tool, and also to help us develop our own internal policies around corporate governance," Puckett says. "Right now we don’t have any corporate governance policies, so getting this information will help us get our arms around it."

Puckett adds that the scores will provide him with a new point of comparison. "It’s a hot issue, but it’s very hard to get your head around the definitions of it," he says. "The biggest help from this will be defining different areas of corporate governance so we can develop policies to help our managers and board members understand.

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