Expansion Reflects Growth in Investor Exposure to Asian Emerging Markets
Rockville, MD (June 28, 2015) – Institutional Shareholder Services Inc. (ISS), a leading provider of corporate governance solutions to the global financial community, today announced the expansion of its ISS Governance QuickScore coverage universe to include companies in China, India, and South Korea. With the addition of these companies, QuickScore coverage now stands at more than 4,700 publicly traded corporations across 30 global capital markets.
QuickScore is designed to help investors identify and measure portfolio governance risk at the overall company level and across four broad pillars: board structure, compensation/remuneration, shareholder rights, and audit & risk oversight.
Notably, subscribers have the ability to access and analyze the underlying data from which the scores are generated, allowing them to custom screen portfolio companies against hundreds of corporate governance factors or to perform detailed side-by-side comparisons of two or more companies’ data profiles.
“Whether monitoring related-party transactions with significant shareholders or the prevalence of director stock ownership, QuickScore now provides access to data and analytics needed to effectively manage governance risk in emerging markets,” said Marija Kramer, ISS’ Head of Product Development. “The increase in coverage marks an important development in the evolution of QuickScore, the universe for which now includes the Russell 3000, MSCI EAFE, ASX200, MSCI Emerging Markets in Brazil and South Africa, and other major indices.”
An analysis of QuickScore data for new coverage markets finds stark differences amongst governance practices for three of Asia’s five largest economies.
Average board independence levels, for example, stand at 56 percent for the 99 South Korean companies covered while 70 Indian firms covered show an average independence rate of 50 percent. Meanwhile, the average independence level is just 39 percent for those in China, with a coverage universe of 59 companies. Looked at from another vantage point, fully 88 percent of the Chinese companies covered maintain boards that are less than one-half independent, while the figure stands at 37 and 15 percent for India and South Korea, respectively.
Differences in board leadership structure also are prominent, QuickScore data show, with nearly 63 percent of Korean company chief executive officers also chairing the board. By comparison, 24 percent of Indian CEOs also chair their board, while the figure stands at just 15 percent for China-based firms.
Indian companies show the greatest level of board gender diversity with 83 percent of QuickScore firms having at least one woman board member, which can be attributed in part to recently promulgated rules requiring companies to have at least one female director. The proportion stands at 63 percent for Chinese companies and 12 percent for Korean companies. These figures complement those for average board size, an analysis of QuickScore data show, with India-based companies the largest at an average of 10.8 members, followed by China at 10.3 and Korea at 7.9.
With regard to related-party transactions with significant shareholders, QuickScore data show the practice is most prevalent at Chinese companies at 85 percent, followed by Indian companies at 29 percent. Such transactions were evidenced at just 19 percent of Korean firms in the QuickScore universe. Separately, with nearly nine in 10 (88 percent) Chinese firms show the presence of a controlling shareholder, compared with 33 percent for India and just 14 percent for Korea.
“Influence of the controlling shareholder over the company and the board remains a key concern for investors in China,” said Jun Frank, head of Asia-Pacific (ex-Japan) research at ISS. “We expect foreign investors who plan to increase exposure to the market through Chinese ‘A-Shares’ will be paying close attention to transactions with major shareholders where the risk of channeling wealth away from minority shareholders and into the hands of controlling shareholder is high, alongside other governance risk indicators.”
