What is a Corporate Governance Rating?

Corporate governance is defined as a set of rules, mechanisms and practices that inform how a corporation is being operated or managed. Essentially, corporate governance drives transparency, fairness and accountability between a company and its customers, shareholders, suppliers, financiers, executives, government and the community. A corporate governance rating refers to the status of a company with respect to the adoption of corporate governance practices. This rating is the final opinion regarding the important a corporation attached to corporate governance by looking at the information they provide to stakeholders, relationship with financiers, customers, suppliers, the community and others.

How is a Corporate Governance Rating Used?

A corporate governance rating is provided by a rating entity after deriving information about the adoption of corporate governance by an institution through the reports of analysts. There are many sources where information can be gathered about the relative standing if an entity with respect to corporate governance. This means a rating agency may or may not actively conduct an audit of an entity before the rating is provided. Given that corporate governance rating is dependent on the information provided on a corporation, it can be modified, suspended r withdrawn if counter information is provided. Some of the processes adopted by rating agencies before coming up with corporate governance rating are macro and microanalysis, crucial data such as proceedings of shareholders meetings, minutes of board meetings, cases filed bu consumers, suppliers among others.