What Is the Corporate Governance Quotient (CGQ)?
The corporate governance quotient (CGQ) is a metric developed by Institutional Shareholder Services (ISS) that rates publicly traded companies in terms of the quality of their corporate governance. Each public company covered by the metric is assigned a rating based on a number of factors that are considered by the ISS model.
Factors used in the CGQ formula include the board of director's structure and composition, the executive and director compensation, audit problems, and bylaw provisions.
- The Corporate Governance Quotient (CGQ) is a measure of a company's quality of corporate governance put out by Institutional Shareholder Services (ISS).
- The CGQ utilizes eight core metrics to come to a score. Investors and analysts can use these rankings to make better investment decisions and recommendations.
- Today the CGQ has been expanded to include environmental, social, and governance (ESG) criteria, to become the ISS Governance QualityScore.
Understanding the Corporate Governance Quotient (CGQ)
Institutional Shareholder Services (ISS), is a respected data provider focusing on corporate proxy voting and governance issues. Started in 2002, the ISS CGQ serves as a reasonable approximation of the quality of a public firm's corporate governance. Investors seeking to hold shares in a company for the long term will typically be concerned about the quality of their company's corporate governance, as research has shown that a high quality of corporate governance typically leads to enhanced shareholder returns.
In 2006, NASDAQ began including CGQ data for listed securities on its exchanges and platforms.
CGQ Rating Components
The ISS CGQ rating is composed of the following core metrics:
- Board of directors structure and composition
- Audit or accounting issues
- Charter and bylaw provisions
- Laws of the state of incorporation
- Executive and director compensation
- Qualitative factors
- Insider stock ownership
- Director education
The CGQ ratings are ranked relative to a firm's peer companies, with data collected from various publicly available documents and data sources. In addition, rated companies are invited to provide ISS with corrections and updates that may give ISS the occasion to recalculate the rating. ISS has established a CGQ subscription service that allows the companies to obtain their ISS data before the ratings are published to the public. Using this subscription service, companies also have the opportunity to compare their own rating with the rating of peer companies.
ISS Governance QualityScore
With the rise of socially responsible investing (SRI), environmental and social issues have come to be just as important as corporate governance, leading to ESG criteria (environmental, social, governance). ISS has thus upgraded its original CGQ score to a more inclusive figure it calls the Governance QualityScore.
Companies receive an overall QualityScore and a score for each of four categories: Board Structure, Compensation/ Remuneration, Shareholder Rights, and Audit & Risk Oversight. The Governance QualityScore looks at 220 individual factors including certain qualitative aspects of governance, such as global governance standards and alignment with ESG voting policy according to region.
Today, the ISS issues QualityScores covering more than 6,000 publicly traded companies across 30 global markets.