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In This Issue: Standard & Poor's Credit And Equity Analysts Review The State Of Corporate Governance By Amra Balic, London In the current climate of uncertainty in the financial markets, corporate governance is more important than ever, for both shareholders and creditors. To get a deeper insight into the current state of corporate governance against the backdrop of ongoing market disruptions, a Standard & Poor's panel recently discussed these issues. Governance Analysis In Credit Ratings By Laurence Hazell, New York There are many corporate governance issues that, while important, are nevertheless less likely to be of concern to creditors. However, in some cases these secondary factors can drive rating decisions depending on the particular circumstances. What many of these issues have in common is their ability to adversely affect equity investors' perception of the company and its fortunes, which in turn can impair the company's access to capital. How Has Sarbanes-Oxley Changed The Face Of Corporate Governance After Five Years? By Dan Konigsburg, New York Standard & Poor's Ratings Services, along with many market participants, believes that it's too early to draw firm conclusions on the merits of the Sarbanes-Oxley Act despite a number of positive signs. With just five years of history, research on the topic remains limited. Moreover, the effects of compliance with its more qualitative provisions might only be felt over a longer business cycle. Corporate Governance: Short-Term Thinking Can Have Dire Long-Term Consequences By James R. Peters, New York A board of directors is responsible for acting in the best interests of the company it serves, and public companies are owned by shareholders with an ever-shortening time frame for judging results. Corporate boards, therefore, may feel pressure to recommend short-term profit-maximizing strategies, possibly by facilitating incremental risk taking, in order to appease the shareholders they indirectly serve. Corporate Governance: How Credit Ratings Can Help Directors Manage Risk More Effectively By Laurence Hazell, New York Rating revisions can reflect a change in market conditions, the actions of competitors and other external parties, or developments within the rated entity. In any case, credit ratings provide coherent feedback to directors on the relative position of the company, the issuer's relative position within its sector, and the nature of market acceptance for a specific bond or financial instrument. Corporate Governance: Shareholder Efforts May Be Tipping The Balance Of Power At U.S. Corporations By Marie Driscoll, CFA, New York Standard & Poor's has identified three major contemporary governance issues in the U.S. The first, shareholder access to the proxy, appears to be seen by boards and shareholders as pretty close to the jugular of corporate power. By contrast, the second, majority voting, seems to be fast becoming the norm in corporate America and has turned out to be an initiative that boards have themselves introduced. The third, say on pay, has found a couple of corporate converts, but remains another hotly debated issue. S&P/Duke University Study Details Correlations Between Corporate Governance And Credit Risk By George Dallas, London While the results of the study confirmed that financial condition is the primary determinant of a company's credit rating, it also found that certain governance attributes-such as ownership, shareholder rights, board structure, and executive compensation-could also help explain differences in credit ratings. This finding supports the contemporary understanding of the role of corporate governance in Standard & Poor's corporate ratings criteria and methodology. Corporate Disclosure Improves, But Greater Transparency Is Still Needed By Amra Balic, London To gain a better understanding of public disclosures that companies' managements make with respect to enterprise risk management (ERM) practices, Standard & Poor's conducted a study focused on the ERM-related disclosures of two European regulated industries outside financial services: telecommunications and utilities. This study builds on our experience in measuring financial and business risks through the credit rating process, and in ERM within the financial services sector. S&P Focuses On Appraisals For Residential Properties And Encourages Use Of Automated Valuation Methods By Leslie Albergo, New York For mortgage lenders, accurate information about both the borrower and the property being used as collateral for a mortgage loan is a fundamental requirement. The appraisal report, which is the basis for determining just what the real estate asset is worth, contains vital information on the property. So when appraisals are inaccurate or fraudulent, the consequences can be severe-not just for the lending institution, but also for investors in securitized products that include loans originated based on this faulty data. Ratings Cut On 85 Classes From 56 U.S. NIMS RMBS Transactions Issued In 2004 By Ernestine Warner, New York Standard & Poor's lowered its ratings on 85 classes from 56 U.S. net interest margin securities residential mortgage-backed securities transactions backed mostly by subprime U.S. mortgage collateral issued in 2004. Concurrently, we removed our ratings on five of these classes from CreditWatch with negative implications.