In their Legal Brief column for the second quarter issue of Directors & Boards, “Off the GRId,” Philadelphia partner Doug Raymond and associate Doug Murray address RiskMetrics’ new Governance Risk Indicators (GRId) – a governance-related matrix comprising weighted questions that define RiskMetrics’ view of good governance. RiskMetrics’ current influence with institutional investors means many boards may fall into step with the new matrix without considering other approaches.
The authors caution that the “one size fits all” model of the GRId – evaluating each company’s governance-related risk by comparing the company’s practices to the RiskMetrics-defined best practices for the country in which the company is located – “does not consider industry practices. Nor does it consider a company’s particular circumstances — which is precisely what directors should do when developing a governance program. They advise boards that while they should “give weight” to Riskmetrics’ views, they should also “recognize that GRId’s approach is based on one perspective — the institutional investors’ perspective — and that boards should take a broader view when determining a fully integrated approach to governance.” They add: “[B]oards should not blindly follow the RiskMetrics model; but, rather, continue to consider the full range of issues and interests when striking the right balance in their governance processes.”