Thursday, January 14, 2010

No More Credit for Director Education?

In the wild takeover days of the 1980s, business columnist Dan Dorfman, who had his ear closer to the ground than anyone in picking up the M&A drumbeats, used to qualify his tips on who was about to get hit with a takeover bid with this disclaimer: "This is what I hear, not what I know."

This is what I hear: RiskMetrics Group is about to stop giving credit in its governance ratings for director education. That is, it will cease reviewing director education programs or track director attendance at what had been accredited programs, and will no longer include "Director Education" in its Corporate Governance Quotient (CGQ) scoring system for rating a company's governance.

RMG, the 800-pound gorilla in the governance ratings game, seems set to announce shortly a new tool that replaces the CGQ, one which will include variables that it considers more important than director education.

This is a significant development for all the purveyors of governance programming — think of all of the director institutes and centers for corporate governance and all their conferences and events, plus the programming conducted by service firms for director education. And it surely represents a rather monumental restatement of philosophy by RiskMetrics about how it regards the importance of director education.

My initial reaction is one of bemusement. If RMG proceeds down this path of no longer tracking and crediting director education, this seems to be a startlingly counterintuitive move.

The job of a board director is getting increasingly complex, especially in the area of enterprise risk management. This kind of environment normally is when you would want to encourage directors to avail themselves of educational opportunities to get better up to speed. If you have any kind of an orientation to increasing shareholder value through governance rigor, you don't want to be taking away incentives to growing a board member's knowledge base and competencies.

This move by RMG is what I hear. More news to come.