Two groups are competing on the creation of corporate governance indexes designed to be the basis of index funds and other structured investment products.
FTSE Group and Institutional Shareholder Services Inc.'s FTSE ISS Corporate Governance Indexes was launched April 14, while Glass Lewis & Co. and Standard & Poor's plan on issuing the Glass Lewis Shareholder Rights Index May 15.
"I think it's a very valuable effort, trying to take corporate governance scores and impute them in an index," said Steven A. Schoenfeld, chief investment strategist-global quantitative management at Northern Trust Global Investors, New York, and an authority on indexing.
The FTSE ISS Developed CG Index covers 24 developed markets, including the United States, and consists of 1,350 stocks with a total market capitalization of $17.6 trillion. The FTSE ISS U.S. CG Index has 415 stocks with a total market cap of $9.048 trillion.
The other new FTSE ISS indexes cover Japan, the United Kingdom, the eurozone and Europe.
"We would expect to license index funds in the near future ... by early next year," said an FTSE official at a teleconference. The firms also will customize corporate governance indexes, if requested.
The indexes will be a useful tool to measure companies' corporate governance practices and "a way to assess the potential impact of such practices on portfolio performance," the report said.
"The prime objective behind the indexes is to exclude the highest corporate governance risk companies in each separate market," the report added. Companies are selected based on their corporate governance scores, developed by ISS, Rockville, Md. ISS is modifying its Corporate Governance Quotient scale that ranks companies to produce a scale for the FTSE global index series.