Russian Airline scores 5.3 on a 1-10 scale (440 words)

Published: 3/21/2001

Standard & Poor's has published its first corporate governance score (CGS), a new product for emerging markets which reflects the extent to which a company's governance process serves the interests of its financial stakeholders. Aeroflot - was assigned a CGS-5.3 on a global scale of CGS-1 to CGS-10 scale as a result of a comprehensive study undertaken by Standard & Poor's Corporate Governance Services. “Having such a high profile company as the first published score is a very promising development for the Russian market and for emerging markets in general,” said Nick Bradley, head of Standard & Poor's Corporate Governance Services. “The scoring process was fully interactive and included the co-operation of, and extensive meetings with, Aeroflot management, outside investors, board members and industry analysts. We also conducted a thorough review of non-public and publicly available information about the company's governance practices.” Mr Bradley continued: “It sets a very important precedent and we believe that corporate governance scores will be an important new tool for investors and a source of objective feedback for companies wishing to better understand and benchmark their corporate governance practices on a global basis." The corporate governance analysis is based on four components, and Aeroflot's composite score of CGS-5.3 is the result of four component scores: · Ownership structure and influence 4.5 (maximum 10) · Financial stakeholder relations 6.8 (maximum 10) · Financial transparency and information disclosure 6.2 (maximum 10) · Board and management structure and process 3.8 (maximum 10) The strengths of Aeroflot's corporate governance include a relatively high degree of clarity regarding how financial stakeholder and ownership rights are defined and protected, as well as a high level of financial transparency relative to other Russian companies. The review highlighted according to teh S&P's press release several positive aspects of Aeroflot's board and management structure and process,in particular its active involvement with many of the company's wider strategic issues such as budgeting, financing and organizational policies. Another positive factor is the recent appointment by external shareholders of a non-executive board member. The analysis also lists various measures that Aeroflot has taken in recent years to improve the level of its corporate governance, such as introducing internal audit and financial control facilities and an external investor relations service. S&P however, do not venture a view of whether scoring on half of the avaiable points is a good or bad score for the airline. We would suggest good start, but plenty of room for improvement.Also that good governance requires substance in addition to form, particularly with regard to shareholders interests and representation.

Article ID: 2438