2 MINUTES ON… Indexing good behaviour

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New stock market indices that track how well companies adhere to standards in corporate governance were unveiled earlier this month.

The FTSE ISS Corporate Governance Index (SGI) series was launched in December, and this month saw the first rankings surface.

Among the companies taking the top plaudits are British companies such as BT, mining group BHP Billiton, Smith & Nephew and Scottish Power. The indices track aspects such as equity structure, independence of the board, integrity of the audit process, director share ownership and compensation systems for directors.

The new ratings will give companies a gauge of how well they are doing compared to other companies.

Some see the indices as a tool to improve the running of companies' information security and push it further up the boardroom agenda.

"This could be a big stick with which to beat [senior management]," says Richard Starnes, president of the ISSA UK.

Others also welcome the indices, as they can help companies differentiate themselves from other firms.

"From a legal point of view, it is quite good because it encourages peer pressure," says Stephen Mason, legal director of Cryoserver and a non-practising barrister. "It acts to differentiate you from your competitors."

Others see problems with the indices and point out they do not go far enough to cover IT security properly. Adrian Wright, managing director of Secoda Risk Management applauded the indices because they enable organisations and institutional investors to know who they are dealing with.

"But none of these indices cover IT security much. They only cover broad areas such as boardroom independence and CEO remuneration," he said.

"There is only one section, Director Education, that comes close to IT security, and this is the one that could be expanded to include operational risk and information security."

He says it is a great start, but added that the indices need to be more detailed.

"The top-down approach to corporate governance... starts with how the board conducts itself and works its way down. The next level is where the detail is, and this needs to be looked at in future."

By René Millman
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