CASE 1: Corporate governance ratings - Got the grade? What was the test? 1. How valuable do you find governance ratings? Do you prefer the rating methodology of any one firm in particular of TCL, GMI, or ISS? Justify your answer with rigorous arguments. 2. Do you believe it is possible to measure corporate governance using a small number of absolute or relative scores? Explain you answer with rigorous arguments. 3. What factors are missing from the rating methodologies of TCL, GMI, and ISS? 4. If you were an investor, how would you use these ratings, if at all, in making an investment decision? What research results (check relevant websites) indicate that these governance ratings provide useful information to shareholders, bondholders, regulators, etc.? Provide a summary of these studies. 5. Assume that you were assigned the task to evaluate the validity of these ratings for your company. Describe how you would develop a compelling research study to assess whether these ratings are useful. 6. What was the benefit to Aetna from increasing their CGQ rating? If you were on Aetna's board of directors, would you vote to spend corporate resources to improve your CGQ score? 7. Do you agree with claims that there is a conflict of interest at IS5 because they both rate firms and charge them to improve ratings, or do you agree with ISS that there is no conflict because a company can only change its rating by implementing governance changes? CASE 2: Models of Corporate Governance: Who's the Fairest of Them All? 1. Imagine that you have been commissioned by your government to design from scratch an entirely new system for corporate governance. Your system is to be the most effective governance system and you are allowed to borrow freely from the standards of any country in the world. What are your recommended best practices? Be specific and make sure to comment on unitary board versus two-tiered board, board composition, independence, committees, auditor requirements, and other factors mentioned in the case. 2. Do you believe standards of governance should be required through legal mandate (as in China and Germany) or adopted at the discretion of the company based on recommended best practices and pressure from shareholders? 3. How effective do you find the standard of comply-or-explain? Provide an analysis of the economic and social forces of this standard. 4. Do you believe employees should have representation on the board? What impact would this have on governance and board discussion? If you ran a major company, would you want employees serving on the board? If so, would they serve in a supervisory or strategic capacity