Rockville-based corporate governance firm to merge with RiskMetrics

Daily Record, The (Baltimore), Nov 2, 2006 by Joe Bacchus

Institutional Shareholder Services Inc. expects more business and more Maryland jobs with its planned sale to a New York firm.

The Rockville-based corporate governance company will be acquired by RiskMetrics Group Inc., which also performs research and analysis for the financial business community. Ron Papanek, director of strategy for RiskMetrics, said ISS will be run as a wholly owned subsidiary and be given room to grow.

"ISS is a growth business," Papanek said. "We expect it to grow even stronger with RiskMetrics, so consequently we look for expansion, if anything."

In time, RiskMetrics plans to see how the two companies can improve by combining or overlapping their resources, he said.

ISS is one of the top corporate governance and proxy voting firms in the world, said Cheryl Gustitus, spokeswoman for ISS. The company helps shareholders analyze corporate issues and make voting decisions needed to keep their companies - and investments - successful. ISS represents 1,694 clients with $25.5 trillion in total equity assets, according to its Web site.

ISS has about 300 employees in the Maryland-Washington area, and a total of 585 employees in its 12 offices worldwide.

Gustitus said current President and CEO John M. Connolly will stay on as head of the new RiskMetrics division. She said as far as ISS and its employees are aware, the Maryland company should expect it to be business as usual under its new owners.

"The company will remain essentially as it is today, except it should grow," Gustitus said.

That focus on continued growth was the major reason for the purchase, Papanek said. He stressed the acquisition was not a way to cut costs, but rather an opportunity for two companies with different expertise in the same industry to come together.

"There will be a new set of problems that we will be able to address," Papanek said.

He expects the sale to be completed in approximately 90 days.

RiskMetrics was the in-house risk management division for JP Morgan & Co. until 1998, when it spun off into a private company, Papanek said. The company now has 290 employees in 11 global offices, excluding the ISS purchase.

RiskMetrics won the right to purchase ISS in a sealed bidding process with several other companies, Papanek said. The Wall Street Journal reported yesterday the final sale price was $553 million. When asked, Papanek would neither confirm nor deny the price.

"We're not specifically saying, but that is a number that's being said, that's true," Papanek said.

James McRitchie, an ethics and compliance officer for the state of California who follows the issue of corporate governance, said the issue has grown dramatically in the past several years, with the Sarbanes-Oxley compliance rules and the fallout from Enron and other corporate fiascos. He said governance has become more "institutionalized," with companies being more careful to make sure all their finances and other documents are in order. That means more business for companies such as ISS and RiskMetrics."Now, if they can report that they're using ISS or somebody else, they can claim they're doing their fiduciary duty," McRitchie said.

Stephen Davis, president of corporate governance consulting firm Davis Global Advisors Inc., views the ISS acquisition as a definitive sign that corporate governance has "come of age." Not only are company executives and shareholders concerned about possible impropriety, but shareholders have also come to the realization that an efficiently and effectively run company is also more likely to be financially successful, he said.

"You couldn't ask for a stronger signal that on Wall Street corporate governance is now linked to performance," Davis said.

He also points to the reported ISS sale price of $553 million as a sign of the industry's growth. In 2001, Thomson Financial sold ISS for only $45 million, he said.

Papanek said RiskMetrics was open to the possibility of further acquisitions in the future. However, he said the company would be very selective so he didn't know when it might add to its own portfolio.

"Companies like ISS are not a dime a dozen," Papanek said.