ISS stands for Institutional Shareholder Services, a public company governance rating service that compares governance practices of specific companies to other companies in its industry and other public companies within a broader ISS database. Historically, access to this information has been restricted to financial institutions that purchase the service to get data points for risk assessment. Low ISS scores are often correlated with high risk of shareholder class action lawsuits. But high scores do not necessarily have the same correlation.
Two researchers at Georgia State University have examined the correlation between high and low ISS scores and shareholder value over a 3/5/10 year time perspective.
They found that the lowest scoring companies on ISS underperformed industry average by 4%. And the highest scoring companies on ISS tend to outperform industry average by 8%.
ISS scores are now available to anyone who can look up a public company on Yahoo Finance. They can go into "Profile" and review the score.
The extension of ISS scores from a tool limited to a few institutional investment professionals to a tool available to everyone means an eventual extension of the importance of ISS rankings within the investment community and then into the search for talent to join the company.
In its most positive aspects, high ISS rankings may become a tool to attract investors, attract talent, and to gain customers at the expense of lower ISS ranked competitors.
For a copy of the Georgia State research, click here.