EUROPE – Index provider FTSE has teamed up with US governance ratings group ISS to provide corporate governance indices.

"Investors will now have the option of deciding how to manage corporate governance risks within their benchmarks,” said FTSE chief executive Mark Makepeace.

FTSE and ISS, Institutional Shareholder Services, said the indices would allow investors to “identify corporate governance risks more easily across a global portfolio”.

They would provide standard and customised benchmarks, to cut investors' exposure to companies with poor corporate governance performance.

A FTSE spokeswoman declined to disclose the financial terms of the deal or pricing information. She said that Makepeace and FTSE strategy head Marianne Huvé-Allard were in charge of the product for FTSE.

She said: “We had a lot of institutional support during the feasibility stage of the project, and are confident that the products will be used widely when they are launched later this year.”

The cooperation, to be launched in phases beginning in summer 2004, was in response to growing concern from institutional investors.

The companies have identified a set of globally accepted corporate governance principles, which will be applied to rate over 7,000 companies within the FTSE Global Equity Index Series.

These ratings will enable investors around the world to compare the companies within global portfolios using a single, integrated index.

ISS vice chairman Jamie Heard said: "Our collaboration with FTSE Group is very exciting as both organisations are innovators and thought leaders in their respective fields.

“With this joint initiative we will provide a standard in the assessment of corporate governance risks globally and create a useful set of measurements for the worldwide asset management community."

Nick Bradley, European practice leader of Standard & Poor’s governance service, was positive about the launch. “I think it’s to be welcomed,” he said, pointing out that it was a sign that investors were taking the subject seriously.

He added S&P was also looking at the possibility of some form of governance index and was in the process of evaluating market demand – though there were no immediate launch plans.

He said S&P have been approach by investors in the US about such an index. He added the firm was currently working with a group of investors at the moment. He declined to name them but said they were “reasonably well-known names”.

He said there were limitations to using public data for corporate governance – but conceded FTSE and ISS may have “first mover advantage”.

ISS provides proxy voting and corporate governance services to more than 950 institutional and corporate clients worldwide.

Earlier this month FTSE and rival Dow Jones said they would work together to create a classification system for bonds and equities called the Industry Classification Benchmark.

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