Publicly-traded North American metals and mining companies show generally credit-friendly governance characteristics, according to a new report from Moody's Investors Service that applies its governance assessment (GA) framework across the sector.
The analysis is Moody's second in a series of reports that score individual companies on the basis of their disclosed governance traits.
Moody's governance assessment scores are based on five components, including ownership and control; management compensation design and disclosure; board of director oversight and effectiveness; financial oversight and capital allocation; and compliance, controls and reporting.
"For the most part, ownership and control characteristics among metals and mining companies are highly aligned with our credit-friendly benchmark, with a few exceptions, as is disclosure regarding related party transactions and conflicts of interest characteristics," says Moody’s VP and senior analyst Brendan Sheehan.
"However, CEO compensation design in the sector diverges somewhat from our benchmark, with approximately one-third of rated companies featuring performance metrics that focus on equity-related incentive metrics over operational or balance considerations."
Moody's GAs are objective assessments of board of director-level policies and disclosures, and are expressed using a four-point scale between GA-1 (highest) and GA-4 (lowest). The metals and mining sector's median score of GA-1 indicates corporate governance characteristics and disclosures that are closely aligned with what Moody's defines as a credit-friendly benchmark.
"Sector alignment with Moody's benchmark for board leadership and independence is mixed," says Moody’s senior VP Carol Cowan.
"The level of director experience in related sectors is generally high among the group, although there is a preponderance of long-tenured directors and gender diversity rates that are lower than benchmark levels at many metals and mining companies."
Moody’s points out that GAs are not credit ratings and that they provide standalone assessments of certain aspects of governance risk relative to defined benchmarks considered from the perspective of the potential impact on creditors.