Standards

Governance reform threatens bondholders, Moody's warns

The expansion of shareholder rights in the US threatens to pose an additional risk to bondholders, and may result in companies being pressed for short-term gains at the cost of long-term credit quality, a report by credit rating agency Moody’s has warned.

Mark Watson, co-author of the report and head of Moody’s corporate governance group, said that the balance of power at US companies seems to be undergoing a substantial shift towards shareholders demanding and winning more direct influence. He said: “Our concern is the pace and scale of change, and the potential unintended consequences and harmful effects that exercise of these rights by a small minority of short-term investors, in combination, may have for bondholders”.

Watson did, however, concede that corporate governance improvements have benefited bondholders in some cases, especially through improvements in financial controls, and greater rigour and independence of board oversight. 

July 2007