Fitch Ratings said Wednesday that while corporate governance is just one of many inputs into Fitch's ratings process, if not adequately implemented and carried out, it can be detrimental to the overall health of an enterprise. More specifically, Fitch has found that while strong governance practices generally will help ensure the likelihood of timely contractual payment, a fundamental governance
weakness can have crippling consequences for a company's viability, and may therefore constrain its ratings.
Fitch takes a pragmatic approach to looking at governance, rather than a 'check-the-box' compliance view. The agency compares governance practices globally and in the context of the country and company in question.
'While exceptionally strong corporate governance, in and of itself, does not generally benefit a rating, it may warrant other positive recognition in the credit analysis of the company,' said Dina Maher of Fitch's Credit Policy Group. 'Credit investors need to be aware that while sound governance generally serves the interests of all stakeholders, there can be discrepancies between the interests of bond and equity holders particularly around questions of promoting short-term performance over long-term stability.'
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