Component 1 (Corporate Compliance Self-Assessment): Component 1 is based on a company’s self-evaluation. After the self-evaluation is provided, a company has about four weeks to complete the self-evaluation.

How the self-evaluation works:

Each of the 36 consolidated indicators grouped into 5 distinct sectors:

  • Business Ethics & Anti-Corruption
  • Internal & External Audit and Control
  • Shareholder & Stakeholder Rights
  • Board Structure & Responsibilities
  • Transparency & Disclosure

Each consolidated descriptor has three levels of requirements in ascending level of difficulty of implementation. On each of these levels, a company assigns itself a level of compliance.   The Evidence Descriptor specifies for each level the kind of documents and policies, procedures and practices a company should possess in order to claim compliance. Evidence needs to be recorded in the self-assessment in the Narrative section.

Compliance options available are:

  • NOT MET: Where none of the items specified in the Evidence Descriptor can be supported with an appropriate narrative of context.
  • PARTIALLY MET: Used where some (but not all) of the items listed in the Evidence
  • Descriptor can be supported accordingly; and
  • LARGELY MET: Used where almost all, bare a few of the items listed in the Evidence
  • Descriptor can be supported accordingly; and
  • AT STANDARD: Only used where an appropriate narrative can support ALL the items listed in the Evidence Descriptor.

Upon assignment of one of the four degrees of compliance with each of the three levels, each Consolidated Indicator receives one of four assessments depending on the degree selected for each level.

Satisfactory A substantial majority of elements of the indicators are in place. There may be minor gaps that require review and /or improvement, but they amount to a small governance risk to the company
Adequate Many elements are in place, but some may be limited in scope and/or quality.  There are gaps in compliance that may pose a medium governance risk to the company and its partners
Moderate There are compliance gaps in many elements of the indicators that require attention. There is a possibility of wider and significant governance risks to the company, its partners and perhaps industry.
Weak Weak: There are major compliance gaps across a majority of indicator elements. Governance failure risk probability is high or has materialized as issues in some respects.

These levels get converted into numerical scores for each level and a weighted overall score of a maximum of 100 points. Companies wishing to qualify for assessment of Component 3 and ultimately for the Premium Board of the NSE need to score at least 70 out of 100 points, which basically translates into an overall rating of “Satisfactory”. Companies that would   qualify after   completing all three   rating   components will be automatically subject to a verification of their self-assessment. All other self-assessment will be verified at least once every three years.

Component 2 (Fiduciary Awareness): The Fiduciary Awareness of Directors component of the CGRS reviews the percentage of directors of a company that possess the fundamental knowledge required to fulfill their roles effectively and lawfully. The test module is a personalized certification for all directors using random questions based on the fiduciary awareness training offered in preparation.

The fiduciary awareness test is scored automatically by the knowledge management system. The test time is a maximum of 90 minutes. The pass mark is 70%, answering 28 out of 40 questions correctly. Once certified, a company’s director does not have to repeat the test.  Directors who are not already certified newly joining a company’s board need to get certified in the next evaluation cycle.

Component 3 (Corporate Integrity): Component 3 of the CGRS adds a qualitative measure of implementation and corporate integrity to the rating process that other CGIs mostly lack. The CGRS attempts to measure implementation with two tools, the stakeholder survey and the Expert Multi Stakeholder Group.  Companies will only be evaluated under Component 3 only if they clear the minimum rating   thresholds of 70% in Component 1 and 50% in Component 2.

Stakeholder Survey: The Stakeholder structured interviews cover the five areas described earlier.  In order to gain the broadest possible   representative coverage   of opinions on a company the interviews will target the following distribution and methodology.

Scoring: The score from the automated questionnaire for the Stakeholder Survey is calculated by the system in real- time from the responses received.  The scoring ranges for each question are designed to allow respondents to select an appropriate response based on their subjective view of specific company practices. These range from ‘Very Strongly’ to ‘Not at all’ but also allow respondents to indicate if they do not know how to respond.

The qualitative score for the consultant-led interviews is calculated by recording the respondent’s opinion on a company in the 5 assessment areas as well as the overall perception of the company. Upon conclusion of each section, the respondent is then asked to assign a score from 0 (strongly negative) to 100 (strongly positive) to each area. The overall score for the company is calculated from the individual section scores.

Expert Multi Stakeholder Group (EMSG): The EMSG’s role comprises of experts from business, civil society and government. Its members are nominated by the Selections Committee, which is explained further below. The role of the EMSG is to provide informed opinions to the Ratings Committee on the corporate governance practices of listed companies.

EMSGs will be formed by sector to guarantee expertise of the group members for the respective sector. The number of EMSGs per sector depends on its size. Each EMSG consists of five members.

  • A chair whose identity will be public.
  • A corporate governance expert
  • Three industry experts including a media representative.

The panel review focuses on the discussion areas depicted in the graph below. The EMSG also provides advice on existing and emerging issues of listed companies that may adversely affect its rating and position. Such expert advice can be instrumental in the early detection of issues at individual companies that may affect the integrity and reputation of the CGRS as a whole.

Scoring: The EMSG expert panels deliberate on companies without knowledge of their prior evaluation results from Component 1, 2 and the stakeholder survey element of Component 3. The discussions focus on the five CGRS core assessment areas previously listed in Table 3. The expert panel discusses each assessment area and rates the company’s performance on a scale from strongly negative to strongly positive, based on their knowledge of the market place behavior of the company. Crucially, the experts need to agree unanimously on a score for a company in each assessment area. The final score for the company is then calculated from the individual scores in each assessment area.


Indices relying on companies meeting a threshold employ diverse models for reaching the cut-off as can be seen in the table below.  Most indices do not go far over an “average” of 50%. This may be attributed to the motivation to have a sufficient number of companies qualify, which may not be the case with a higher threshold. The JSE SRI Index is representative in this approach. The threshold of the Mexican index is interesting. Mexican companies have to score over the global average of EIRIS’ ratings of over 3,500 companies, which means the threshold can fluctuate from year to year.

Qualifying Rating Threshold of the CGRS

The three-tier setup of the CGRS – with companies having to meet a minimum score between 50% and 75% in each component – is a unique model in the world of CG Indices. From our perspective it is very appealing since it addresses corporate compliance, board of directors’ duties (arguably the most important body in CG) and CG practices with a focus on corporate integrity.

The weighting for each component is also motivating from a company perspective, since 60% of the rating score (Corporate Compliance self-assessment and the Fiduciary Awareness certification) are under the control of the companies.

Owing to the importance and challenge of corporate integrity in Nigeria, it is also critical that 40% of score is more qualitative and impartial in nature, and can only be influenced by the company via good practices.

The rating thresholds are high from an international perspective. However, they make sense:

  • If the CGRS wants to be a selective index, truly showing only the best of the best in Nigerian CG and Integrity;
  • Since the criteria in the corporate compliance component are to a large degree based on mandatory NSE listing rules and the SEC CG Code. A 70% compliance with these criteria does not seem overly high, but will be hard enough to meet for Nigerian companies in the beginning, since the SEC Code has only recently been reformed. With the development of the CGRS rating criteria over the years it will be progressively harder to meet.


Stock exchange indices are in principle built on publicly available information, which includes annual reports, company bylaws, security filings, and corporate governance reports based on comply-or-explain disclosure with the respective corporate governance codes. However, some are augmented by interviews, or company questionnaires and in a few cases, supplemented by proprietary research and company feedback.

Brazil’s BOVESPA’s ISE Sustainability index, which is otherwise not referenced in this report, is based on an evaluation questionnaire, which companies can opt to publish.  In 2013, 22 of 40 constituents opted to do so. Some indices have also initially allowed non-public information but gradually phased it out.  The South African SRI index for example discontinued the use of non-public information only in 2013, nine years into its existence, thus making the index more selective.

Both the information used in the evaluation and the company rating can be verified. In practice, the indices that are not based on listing tiers do not run additional verification on the information feeding into the evaluation. The exceptions are the indices primarily based on company self-evaluations such as the Peruvian CGI.

CGRS Information Sources: Due to the three-component setup of the CGRS, the information utilized stems from a number of distinct sources.

Component 1 will be based on the company’s self-assessment that will be verifiable with the company’s publicly available information. As we will see in the Disclosure Section, the planned mandatory publication of the self-assessment essentially turns the self-assessment into public information, building trust into the process and mitigating risks.

In addition, as mentioned above, a company’s self-assessment will be verified at least every three years whether the company qualifies or not and companies that would qualify after completing all three rating components will automatically have their self-assessment verified to assure the accuracy of information of potential index constituents.

Component 2 and 3 will be based on non-public, private information, in particular Component 3. This adds a qualitative dimension focusing on actual company practices to the rating, which is hard to achieve when ratings are purely based on public information. Information on company practices is then essentially limited to whether or not a company had been fined for any kind of violations.


The two principal concerns with respect to the entities conducting the evaluation are the qualifications of the evaluators and the possibility of a conflict of interest between company and evaluator. To avoid such conflicts, evaluation against governance or ESG criteria is outsourced in five of the six indices that are not listing tiers, with   the exception of China’s   SSE GGI, which   puts   together a Selection   and an Expert Consultation team to review the company application.

Internal or external evaluators

If done out-of-house, a number of different options exist: Evaluation through commercial rating agencies, universities and not-for-profit institutions. In reality, a number of mixed models exist, often pairing a university with a rating provider. South Africa’s SRI index, for example, is the result of a collaboration of rating agency EIRIS and the Business School of the University of Stellenbosch.

Cost of evaluation

Most of the stock exchanges (four out of six) pay the evaluators to avoid potential conflicts of interest. However, in Peru, companies have to hire one of the accredited rating   agencies to verify their self- assessment. In Turkey, companies pay one of the rating agencies registered with the Capital Market Board. As an incentive, the cost of the rating is partially offset, as new companies joining the CGI pay only half of the annual listing fee for the first two years, 75% for the next two years, and 90% thereafter.

Selection of Consultants

In the indices where evaluators cannot be chosen, they have remained the same since the inception of the indices, thus guaranteeing the continuity of the index evaluation. In Peru and Turkey, where the evaluators can be chosen by the companies, rating agencies must register and be accredited by the respective capital market regulator.

The evaluation process of the CGRS

For the CGRS, evaluators will be inserted at three different levels in the rating process:

  • Verification of self-assessments for companies potentially qualifying for the CGRS: The Selections Committee recruits and screens consultants to conduct the verifications. For the review of the self-assessments, the Rules Committee will assign and contract consultants from the pool of candidates recruited by the Selections Committee.
  • Stakeholder Interview Consultant: An Assessment Consultant, selected based on evidence of capacity, track record and assurance of no conflict of interest, screened by the Selection Committee, nominated by the Ratings Committee and approved by the CGRS Steering Board, will conduct the Stakeholder Structured interviews. This addresses the two main concerns with respect to selecting evaluators, their qualifications and potential conflicts of interests.
  • Members and Chairs of the EMSGs: The EMSGs role in the rating process is to provide views, advice, recommendations and informed opinions to the Ratings Committee on the CG practices of companies that pre- qualified for the third stage of the evaluation process. They will be organized by sectors.
    The nomination process for EMSG members will be open, include background checks on the shortlisted candidates, panel interviews and ultimately recommendation of suitable candidates to the Ratings Committee. The EMSG sector chairs will fill a special role, since they will have a longer tenure to assure rating integrity and continuity and will also be the public faces of the panels.  As such, additional criteria for selection have been postulated for the Chairman position, essentially assuring that s/he will have the respect of the whole business community.

All participants in the CGRS process will be required to subscribe to a Code of Conduct and will be subject to due diligence reviews.