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Companies with Nothing to Hide

By Michael Kaye In an effort to gauge how well U.S. companies disclose critical information to investors, Standard & Poor's has come up with a new benchmark: Transparency & Disclosure (T&D) rankings. S&P released its initial rankings for companies in the S&P 500-stock index on Oct. 15.

S&P evaluates transparency and disclosure by searching company annual reports and standard regulatory filings -- such as 10-K forms and annual meeting proxies -- for the presence of 98 possible items of information, or attributes. S&P grouped these attributes into three subcategories: ownership structure and investor relations (28 attributes); financial transparency and information disclosure (35 attributes); and board and management structure and process (35 attributes).

Each attribute is scored on the basis of "yes" (included) or "no" (not included) answers to ensure objectivity. Each yes answer is equal to one point. After the scores are tabulated, S&P ranks the companies. An overall ranking (with "1" being the lowest and "10" the highest) reflects the total number of the 98 possible attributes included in a company's annual report and accounts. Individual rankings for the three subcategories are calculated in a similar way by reference to the maximum possible number of attributes for each subcategory.

MANAGEMENT MONITOR. According to S&P, the T&D rankings can be useful for equity and fixed-income investors, analysts, brokers, and regulators to determine the disclosure practices of public companies. Those with more transparent practices enable shareholders, creditors, and other interested parties to more effectively monitor management's actions and a company's operating and financial performance.

We decided to use S&P's new rankings as the focus of this week's screen. Starting with the list of companies in the S&P 500 that carry top S&P investment rankings of 4 STARS (accumulate) or 5 STARS (buy) -- meaning that S&P analysts expect them to outperform the overall market over the next 6 to 12 months -- we wanted to find the companies that also scored well in the T&D rankings. They had to have a score of at least 8 in transparency and a 6 in disclosure rankings, respectively, placing them squarely in the top 20% of the S&P 500.

These 15 names emerged:

EOG Resources (EOG)

Leggett and Platt (LEG)

Union Pacific (UNP)

Alcoa (AA)

Burlington Northern Santa Fe (BNI)

Entergy (ETR)

Household Int'l (HI)


McDonalds (MCD)

Meredith Corp (MDP)

National City Corp (NCC)

Occidental Petroleum (OXY)

JC Penney (JCP)

TMP Worldwide (TMPW)

VF Corp (VFC)

More information on S&P's T&D rankings, and a full list of ranked companies, can be found at Kaye is a portfolio services analyst for Standard & Poor's

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