How can an organization produce tangible evidence of “Effective Management and Governance” to rating agencies and bankers?

I attended a conference presentation describing the turbulence in capital markets and the current impacts of high interest rates. This was a topic of high interest for me, given the news reports of Moody’s issuing downgrades to organizations’ debt as higher interest rates threaten their financial stability.

There has been much discussion in the business press of how many business models had relied on low interest rates persisting so, given market rates increases, negotiating the best debt rates is more important in more than a decade.

The presenters provided a welcome surprise: There are, in fact, many examples of ratings upgrades even for heavily leveraged firms. Of greatest interest to me was the rating agencies’ reasons for upgrading debt. Topping the list was “Effective Management and Governance.”

This begs the question: How can executives produce tangible, compelling evidence of effective management and governance to people outside their company?  Borrowing from Missouri, “Show-Me”!

I’ll share my strategy.

Making It Visible

After being pilloried in the wake of the home mortgage crisis, rating agencies amped up their scrutiny, seeking better documentation to support their opinions. They demand tangible evidence for every assertion an organization makes. We need to make it easy for rating analysts to see our effective management and governance.

One key strategy is to demonstrate your organization consistently and effectively employed proven Strategic Decision Management disciplines to govern major decisions in setting strategy and investing in strategy execution. Revisit your processes for approving capital with a critical eye for:

1. A well-documented framework utilizing modern Strategic Decision Management best practices (not just tired checklists and templates) for navigating common decision pitfalls, blind spots and biases that derail innovation and decision excellence.
2. Clear documentation of business teams consistently following that framework. Keep a keen eye out for gaps in the documented process. While your teams may be doing all the right things, if it’s not written down, how can an outsider believe it?
3. Where shortcuts were allowed, was a compelling case made for allowing those shortcuts or was it self-justification after the fact?
4. Records of consistent follow-up and adjustment. Does the executive team revisit major decisions and expenditures to learn what actually happened and adjust future decision-making processes accordingly?

If reliable access to affordable debt is a priority for your organization, make it easy for ratings analysts or your banker. Have a solid case you can put into their hands when they come calling.

© Dave Wittenberg