7BloombergESGEnvironmentalandSocialScores–MethodologyIndustryGuide–CoalMining1GovernanceScoresMethodologyandFieldInformationBloombergTerminalESGABloombergProfessionalServicesOfferingBIIssuePriorityOutline2ContentsIntroduction..................................................................................................................................................................3ApproachtoBloombergCorporateGovernanceScores..................................................................................................3ScoreFrameworkandStructure.....................................................................................................................................4ResearchandAnalysis.................................................................................................................................................4DataCollection.............................................................................................................................................................6ScoringMethodology...................................................................................................................................................7FirmAgeEstimate..........................................................................................................................................................7FieldPre-processing.......................................................................................................................................................7FieldScoring..................................................................................................................................................................7Aggregation..................................................................................................................................................................13ConditionalFieldScoringandAggregation...................................................................................................................15Endnotes......................................................................................................................................................................16Figure1ScoringCurveonField“PercentofBoardMembersthatareWomen”.....................................................8Figure2ScoringCurveonField“NumberofBoardPositionsCEOHolds(atotherfirms)”...................................9Figure3BoardBalanceScore...................................................................................................................................11Figure4IndependentDirectorScore........................................................................................................................12VersionReleaseDateDescriptionApril2022MethodologyforGovernanceScoresBIIssuePriorityOutline3IntroductionEnvironmental,social,andgovernance(ESG)datahasbecomeessentialforfinancialdecisionmaking—the2008financialcrisisandnumerousaccountingscandalshaveresultedinanincreasedfocusontheroleofcorporategovernanceinprovidingproperleadershipandoversightandaligningcorporatestrategywithallrelevantstakeholders.AsBloombergL.P.founderMikeBloombergisfondofsaying:“Ifyoucan’tmeasureit,youcan’tmanageit.”Inthatspirit,wewilldemonstratethatgaininganunderstandingofthedynamicsofcorporategovernancebyusingquantitativedataandscoringcanhelpinvestorsinidentifyingbothgovernancerisksandopportunities.ApproachtoBloombergCorporateGovernanceScoresAspartofGovernancescoring,BloombergL.P.hasdevelopedGovernancescoresforapproximately5,500globalcompaniesacrossallsectorsandregionsthatarepartoftheBloombergESGScoreUniverse(BESGSCOIndex).CombiningdatafromtheBloombergTerminal®withinsightsfromBloombergIntelligence(BI)andBloombergLaw,BloombergGovernancescoresofferquantitative,transparentanalyses.UndertheGovernancepillar,thethemesofBoardComposition,ExecutiveCompensation,ShareholderRights,andAudittouchonanumberofcoreESGIssuesthatcanhavematerialimpactoncompanyperformance,asresearchshows.TheseIssuescanbefurtherdividedintoasetofdistinctsub-issues,leadingtoacleartaxonomyfordatafields.Intheanalyticalprocess,theFields,Sub-Issues,andIssuesallcontributetoindividualThemescores,andultimatelyaGovernancescore.BoardComposition,ExecutiveCompensation,andShareholderRightsThemescoresarecurrentlyavailabletoBloombergusers,withAuditplannedforfuturerelease.TheThemes,Issues,Sub-Issues,andFieldsthatmakeupGovernancescorescanbeaccessedandanalyzedontheBloombergTerminalfromBIESG<GO>,undertheESGScoressection,orbyusingtheBloombergESGDisclosureTrackeratBESG<GO>,underESGData.BIIssuePriorityOutline4ScoreFrameworkandStructureThemes,Issues,andSub-IssuesToseealistofthespecificfieldsforeachSub-Issue,pleaserefertotheGovernanceScoresThemeGuides.BOARDCOMPOSITIONDirectorRolesDiversityIndependenceRefreshmentCEORolesAgeDiversityBoardLeadershipIndependenceBoardRefreshmentChairRolesGenderDiversityBoardIndependenceChairRefreshmentBoardRolesEXECUTIVECOMPENSATIONIncentiveStructurePayGovernancePayforPerformanceCEOIncentivePlanDesignCompensationBoardOversightFixedPayAlignmentExecutiveIncentivePlanDesignGenderDiversityVariablePayPerformanceExecutivePayEquitySayonPayExecutivePayLinkagesPayPoliciesSHAREHOLDERRIGHTSShareholderPoliciesDirectorVotingTakeoverDefenseDirectorTermsVotingRightsDirectorSupportDirectorElectionPoliciesBIIssuePriorityOutline5ResearchandAnalysisBloomberg’squantitative,transparentGovernancescoremodelhasbeendesignedbysubjectmatterexpertsacrossBloombergandispoweredbyourmanagementandboard-leveldata,whichareindustryleadersinthedatauniverse.Ingeneral,thesescoresaredeterminedbyBloomberg’sproprietaryresearchandthroughguidanceprovidedbythird-partycorporategovernanceframeworksandpractitioners.KeyBloombergContributorsBloombergIntelligenceBloombergSustainableFinanceSolutionsGlobalDataQuantitativeResearchIndexResearchBloombergIndustryGroupCorporateGovernanceFrameworksTheInvestorStewardshipGroupTheOrganisationforEconomicCo-operationandDevelopmentInternationalCorporateGovernanceNetworkCouncilofInstitutionalInvestorsCorporateGovernanceCodesLocalListingRulesBIIssuePriorityOutline6DataCollectionToensureaccuracyandconsistency,Bloombergcapturesdatafromcompany-producedreportinginthepublicdomain.Thisinformationincludesannualfilings,proxystatements,corporategovernancereports,supplementalreleases,andcontentgleanedfromcompanywebsitesandnewssources,andisusedfortheprofiles-basedfields.Bloombergrunssophisticated,multi-layerqualitycontrolsystemstoensurethatourdataconformstothehigheststandards.Inaddition,weensurethatonlycomparabledataisincludedintheproductbyemployinganalystreviewsintheinitialassessmentofthedisclosuresandinsecondaryvalidations,alongwithstatisticalandheuristicanalyses.RawdataandscoresfieldsusedinBloombergGovernanceScoresareavailableontheTerminalviaESGD<GO>.FieldsfortheGovernancescoresrelyoninformationfromprofiles-based,company-based,andproxyfilingdatasets.Profiles-basedfieldsareupdatedneartoreal-timeandarederivedfromtheunderlyingdatalinkedtoanexecutiveordirector’sindividualprofileontheBloombergTerminal(BIO<GO>),whichisthenaggregatedatthecompanylevelforthefield.ThefieldIDsfortheprofile-baseddatabeginwithCGfollowedbya3-digitidentifier(e.g.,CG600).Transparencyinformationfordatasuchasage,gender,tenure,andboardrolesislinkedtoeachprofileandcanbefoundontheTerminalviaMGMT<GO>.Company-basedfieldsareupdatedannually,alignedtoacompany’sfiscalyear-end,andcapturedasreportedbythecompany.ThefieldIDsforthecompany-baseddatabeginwithESfollowedbya3-digitidentifier(e.g.,ES061).Thecompany-baseddataandfulldocumenttransparencyisavailableontheTerminalviaFAESG<GO>.Proxyfilingdataiscapturedfromannualgeneralmeetingdisclosuressuchasmeetingnotices,proxystatements,andvoteresultdocuments.Thefieldsusedforscoreswillfocusonthesupportvaluesreceivedbymanagementnomineesatthatfiscalyear’ssubsequentannualgeneralmeeting.Fiscalyearassignmentwillbebasedonthemostrecentlycompletedfiscalyearreferencedintheannualreportsandcompensationplansapprovedbyshareholdersatthatannualgeneralmeeting.Thedatacollectionmethodsfortheprofiles-basedandcompany-baseddatasetsmayresultindifferentoutputsforsimilarfieldsataspecificpointintime.Forexample,theprofile-basedCGfieldwillreportthelatestavailableinformationonacompany’sboardcomposition,whereasthecompany-basedfieldwilldisplaythelastknownfiscal-year-end-aligneddata.Assuch,thefieldswouldnotnecessarilyrepresentthesameboardcomposition,e.g.,inthecaseofmid-yearboardcompositionchangeannouncements.Reportinglagsfromtheeffectivedatesandthedisclosedannouncementswillalsofactorintoboardcompositiondataalignment.Specificfieldoutputsarenotavailableforcompaniesthatdonotdisclosetherequiredinformationonacompanyorindividualbasis.Fieldsdependentontheaggregationofprofile-baseddatawillreturnN/Aifatleastoneindividualismissingarequireddisclosure.Forexample,thenumberoffemaleboardmemberswillnotpopulateifthegendersofallboardmembersarenotdisclosed.BIIssuePriorityOutline7ScoringMethodologyBloomberg’sapproachtoscoringCorporateGovernanceperformanceischaracterizedbyabottom-up,model-drivenmethod.Itisdrivenprimarilybyself-reported,publiclyavailableinformationthatresultsinafullytransparent,parametric,rules-basedscoringframework.Itfeatures:•Qualitativeinputfromresearchanalystsandsubject-matterexpertsforidentifyingappropriatefieldsandmetrics,aswellastheirrelevancetospecificissuesandmarkets.•StatisticaltechniquestoscorefieldsbasedonCorporateGovernanceguidelinesandfundamentalresearch,whenapplicable.•Parametricmethodsthatcloselyapproximatestheempiricaldistributionofquantitativefieldswithhistoricaldataareused,accountingfordifferencesacrossindustriesandcountries,aswellasdifferentcorporategovernancestate,tofacilitatemeaningfulcomparisonbetweencompanies.•FactoranalysistoaidinidentifyinguniqueIssuesandSub-Issues.ThefollowingsectionsdetailthetechnicalprotocolsforgeneratingGovernancescoresthatwerefollowedforcompaniesintheBloombergESGScoreUniverse.Estimationoffirmageandtheapproachtofieldpre-processingaredescribedbelow.Field-levelscoringapproachesareillustratedinthenextsection,followedbyweightingandaggregationdecisions.FirmAgeEstimateSeveralIssueswithinGovernancerequireanestimateoffirmageinordertodeterminethefieldapplicabilityforyoungcompanies.Thisisdesignedtoavoidoverlypenalizingyoungcompaniesforfailingtoadoptbestpracticesthataremorecommonlyfoundinmaturefirms.Forexample,youngfirmsareunableto“refresh”theboardinthesamewaythatalong-establishedfirmcandoso.Firmageasofeachyear-enddateiscalculatedusingFieldINTERVAL_START_VALUE_DATE(PY023),whichdenoteswhenasecuritybegantrading.Thismethodologyisonlyaproxyforfirmagebecausethiscalculationcanbeaffectedbyvariouscorporateactions.Asanexample,aspin-offmaycarryboardmembersoverfromthepreviouscorporateentity.Likewise,firmsmayexistasprivatecompaniesforseveralyearsbeforetheirsecuritiesstarttradingpublicly.Notethatinpractice,afirmcouldbeolderthanthis“age”calculation,butitisunlikelytobeyoungerthantheestimate.FieldPre-processingMostfield-levelscoresarecalculatedbyusingcorporategovernancefieldsasdirectinputs.Certainfields,however,requirepre-processingortransformingtherawcorporategovernancedatafieldstofacilitatemeaningfulcomparisonsacrosscompanies.Insomecases,corporategovernancefieldsweretransformedtoderivenewfields.Forexample,AgeDiversityscoresarecomputedbasedonan“adjustedagerange”bytaking,asamaximum,75fortheoldestdirector’sage,lesstheyoungestdirector’sage.Thisformulacapstherewardforawideagerangebyusingthemostcommonlyadoptedretirementage.ForExecutivePayEquity,CEOpayissubtractedfromtotalexecutivepay,inordertocalculateapayequityratio.IntheShareholderRightsTheme,forsomecompanies,shareholdersdonotvoteondirectorseveryfiscalyear(duetoreasonslikeaclassifiedboardstructure),Acarry-forwardcalculationisappliedtogetthelatestdirectorvoteresultdataavailable.Therefore,thederivedfieldvalues,insteadoftheoriginalinputfield,isscored.FieldScoringIngeneral,fieldscoringisdeterminedfromguidanceprovidedbyBloombergresearchonbestpractices,corporategovernanceframeworks,andindustrypractitioners.Typically,theguidancetakestheformofabestorworstBIIssuePriorityOutline8governancepractice.Categoriesaremappedtonumericalvalues,sothatbestpracticesattainascoreof7andupandworstpracticesattainscoresof3andbelow,withsignificantgroundinbetween.TablessummarizinghowfieldswithindifferentThemesarescoredanddetailsaboutfield-levelscoring,includingthegraphsoffieldscoringcurvesareavailableintheindividualGovernanceScoresThemeGuides.ScoringCurvesWherequantitativeguidanceisavailable,thecurrentversionoftheGovernancescoresattemptstointegratemeaningfulthresholdsasanchorpointsforscores.Inpractice,guidancefromexternalresearchandanalystjudgmentareregularlyusedtosetarangeof“anchorpoints”throughwhichwespecifyscoringcurves.mostofthefield-levelscoresarecalculatedthisway.SeetheindividualGovernanceScoresThemeGuidesforafulllistofrelatedscoringcurves.SmoothCurveScoringcurvesarespecifictypesofinterpolations0F1betweenanchoringpointsthataredeterminedbasedoncorporategovernanceguidance.Acrosstheentirescoresprocess,Bloomberghasregularlyusedexternalresearchandanalystjudgmenttosetarangeofparametersthroughfine-tuningthecurvesbydropping“anchors”inbenchmarkscoringcurves.Figure1showsanexampleforscoringthePercentageofWomenonBoard(CG627).Acompanywheretheboardcompositionbygenderis30%womenreceivesascoreof5;with40%,itreceivesascoreof8.Oncetheboardcompositionreaches50%,thescorerisesto10.Figure1ScoringCurveonField“PercentofBoardMembersthatareWomen”Forcertainfields,theageofthefirmisalsoconsidered,inordertoavoidpenalizingayoungcompany.Forexample,ChairmanTenure(CG690)combinedwiththeestimatedFirmAgeisusedtocomputescoresfortheChairmanTenurefieldgroupwithintheRefreshmentIssueofBoardComposition.ThescoretakesFirmAgeintoconsideration,sothatanewfirm(lessthan3yearsold)isnotpenalizedforashortchairmantenure.BIIssuePriorityOutline9ScoringcurvewithcontingencyCertainfields,suchBoardDuration(ES064)arescoredwithacontingencyonthevalueofadditionalfields.Inthecontextofdirectortermsscoring,classified(staggered)boardsandmulti-yeardirectortermsarebothdiscouraged,sothefieldBoardDuration(ES064)isscoredcontingentonfieldClassifiedBoardSystem(ES183).Differentanchorpointsareusedbasedonwhethercompanyhasaclassifiedboardornot.Ingeneral,forthesameboardduration,companieswithaclassifiedboardwillreceivealowerscorecomparedtocompanieswithanon-classifiedboard.StepCurveSometimesfieldshavediscreteoutcomes,i.e.,theytakeafinitenumberofvalues.Sincenumberofvaluesisfiniteandusuallycountable,stepfunctions1F2areusedforscoring.BelowisanexampleofstepscoresusedintheDirectorRolesIssueonfieldCG651–theNumberofBoardPositionsCEOHolds(atotherfirms).Scoresarepre-specifiedforeachdiscretevaluebasedonanchorpointsanddecreaseabruptlyfromoneconstantvaluetoanother,asthenumberofboardpositionsaCEOholdsatotherfirmsincreases.Figure2ScoringCurveonField“NumberofBoardPositionsCEOHolds(atotherfirms)”OtherMethodsNotallfieldscanbescoredviaascoringcurve,whetheritwouldbeasmoothcurveorasteepcurve.Inaddition,somefieldsarescoredbasedonmorethanonefieldvalueasinput.BinaryFieldsIncaseswhereinputfieldsarebasedononeormorebinaryfield,aninformationlookupisutilizedbasedonadefinedsetofoutcomes.2F3,3F4Forexample,theBoardLeadershipIndependenceScoreisbasedonthebelowcombinationofbinaryfields:BIIssuePriorityOutline10CaseScoreSeparateCEO/ChairandindependentChairwithorwithoutindependentLeadDirector10SeparateCEO/Chairwithnon-independentChairandindependentLeadDirector7CEOduality(chairistheCEO)withindependentLeadDirector5SeparateCEO/Chairwithnon-independentChairandnoindependentLeadDirector3CEOdualitywithnoindependentLeadDirector0BalanceFieldsTheobjectiveofthesemetricsistoidentifyhowwell-balancedvaluesarebetweenmultiplefields,forexample,boardtenure“buckets”orcashvs.equityexecutivecompensation.BelowisanexampleofBoardBalance.ThemeasurementofBoardBalanceisbasedontheboardtenurestate,whichconsistsofthreebucketsthatarecalculatedinthe“FieldPre-Processing”step.Basedonresearch,optimallybalancedboardtenureswouldresultinadistributionof[3/8,3/8,2/8],giventhethreebuckets.4F5Inanalyzingvariousboardtenurestatestodevelopscoresonboardbalance,thefollowingscoringprincipleshavebeenapplied:•Ifalloftheboardmembersareinthe10+yeartenurebucket(B3),thescoreis0.•Ifalloftheboardmembersareinthe5–10-yeartenurebucket(B2),thescoreis1.•Ifalloftheboardmembersareinthe0–5-yeartenurebucket(B1),thescoreis2.•Giventheboardsize,thebucketstatethatisclosesttothetargetdistributionof[3/8,3/8,2/8]shouldgetascoreof10.•TheNumberofstepsisanintegerthatrepresentstheminimumdistancetotheoptimalstate.Thus,ifthepartitionisoptimalrelativetothedesireddistribution,steps=0.Otherwise,thestepsaregreaterthan0.ScoresshouldreflecttheNumberofstepsinrankorder(longerdistanceresultsinlowerscores).•Scoreincrementsshouldvarysmoothly,i.e.,each“transition”wouldideallyresultinthesamescoreincrement.Thescoresarecalibratedbasedonthoseprinciplesusingmathematicaltools(aQuadraticProgrammingSolver5F6).Consideranexampleofboardbalancescoresforaboardwith8directorsintotal.Basedonthedefinitionofperfectlybalancedboardtenures,thenumberofdirectorsineachbucket,giventheboardsize:3,3,with2inthelastbucket.Intheternaryfigure,eachnoderepresentsaboardtenurestate,withthethreenumbersfollowingthenode,fromlefttoright,representingnumberofdirectorsinthe0–5-yeartenurebucket,the5–10-yeartenurebucket,andthe10+yeartenurebucket.Scoresarecalibratedanddisplayedaboveeachtenurestate.BIIssuePriorityOutline11Figure3BoardBalanceScoreDarkgreenrepresentstheoptimalbalancebetweentenurebuckets,anddarkredrepresentsacompletelackofbalance.BIIssuePriorityOutline12SizeDependentFieldsSimilartotheBoardBalancescoringmethodology,thesefieldsleveragemorethanoneinputfieldtoobtainthescore(boardorcommitteesizeisconsideredinadditiontotheunderlyingnumbers).ScoresarecalibratedbyleveragingmathematicaltoolsbasedonprinciplesdeterminedfromBloomberganalysesofnumerouscorporategovernancecodesaroundtheworld.Asample6F7ofscoresonthenumberofindependentdirectorsvs.totalnumberofdirectorsisshownbelow;thesecalculationsarebasedonadefinedsetofoutcomes,giventhenumberofindependentdirectorsonboard(lookupbyrow)andtotalnumberofdirectorsonboard(lookupbycolumn).Scoresfordifferentstatesarehighlightedwithdifferentcolorstohelpdistinguishgoodandbadpractices.NumberofIndependentDirectorsTotalNumberofDirectorsonBoard345678910111200000000000131.781.371.140.950.770.670.60.510.47273.722.952.472.081.761.551.361.231.1331074.53.713.222.772.42.191.971.814107.554.33.693.332.932.672.3851085.94.744.163.763.43.1161096.9254.564.093.65710107.645.64.824.4810108.126.325910108.616.861010109.031110101210Figure4IndependentDirectorScoreDarkgreenrepresentsthebestpracticeofindependentdirectorsonboard,anddarkredrepresentsacompletelackofindependentdirectorsontheboard.ParametricApproachinPayforPerformanceUnlikemanyotherGovernancefieldsthatarescoredbasedonscoringcurvesorascoringmatrixconstructedusinganchorpointsthatreflectsviewsfromfundamentalresearch,thereisnowell-establishedconsensusformulaoranchorpointsthatindicatewhatfairvalueisforaparticularexecutive’scompensation.Accordingly,wehavedevelopedanempiricalapproachtoevaluatePayforPerformanceusingdisclosedexecutivecompensationdata.SeeSectionFieldScoring-ParametricApproachinPayforPerformanceinGovernance–ExecutiveCompensationScoringMethodologyfordetails.BIIssuePriorityOutline13AggregationOverviewScoresoneachlevel(Field,Sub-Issue,Issue,andTheme)rollintoahigherlevelofaggregation:FieldsarescoredindividuallyandrolledupintoSub-Issues,whichthenfeedintothemajorIssues,which,inturn,arefoldedintothefourThemescoresoftheGovernancePillarscoreIngeneral,Bloomberg’sproprietaryapproachtowardaggregationattemptstorewardconsistentperformanceandpenalizeunevenperformance.Sub-IssueScoresThereareseveraldifferentwaystoaggregatefield-levelscoresintoSub-Issuescores:aweightedgeneralizedmean(p-mean);asimplemean(average);andsomespecialcasesusingcustomaggregationasintroducedbelow.P-meanisusedtorewardgeneralexcellenceandtopenalizelessconsistentperformancebetweenthevariousSub-Issuesbeingaggregated.AswithallBloombergESGSub-Issuescores,weuseweightedshiftedp-means,withthepowerp=0.5andshifts=1.7F8𝑀(𝑥,𝑤,𝑝,𝑠)=(∑𝑤𝑗(𝑥𝑗+𝑠)𝑝𝑛𝑗=1)1/𝑝−𝑠SimpleMeanisusedwhenfieldswithinoneSub-Issuearecompensablewithoneanother(i.e.,goodperformanceinonefieldcancompensateforbadperformanceinarelatedfield)andtherearehighcorrelationsbetweenthefield-levelscores.BonusFieldisappliedtospecificSub-Issues.Forexample,GenderDiversityisafunctionofthegendermakeupoftheboard,withapotentialupliftforawomanChair.ThefieldCHAIRMAN_OR_EQUIVALENT_A_WOMAN(CG629)servesasabonusfield,adding1pointofcredittotheoverallGenderDiversityscore.Sub-Issuescoresarealwayscappedat10.Theaggregationformula8F9is:GenderDiversityScore="minimum(10,%ofBoardMembersthatareWomen-S+0.1ChairmanorEquivalentaWoman-S)"Where‘-S’representsthescoreoftheinputfield.“Deflator”isawaytoaggregatescoresbyproportionallyscalingtheaggregatedscoresbasedonafield(score)withintheSub-Issue.Forexample,IntheSayonPaySub-Issue,twoFieldScores(SayonPaySupportLevelandFrequencyofSayonPayVotes)aremultipliedtogeneratetheSub-Issuescore,asshownbelow:𝑆𝑎𝑦𝑂𝑛𝑃𝑎𝑦𝑆𝑢𝑏-𝐼𝑠𝑠𝑢𝑒𝑆𝑐𝑜𝑟𝑒=𝑆𝑎𝑦𝑜𝑛𝑃𝑎𝑦𝑆𝑢𝑝𝑝𝑜𝑟𝑡𝐿𝑒𝑣𝑒𝑙𝑆𝑐𝑜𝑟𝑒∗𝐹𝑟𝑒𝑞𝑢𝑒𝑛𝑐𝑦𝑜𝑓𝑆𝑎𝑦𝑜𝑛𝑃𝑎𝑦𝑉𝑜𝑡𝑒𝑠𝑆𝑐𝑜𝑟𝑒/10.0Acompanycanhaveascoreof10onSayonPaySupportLevelfield,buttheSayonPaySub-IssueScoreis7ifthecompanysetthefrequencyofsay-on-payeverythreeyears.1Effectively,theFrequencyofSayonPayVotesFieldScoreservesasa“deflator”thatcapstheSub-IssueScoretobelowerthan10ifthefrequencyofthesay-on-payvoteislessfrequentthaneveryyear.21SeetheSayonPayCategoricalScoringtableintroducedintheFieldScoringsection,inExecutiveCompensationScoringMethodologyGuide.2Itisabestpracticeforcompaniestoholdasayonpayvoteannually,thoughinsomemarketsalessfrequentvotemaybeallowed.BIIssuePriorityOutline14ScoreaggregationsforeachSub-IssuearedetailedinthespecificGovernanceScoresThemeGuides.IssueScoresandThemeScoreValuesareaggregatedusingweightedshiftedp-meanstorewardgeneralexcellenceandpenalizelessconsistentperformancebetweenthekeyIssuesandSub-Issues.Factorssuchasfirmage,boardsize,boardstructure,andcountryofissuearealsoconsidered.•Issuescoresareafunctionoftheweightedgeneralizedmean(p-mean)oftheSub-Issuescores,withweightsdecidedwithineachIssue,asdescribedintheindividualGovernanceScoresThemeGuides.9F10•Themescoresareafunctionoftheweightedgeneralizedmean(p-mean)oftheIssuescores.TheweightingschemeforeachThemeisdeterminedbasedonfundamentalresearchandcompany-specificfactors,suchasfirmageorlocalmarketrules.GovernancePillarScoreProvisionalGovernancePillarScoreAsBloombergcontinuestodevelopallfourthemes(BoardComposition,ExecutiveCompensation,ShareholderRights,andAudit)thatwillmakeuptheGovernancePillarScore,wehavedevelopedamethodologytoaggregateexistingThemeScores(currentlyBoardComposition,ExecutiveCompensation,andShareholderRights)intoaProvisionalGovernancePillarScore.ThePillarScoreisaweightedgeneralizedmean(p-mean)ofexistingThemeScores,wheretheweightsaredeterminedbytheThemePriorityrankingsusingatransformationfunction.Thevaluesofthepowerandshift(p=0.5ands=1)arethesameastheyareinthecalculationofIssuescores.ThemePrioritiesThemesincludedintheProvisionalScoreareweightedbasedonThemePriority.BloombergIntelligenceconductedanassessmentofcorporategovernanceissues,prioritizingandrankingthemesusingproprietaryandexternalsources,whichreflectsthefollowinginputs:•InternaldiscussionsandinterviewswithBloombergIntelligenceanalysts.•AnalysisandnewsbyBloombergIntelligenceandBloombergLawandGovernmentthathighlightfinancialimpactsrelatedtokeygovernancerisks(e.g.,litigation,fines,shareholderactions,employeeturnover).•Bloomberganalysesofnumerouscorporategovernancecodesfromdifferentcountries.•Academic/scientificstudiesthatpointtothehighlightedfactors.BIThemePriorityrankingsareassignedweights(w̃)thataredeterminedasafunctionofaranking(k)oftheirrelativeimportance.𝒘̃=𝟏+𝒆𝟎.𝟓×(𝟑−𝒌)Notethattheweightsdonotdecreaseinalinearfashionbydesign.3ThisreflectstherelativelyhighimportanceofthetoprankingsandimpliesthatlowerpriorityIssueshavealessereffectonPillarScores.AfterthecalculationofabsoluteweightsforeachTheme,theweightsaredividedbytotalweightsofallThemestoderivetherelativeweights,whichfeedintotheweightedp-meanaggregationtocalculateGovernancePillarScore.30.5and3arethevaluesofthetuningparametersinthisequation,theformercontrolstheratioofweightsbetweenadjacentranksandthevalueof3controlswhereitstartstoflatteninthoseratios.Thevaluesarecalibratedtomeetthescoresdesignprinciple.BIIssuePriorityOutline15HeatMapofGovernanceThemesandPrioritiesDarkgreenrepresentsthehighestpriorityandlightgreenrepresentsthelowestpriority.ConditionalFieldScoringandAggregationWhenitcomestoevaluationofapubliccompany’scorporategovernancepoliciesandperformance,field-levelapplicabilityandfurtherapplicabilityofSub-Issue(s)shouldbeconsidered,duetothenatureofvariationofacompany’scorporatestructure,localmarketrules,andreportingrequirementstoavoidunreasonablescoringandaggregationonnon-applicableinputfields.Customfield-levelscoringandaggregationoneachlevelareincorporatedandimplementedtohandledifferentconditions.SeetheGovernanceScoresThemeGuidesforindividualcases.ProvisionalGovernanceScoreBIThemePriorityRankWeightingPointsThemeWeightBoardComposition13.7241.24%ExecutiveCompensation22.6529.38%ShareholderRights22.6529.38%TotalPoints9.02100%BloombergESGGovernanceScores-MethodologyandFieldInformation16Endnotes1CubicSplineinterpolationisaspecialcaseofSplineinterpolation,whichisaformofinterpolationwheretheinterpolantisaspecialtypeofpiecewisepolynomialcalledaSpline.Thismethodgivesaninterpolatingpolynomialthatissmootherandhasasmallererrorthansomeothertypesofinterpolatingpolynomials.2Astepfunctionisapiecewiseconstantfunction,withonlyfinitelymanypiecesandwithconstantvalueswithineachinterval.3TherationaleforscoresofeachcasecanbefoundintheResearchandAnalysissectionofeachGovernanceThemeGuide.4Ifanyinputfieldvalueismissing,thecompanyreceivesthelowestscoreamongallpossiblescenarios.5TherationaleforoptimaltenurebucketsdistributioncanbefoundunderResearchandAnalysis,intheIndependenceIssuesection.6Quadraticprogramming(QP)isaparticulartypeofnonlinearprogrammingfocusedontheprocessofsolvingaspecialtypeofmathematicaloptimizationproblem—specifically,alinearlyconstrained)quadraticoptimizationproblem.7FullscorestablesareavailableinAppendixC.8Thep-valueof0.5ischosenasthemidpointofthevaluesthatrepresentanarithmeticmean(p=1)andageometricmean(p=0).Theshiftvalues=1ischosentoavoidlargepenaltiesforscoresnear0.9Thepresenceofachairpersonmaynotalwaysberelevant,assomecompanieshavenoestablishedchairpersonontheboard.ThisisillustratedintheConditionalFieldScoringandAggregationsection.10WeightsbetweenSub-Issuesaredeterminedbyaquantitativereviewofdata,combinedwithaqualitativereviewoftheresearch,asdiscussedintheResearchandAnalysissection.
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