A company’s reputation is a composite of many factors. Often, one of the contributing factors to a company’s reputation within the financial community and publicly is the company’s credit or bond rating from the leading ratings services. As the world continues to absorb the shock of how vulnerable so many well-regarded, highly rated institutions proved to be when the sub-prime mortgage storm hit Wall Street, questions will continue to be asked about the independence and reliability of the ratings firms and the practices they employ. A recent lawsuit brought by a former credit analyst at Moody’s Investor Services provides a revealing glimpse into what may be another wave of public scrutiny into the financial industry’s inner workings. (See Wall Street Journal article “Moody’s Sued in Ratings Case”).
In the complaint filed in the lawsuit, the plaintiff claims that he was dismissed after complaining that his supervisor disagreed with him about a ratings upgrade on the grounds that the company in question “doesn’t pay us” and “they don’t visit us and they don’t deserve our upgrade.” Moody’s denies the allegations.
While the case involves claims about a single incident that allegedly took place in 2007, and the court may or may not establish that the allegations are accurate, like many single-shot lawsuits the case places in the public view allegations that may stoke public concern about a larger systemic issue. In this case: a concern about the credibility of ratings firms that are compensated by the companies they receive payments from. Certainly that is why the Wall Street Journal found it newsworthy to place this article about a complaint involving the dismissal of a single Moody’s vice president under a headline the same size as the banner over the latest development in AIG’s travails.
For those who are watching the issue of what counts — and how much it counts — when it comes to establishing and maintaining reputation these days, the credibility and reputation of the ratings services and their ratings will remain on the list of issues to track. The world has learned a lot about the practices of financial institutions and markets in the last several months – as well as the practices of the regulators and congressional committees that were overseeing them. Reputations that were formerly sterling – are being challenged every week. The ratings services may have their moment in the spotlight soon – and that will have fall-out for the institutions and companies who have been relying on ratings to bolster their own reputations.