Xinhua Turbulence – Is Glass Breaking?


New York – An article in the Wall Street Journal today, discusses the comings and goings of Xinhua Finance. Xinhua is a financial information company that was established to shine the light of disclosure on the Chinese markets. Xinhua has grown very quickly through an acquisition binge. The WSJ article indicates that, despite this lofty goal, Xinhua itself has come under criticism for its own corporate governance practices.

But, because our focus is on the research industry, this is not the story that we draw from that article. The story in our minds is the reference to Glass Lewis. Glass Lewis has its roots in the proxy vote space, but has evolved into the forensic accounting space as well.

Integrity Research has just finished its review of the forensic accounting, earnings quality and short ideas research sector of the research industry, in which Glass Lewis is one of the featured players. The details of the report are as follows:

Research Focus: Earnings Quality, Forensic Accounting and Short Recommendations

In January, 2007, Xinhua Finance completed its acquisition of Glass Lewis. Since the acquisition began there has been a steady exodus of top staff, punctuated recently with the exit of Director of Research Lynn Turner several days ago.

Glass Lewis has a good reputation for having a strong research product. However, in light of the perturbations of the parent company and the subsequent defections of some senior staff at Glass Lewis, the Glass Lewis should be watched closely over the next several weeks or months to see if this trend continues.

We include the press release below:

Glass Lewis Announces Change in Research Management
         And Formation of Independent Research Development Council

    SAN FRANCISCO, May 21 /PRNewswire/ -- Glass, Lewis & Co., a leading
provider of investment research and global proxy advisory and voting
services, announced today that Lynn E. Turner is leaving his post as
Managing Director of Research effective June 8, 2007.
    Mr. Turner has been with Glass Lewis since shortly after it launched in
February 2003. "It has been four years since Glass Lewis became a reality.
During that time, the company has grown from a start-up to become the
world's second-largest proxy advisor and has become known for leading-edge
financial research that is frequently cited by regulators and major
newspapers," said Mr. Turner. "I have thoroughly enjoyed working with the
team of professionals who provide our clients with high-quality research
and an important voice on public policy."
    "Under Lynn's tutelage, Glass Lewis has become a leading voice on
corporate governance, transparency and integrity in the capital markets.
His legacy will be reflected in the research done by everyone at Glass
Lewis," said Katherine Rabin, chief executive officer of Glass Lewis. "We
will continue our tradition of providing our clients with strong, informed
and independent views on corporate governance and accounting issues."
    Glass Lewis also announced it is recruiting a group of customers,
academics and other industry experts in the fields of corporate governance
and accounting to serve on a newly formed Independent Research Development
Council. This council will ensure that Glass Lewis' research continues to
meet the quality standards, objectivity and independence criteria set by
Mr. Turner and Glass Lewis' outstanding research team leaders: Robert
McCormick, Chief Policy Officer; Michael Lofing, Managing Director,
Financial Analysis; Warren Chen, Managing Director, M&A and Quantitative
Analysis; and Brittany Wedereit, Vice President, Proxy Research Operations.
    About Glass, Lewis & Co., LLC
    Glass, Lewis & Co., a Xinhua Finance Company (TSE Mothers: 9399), is a
leading investment research and global proxy advisory and voting services
firm, serving institutions that collectively manage more than $15 trillion.
Glass Lewis helps institutional investors make more informed investment and
proxy voting decisions by identifying business, legal, governance and
financial statement risk at more than 13,000 companies worldwide. Founded
in 2003, Glass Lewis is headquartered in San Francisco with offices in New
York, London, Tokyo, Sydney and Denver. For more information visit here.

Comment by Scott:

This was predictable. I think many of us were scratching our heads when Glass Lewis got scooped up by Xinhua.

Seems like Xinhua Finance has it’s own corporate governance issues. I suppose that kind of makes it hard to credibly advise others about such matters.


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