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Margaret Kirch Cohenmargaret.cohen@morningstar.com
Morningstar Launches Stewardship Grade for Stocks on its Web Site for Investors

CHICAGO, Feb. 07, 2005 – Morningstar today introduced a new grading system for stocks to help investors identify and compare companies that consistently align their interests with those of shareholders.

The Morningstar Stewardship Grade for stocks is designed to help individual investors more easily evaluate a company’s financial transparency, shareholder friendliness, management incentives and ownership, as well as overall corporate stewardship of investors’ capital. Morningstar analysts have assigned grades ranging from “A” (best) to “F” (worst) to 500 of the largest and most widely held stocks. Eventually, Morningstar analysts will assign grades to the more than 1,500 stocks that they cover.

The company launched the new grades today as part of its Premium Membership service on Morningstar.com, its Web site for individual investors, and in Morningstar® StockInvestor™, a monthly newsletter.

The Morningstar Stewardship Grade for stocks follows the company’s launch last year of a new grading system for mutual funds designed to help individual investors identify funds that do a good job – or a poor job – of aligning their interests with those of fund shareholders. Introduced as Fiduciary Grades, these are now also known as Stewardship Grades. 

“Meaningful information about a company’s stewardship practices is very difficult for individual investors to find and interpret,” said Patrick Dorsey, director of stock analysis for Morningstar. “Too often, this kind of research is only available to large institutional investors. Our goal is to give individual investors direct access to the type of information that can help them identify management teams that put shareholders first.”

Morningstar stock analysts base the Stewardship Grades on public filings, previous management actions, conversations with company officials, and their own expertise. The grades address three broad categories:

Morningstar analysts evaluate a company’s accounting practices and financial disclosure, aiming to identify firms that provide investors with insufficient or potentially misleading information. Analysts review whether a company has instituted major changes in accounting procedures, overuses “one-time” charges, or applies aggressive accounting methods, among other practices.

Shareholder Friendliness
This category assesses the power of shareholders relative to management, evaluates the firm’s share-class structure and assignment of CEO and board chair roles, and notes the existence of any takeover defenses or related-party transactions.

Incentives, Ownership, and Overall Stewardship
This area focuses on whether management’s incentives are aligned with shareholders’ interests. Morningstar analysts penalize those firms that change management goals midstream, issue too many options, overcompensate executives, or have low levels of equity ownership.

“We’ve always evaluated corporate governance issues in our stock analysis,” Dorsey said. “Our new Stewardship Grades encapsulate these in-depth evaluations in a way that’s easy for people to use when making decisions about their stock investments.”

To read Pat Dorsey’s column that discusses the new grades, go to:

To view specific grades or to receive a list of companies that have the best and worst grades, please contact Kathy Habiger at 312-696-6241 or kathy.habiger@morningstar.com.

About Morningstar, Inc.
Morningstar, Inc. is a leading provider of independent investment research in the United States and in major international markets. The company offers an extensive line of Internet, software, and print-based products and services for individuals, financial advisors, and institutions. Morningstar provides information on more than 100,000 investment offerings, including stocks, mutual funds, and similar vehicles. The company has operations in 16 countries.


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