Whether they like it or not, listed companies can expect further scrutiny of their corporate governance, with the introduction of a new system of corporate governance ratings.

The FTSE group teamed up last month with corporate governance specialist Institutional Shareholder Services (ISS) to produce ratings as part of the FTSE ISS corporate governance index (CGI) series.

The ratings form the foundation of the index, with the aim of assisting investment managers in assessing and managing portfolio risk. Now the index is up and running, ratings of global companies such as BHP Billiton and Cap Gemini are filtering through.

With the structure of a company's board, and compensation systems for non-executive directors forming part of the basis upon which the index will produce its ratings, corporate counsel look set to come under more pressure to make sure every aspect of a company's governance is up to scratch.

The listings include six regional indexes, with the ratings covering more than 2,200 companies from 24 countries. Ratings are based on five themes of corporate governance: . Equity structure and anti-takeover devices.

. Structure and independence of the board.

. Independence and integrity of the audit process.

. Executive and non-executive director stock ownership.

. Compensation systems for executive and non-executive directors.

According to the FTSE group and ISS, the ratings performance shows that there are strong country and size biases to good corporate governance practices among companies – which are less evident across industry sectors. However, overall scores for each of the five corporate governance themes can vary widely for each country.

The ratings have resulted in a list of companies with highly ranked corporate governance practices which spans the globe ( see below ) with the BT group and Scottish power among the UK winners.

In the past six months, ISS carried out a major communications campaign to ensure companies are aware of the new index.

Mark Makepeace, chief executive of the FTSE group, and John M Connolly, chief executive of ISS, issued a joint statement, saying: "It is now understood that corporate governance failure leads to loss of shareholder value, but until now, quantifying the risk represented by corporate governance practice has posed a challenge for investors. The FTSE ISS CGI series and ratings provide a means to integrate that information into global portfolios."

The FTSE and ISS joint venture follows Standard & Poor's introduction last year of similar corporate governance ratings.

The reviews of listed companies look certain to raise the profile of corporate counsel. Standard & Poor's ratings appraise a company's compliance, whistle-blowing procedures and the legal team's inter-action with risk management functions. Its corporate governance assessments will also look at management structure, the aggressiveness, complexity and transparency of the legal function and the frequency of litigation compared with rivals.

The managing director of Standard & Poor's governance services, Nick Bradley, commented to Legal Week last year: "Invariably we will have a lengthy meeting with the head of legal [as part of the examination] as the legal counsel is a good starting point to understand a company's internal dynamics of corporate governance."

The highly influential ratings agency expects to review around 200 major companies in the next two years.

Several in-house lawyers welcomed the move, with Canary Wharf general counsel Michael Ashley-Brown saying: "It looks like a positive step forward as it provides a benchmark for [in-house lawyers] to comply with."

He added: "A poor rating could have a devastating effect on a company's share price, while a good one will be welcomed by shareholders."

Law Society in-house representative Paul Gilbert said: "The concept would be, and should be, welcomed as it is an external verification of best practice in an area where there are currently no credible and formal independent assessments [in place]."

Two FTSE 100 companies assessed by Standard & Poor are Shell and ITV. The ratings giant graded Shell as "moderate to weak" and labelled ITV as "strong". The report on ITV praised among other things its "strong regulatory and legal environment", which offers "strong protection for shareholders".

Companies with highly ranked corporate governance practices

Asia
Exchanges & Clearing (Hong Kong)
Asia Sat Telecom Holdings (Hong Kong
Hysan Development (Hong Kong)
Parkway Holdings (Singapore)
Nomura Holdings (Japan)

Eurozone
BNP Paribas (France)
Irish Life & Perm (Republic of Ireland)
Lafarge (France)
Cap Gemini (France)
Numico CVA (Netherlands)

UK
BHP Billiton
Smith and Nephew
Scottish Power
BT Group
BPB

USA
Cooper industries
National City Corp
Flextronics
Occidental Petroleum
General Motors Corp