Ernst & Young ex-CEO Becomes Ombudsman at Standard and Poors

The McGraw-Hill Companies (NYSE:MHP.N) named financial services veteran and former CEO of Ernst and Young, Mr. Ray Groves as Ombudsman for its Standard & Poor's (S&P) unit. This is part of a larger plan to improve the rating process and boost transparency, and restore confidence in the accuracy of its credit ratings.

Investors and regulators have taken the key national credit rating agencies, including Moody's Corp's (MCO.N) Moody's Investors Service and Fimalac SA's (LBCP.PA) Fitch Ratings, to task for inappropriately giving high ratings to mortgage and other complex securities till 2007.

In his new role, Groves will field complaints from inside and outside S&P, and make annual reports to the public. He will report to CEO Harold "Terry" McGraw and be accountable to the audit committee of the McGraw-Hill board of directors.

Groves previously worked for 37 years at Ernst & Young, including 17 as chairman and chief executive prior to his 1994 retirement.

The Ombudsman will listen to and address issues and concerns raised from both within or outside the company confidentially, while also ensuring that all channels within the company are effectively utilized to resolve those issues. This will allow the Office of the Ombudsman to offer a balanced and independent approach to resolution.

S&P had announced changes to its ratings models and methods, and recently discussed at least 27 initiatives including hiring an ombudsman, demanding disclosure of collateral in structured- finance securities, changing risk measures, and preventing analysts from covering issuers for more than five years.

Analysts and investors welcomed this move, but did not see it as a complete panacea, but it is certainly a step in the right direction to have an independent third-party who can sort out issues without partisanship and being wrongly influenced by the excess profit motive. Of course, the choice of such an experienced and senior alumni of the Big4 for an important endeavor is always a source of pride.