After nearly a decade of research, we are about to launch the first-ever predictive Integrity Index that measures the structural integrity of public companies and predicts sustainable performance. Our proprietary model developed in partnership with the Center for Public Policy at the University of Houston will allow us to issue quarterly ratings beginning with the launch at The Global Summit for Sustainable Leaders in Oslo, Norway in December 2010.
We believe The Integrity Index will change the science of corporate performance analysis from expectations created by external analysts to predictions based upon the company's own financial statements filed with the SEC. Unlike any other measure, CEOs will understand the impact culture and structure have on their ability to achieve their strategic objectives before it is too late.
The foundation of the model advances a method of game theory developed by a group of the world's foremost game theorists called Selectorate Theory which has proven 73% accurate in predicting sustainable performance at least two years in advance, with very few false positives. The original analysis of the dataset used in translation identifies the threshold where companies have a proven to have a propensity to commit securities fraud. Upon analysis of the S&P 500, we found that 100% of the companies that scored 453 or less (out of a possible score of 1000) ultimately were alleged to have committed securities fraud based upon enforcement action by the SEC. The model predicted or identified the securities fraud between 2 years ahead of the actual occurrence according to the SEC and in some cases 12 years before the SEC took the enforcement action.
Although we don't seek to predict securities fraud, one can draw the natural conclusion that if securities fraud becomes necessary to sustain earnings then the company's performance is clearly not sustainable. Our Vision at The Integrity Institute is to provide CEOs and Boards of Directors with a clear understanding of how great the risk is that the company's structural integrity is insufficient to sustain its performance and how the culture may not be strong enough to sustain its growth. Our Mission is to provide this information in advance to allow CEOs all of the benefit of time to correct the problems before it is too late.
If you are interested in receiving a copy of our Integrity Index Case Study that demonstrates the power of game theory to predict future performance, send an e-mail to Research at IntegrityInstitute.com and reference "Case Study" and we will immediately send you a copy free of charge.