The Wall Street Journal
By: Jeannette Neumann
August 23, 2011
Ratings Firm Says Sharma Exit, for Year-End, in Works Before U.S. Downgrade.
Standard & Poor's President Deven Sharma is leaving the credit-rating firm at the end of the year, the company said Monday night.
Mr. Sharma will step down as president on Sept. 12 and be succeeded by Douglas Peterson, chief operating officer of Citigroup Inc.'s Citibank unit. Mr. Sharma will remain at S&P through the end of the year in an advisory capacity, working with McGraw-Hill Cos. Chairman, President and Chief Executive Harold "Terry" McGraw III as the company explores a separation of its education business.
The moves come as S&P faces questions about its controversial downgrade earlier this month of long-term U.S. debt and as the Securities and Exchange Commission and U. S. Justice Department look closely at the conduct of S&P, as well as other major credit rating firms, for their roles in developing mortgage-bond deals that helped to trigger the financial crisis, according to people familiar with the matter.
Earlier Monday, two McGraw-Hill activist shareholders expressed hope the company would recruit a new public face for its ratings unit as part of their breakup plan for the financial-data and publishing powerhouse.
Mr. Sharma's departure has been underway since the beginning of the year and is unrelated to the firm's controversial downgrade earlier this month of long-term U.S. debt, the firm said.
In November 2010, S&P split into two pieces--the credit-ratings service and McGraw-Hill Financial. Mr. Sharma, who oversaw that split, was "ready for new challenges" after that move, Mr. McGraw said in a statement Monday night. The company has been searching for a successor for Mr. Sharma since then, he said.
Initially, Mr. Sharma, 55 years old, didn't want to stay through the end of the year in an advisory position because "he wanted to move on as quickly as possible," a person familiar with the matter said. Mr. Sharma apparently changed his mind after getting advice that a gradual exit would ease his job search and remove any appearance that S&P forced him out, that person said.
Mr. Peterson, 53, was chosen in part for his experience in running businesses that face heavy regulation. S&P and the other credit-rating firms have gone from being lightly regulated about a decade ago to being a focus of last summer's Dodd-Frank financial-overhaul law. The SEC is still hashing out the details of a slew of new rules meant to bolster disclosure in the industry.
S&P also looked at his operational expertise in, among other things, turning around Citi's struggling Japanese business and his emerging-markets experience, a person familiar with the matter said. this person added. Mr. Peterson had first been contacted around five months ago, this person said. Other candidates were also interviewed.
Mr. McGraw, in a statement Monday night, said Mr. Peterson is "an outstanding global leader" who "has tremendous breadth across financial and capital markets and is a proven operating and strategic executive who has successfully built businesses in multiple markets, including Japan, Latin America and the United States."
The process of appointing Mr Peterson was held up by the rating firm's decision to downgrade the U.S as the company didn't want to appear rudderless during such an important time, according to people with knowledge of the situation. Mr Peterson is expected to bring a more hands-on approach to rating decisions and processes as well as a greater emphasis on emerging markets.
A person familiar with the matter said Mr. Sharma is interested in possibly being a chief executive in the future. Mr. Sharma wants "to run a public company as opposed to just be president of a division," the person said. Mr. Sharma also wants to gain board seats at some publicly held concerns, the person added.
Mr. Sharma has been president of S&P's rating division since 2007. He took over "in one of the most difficult times facing S&P in the midst of the financial crisis," Mr. McGraw said. Mr. Sharma has testified before Congress several times about his firm's role in rating mortgage-bond deals that helped to trigger the financial crisis. S&P and the other leading rating firms have been criticized by lawmakers as "key enablers" of the financial meltdown.
Mr. Sharma's exit comes as S&P is in the crosshairs of lawmakers in both political parties for its decision to cut its rating on long-term U.S. debt to double-A-plus from triple-A on Aug. 5. The other two major credit-rating firms, Moody's Corp.'s Moody's Investors Service and Fimalac SA's Fitch Ratings have affirmed their triple-A ratings of U.S. debt.
Treasury Department officials have said the decision to downgrade the U.S. was unjustified, contending it was based on an alleged $2 trillion mistake in estimating total federal deficits over the next decade. S&P has said the disagreement stems from a difference in assumptions.
The downgrade rattled financial markets around the world because of triple-A-rated U.S. debt's historic status as the world's safest investment.
In the days following the downgrade, Mr. Sharma defended the firm's decision to investors and appeared on talk shows to do so.
Earlier Monday, Hedge fund Jana Partners LLC and the Ontario Teachers' Pension Plan suggested that S&P needs a "well-known independent oversight figure to help manage increasingly complex global regulatory landscape and improve dialogue with investors, regulators and the public."
The presentation to McGraw-Hill officials Monday was the parties' first meeting since Jana and Ontario Teachers on Aug. 1 reported a 5.2% joint stake in the company, according to people familiar with the matter. The investors said Monday they now own a 5.6% stake. The meeting lasted for about an hour and was described as constructive, some of the people familiar with the matter said.
"The recent regulatory and political scrutiny around the S&P Ratings business highlights the drawbacks of housing wholly unrelated businesses together," Jana and Ontario Teachers said in a presentation to the company Monday. They added that public scrutiny around S&P "serves as an overhang on McGraw-Hill's valuation."
"McGraw-Hill enjoys an open dialogue with its many shareholders and often gets insights from those discussions," the company said in a statement.
--Joann S. Lublin, Suzanne Kapner and Gina Chon contributed to this article.
Write to Jeannette Neumann at email@example.com