Egan-Jones’ new market commentary notes that balancing social and business priorities can strain firms, emphasizing that success is more likely when organizations remain focused and make clear credit-based decisions.
The commentary explains that political goals may conflict with private enterprise objectives. It states that politicians may seek to tax corporate profits, regulate actions, and raise wages, while businesses primarily aim to protect and enhance shareholder wealth. Both governments and corporations face constraints, and corporations are expected to treat stakeholders fairly, yet problems arise when firms fail to consider the elevated costs of pursuing several goals simultaneously.
A case discussed in the article is Tricolor, which served underserved and less creditworthy automobile customers. The article observes that while it was laudable for the company to target these customers, ignoring the elevated cost of serving them and the elevated delinquencies became increasingly problematic, and that if these costs are not accounted for, future viability becomes jeopardized.
The piece also stresses that the lower end of the market remains full of opportunity. It notes that numerous entrepreneurs created highly valued businesses by focusing on underserved broad markets and building economies of scale, citing Ford Motor Company, Charles Schwab, and Amazon as examples. According to the article, the key is recognizing vulnerabilities and making appropriate adjustments.
In conclusion, the article reiterates that while serving broader societal interests is laudable, if the objective is to ascertain the probability of repayment on time and in full, one should focus on such. The article closes by stating that Egan-Jones credit ratings focus on the likelihood of timely repayment of obligations and that ESG scores are relevant to many, but it is dangerous to mix the two.
About Egan-Jones Ratings
Egan-Jones Ratings Company was founded in 1995 for the purpose of issuing timely, accurate ratings. The firm rapidly gained credibility by flagging the failures of Enron and WorldCom, and has since established itself as a leading global provider of credit ratings. Egan-Jones is a Nationally Recognized Statistical Rating Organization (NRSRO) and is recognized by the National Association of Insurance Commissioners (NAIC) as a Credit Rating Provider. Egan-Jones Proxy Services is a leading proxy advisor, offering investors vote guidance, vote execution, and reporting.
View source version on businesswire.com: https://www.businesswire.com/news/home/20251202164761/en/
Balancing social and business priorities can strain firms, success is more likely when organizations remain focused and make clear credit-based decisions.
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