IDA: An Intelligent Document Analysis System for Evaluating Corporate Governance Practices Based on SEC Required Filings

The Problem Domain

The required documents by SEC include 8-k, 10-K and DEF 14A (proxy statement) contain passages that are of interest in terms of corporate governance practice. Among the key elements included in the corporate governance section are: bylaws, code of conduct and ethics, board of directors’ information, board committee mandates, basis for executive compensation, and information on insider purchases and sales. Relevant corporate governance and disclosure data should be woven into the company’s 10-K and proxy statement. These filings are important source documents for the rating system. We designed and selected 200 questions based on “Corporate Governance Handbook 2005 Developments in Best Practices, Compliance, and Legal Standards by Carolyn Kay (2005)”. Based on the handbook, these questions are used to retrieve valuable information about the companies to help investors understand corporate governance of the companies they’re willing to invest. Some of these 200 questions are listed below:

• 1.

  Does the company provide employment agreements that protect executive producers?

• 2.

  Does the management is required to hold accumulated stock for the long-term?

• 3.

  Does the compensation committee have policies and programs to recapture incentives from management in case of malfeasance?

• 4.

  Does the company use industry standards to decide on type of compensation and level of compensation for executives?

• 5.

  Does the company measures and tracks adherence to ethical conduct?