Corporate Transformation Case Study

Morningstar Inc.: The US Fund Rating Leader's Credibility at Stake?

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Abstract:
Morningstar Inc., a leading financial services rating firm in the US, was known for its unbiased information and ratings of mutual funds and stocks to ordinary investors. Besides individual investors, Morningstar's users consisted of (1) financial planners and investment professionals; (2) institutions like mutual fund companies, providers of retirement services, stock brokerage firms; and (3) the media organisations such as television, newspapers and magazines. This reputation and the company's credibility were jeopardised when three regulatory investigations were initiated against it in 2004.

Pedagogical Objectives:

• To understand the business model of Morningstar, its various fund rating tools, and the growth strategies it employed to become a leading financial services rating firm
• To understand the regulatory investigations initiated against Morningstar by the Securities and Exchange Commission (SEC) and the New York Attorney General Eliot Spitzer
• To discuss whether the regulatory investigations and conflicting interests resulting from its diversification would lead to an erosion of its credibility

Keywords : Corporate Governance Case Study, Morningstar Inc, Joe Mansueto, Conflict of interests, Mutual fund rating agency, Fund performance information, Investment advisor, Mutual Fund Sourcebook, US mutual fund industry, Misguiding investors, Securities and Exchange Commission (SEC) USA, Morningstar ratings, Erroneous publication, Quality control procedures, Regulatory investigations, Morningstar Associates PLC