Standard & Poor's parent McGraw-Hill Cos. announced this week it has appointed former Ernst & Young chairman and chief executive officer Ray Groves as ombudsman, effective Feb. 16, 2009.

Groves, who will report to McGraw-Hill president and CEO Harold McGraw 3d, will address issues raised by people both inside and outside of the rating agency. He will report annually to the public on his findings.

"Both the markets and our own employees expect the highest standards of independence, quality, and transparency from Standard & Poor's, and its long-term track record speaks to its commitment to these values," McGraw said in a statement. "The Office of the Ombudsman will provide another way for [Standard & Poor's] to meet these expectations."

Amid the broader credit crunch, the major rating agencies have come under fire for the high ratings they gave to many of the complex packages of subprime-related debt that have been at the center of the financial crisis. Executives from Standard's & Poor's, Moody's Investors Service, and Fitch Ratings all testified last October in hearings held by the House Committee on Oversight and Government Reform.

Many of the complaints focused on the issuer-pays model of the rating agencies, which critics say creates conflicts of interest and a race-to-the-bottom. During the congressional hearings, politicians repeatedly mentioned instant messages sent between Standard & Poor's employees that said they would rate a product even if it were "structured by cows."

On the municipal side, critics of the rating agencies - California Treasurer Bill Lockyer being the most vocal - have said the companies maintain dual-rating systems that cost issuers by systemically rating public finance credits lower than corporate credits with similar or lower rates of default.

Standard & Poor's maintains it only has a single scale, although it last year upgraded thousands of credits as it "re-benchmarked" its ratings following an updated default study. Moody's and Fitch had planned their own moves to a global ratings scale, but put them on hold last year amid the credit crisis.

McGraw-Hill earlier this week announced it had reduced its staff by 375 people in the fourth quarter, including 50 people in financial services, which includes Standard & Poor's.

Groves spent 37 years with Ernst & Young, retiring in 1994. Since then, he has served as chairman of Legg Mason Merchant Banking Inc., president, chairman, and senior adviser of Marsh Inc., and director for a number of other companies.

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