The Directors’ Cut: Board members weigh in on corporate governance
Increased scrutiny of boards of directors among the latest trends
by Michael Ganley
George Gosbee, the chairman and CEO of AltaCorp Capital and a seasoned board member, says there’s an increased scrutiny of boards of directors, and it all comes down to growing awareness. Everyone – the public, shareholders, governments, regulators and employees – is more aware now than they were
10 years ago of boards and their decisive roles in shaping companies. “The amount of emphasis being placed on [corporate] governance, on shareholder rights, on the ability to take into account the community and government, it’s all increasing,” Gosbee says.
Photograph John Gaucher
The close examination traces back to the 2001 Enron scandal, which precipitated one of the largest bankruptcy reorganizations in American history. The resulting Sarbanes-Oxley Act instituted more oversight of company controls and greater compliance requirements. While it’s not Canadian law, much of Sarbanes-Oxley filtered into the laws and practices in this country. Twelve years later, the fallout is still being felt. To help navigate the changes, Alberta Venture turned to four people with considerable board experience: Gosbee, Rory Tyler, Kathy Sendall and John Brussa.
Notable board appointments (past and present): Enmax, CGGVeritas, Alberta Innovates – Energy and Environment Solutions, Manning Foundation for Innovation
HOT TOPIC: Activist shareholders
Every situation involving activist shareholders is unique and it’s dangerous to generalize about the risks directors face in those situations, says Sendall. But one thing these cases have in common is that they need to be handled with care, and directors need to have a clear understanding of their role.
“Your duty as a director is not just to the shareholders, but to the company,” she says. “You should be making your decisions based on the best interests of the company, and those may not always be aligned with those of activist shareholders. Often, they come in to break a company into chunks, to ‘release value.’ Directors and management may have entirely different ideas as to whether that’s the right view from long-term and short-term perspectives. You need to understand where the shareholders are coming from and use all your judgment and the information available to you to decide what is in the best interests of the company.”
“Government relations is a skill set that a lot of directors didn’t think was needed on a board, but increasingly it’s evident that a good understanding of government relations is pretty important. It’s rare that a board would get directly involved in government relations, but understanding the politics associated with certain decisions is important.”
– Kathy Sendall
Senior client partner, Korn/Ferry International
Notable board involvement: Chair, Calgary chapter of the Institute of Corporate Directors
HOT TOPIC: EO Succession
There has been no shortage of change at the top in Alberta’s corporate world of late: CP Rail, Suncor and Enbridge, to name just a few of the biggest ones. It’s made CEO succession a hot topic for boards. “The absolute top priority for any board is making sure they have the right CEO in place,” says Rory Tyler, a consultant with Korn/Ferry International. “You get that right and everything else tends to fall in line.”
That means many boards are ensuring they know their CEO options. Most companies have a robust internal succession program in place. Boards know the nature of the internal talent pool and what kind of development needs to take place to ensure good candidates exist. And the best boards are continuously looking outside their companies to know what candidates might be available if something happens. “Even if there’s not a formal search or a change imminent, they’re ready to move forward if something happens,” Tyler says.
“There’s a lot of pressure on companies to ensure they’re achieving performance in line with their peers. If that starts to fall off, boards are considering if they have the right person in charge of the organization.” – Rory Tyler
Chairman and CEO, AltaCorp Capital
Notable board appointments Toronto Stock Exchange, AIMCo, Chrysler
HOT TOPIC: The professionalization of boards
“The board position used to be seen as an honour or a reward,” Gosbee says. “Now, going on a board is an absolutely serious matter. Your level of responsibility and accountability is greater than that of any advisor to the company – the lawyers, the accountants, the investment bankers. It has to be viewed not as a reward, but as something you have to put a lot of time and effort into. You have to exercise your fiduciary duty throughout the year. If people view that board position in a more serious manner, it will benefit the company and themselves.”
To prepare for increased responsibilities, many current and potential board members are seeking specialized credentials for being on a board. Leading the way in training directors is the Toronto-based Institute of Corporate Directors. “[Training] allows people on boards to have a greater awareness of the issues, rather than just joining a board because your buddy asked you to or because you own a bunch of shares,” Gosbee says.
Tax lawyer, Burnet, Duckworth & Palmer
Notable board appointments (past and present): Penn West Petroleum, Baytex Energy, North American Energy Partners
HOT TOPIC: Board composition
John Brussa says major technological changes over the last five to 10 years – particularly SAG D and fracking – have created stresses in oil and gas companies because many of them weren’t built for the new reality. “It’s created dislocation in the capital markets, stresses operationally and stress at the board level,” he says.
Brussa compares the extent of the upheaval to the transportation revolution spawned by the invention of the car. “You may have a bunch of board members who are experts in horse and carriage transportation,” he says, “but you don’t have too many who are experts in automobile transport. The best car mechanics these days are not at the boardroom table.”
The challenge in this new reality for Albertan companies is to build a board of people with complementary skill sets. “You want someone with financial markets experience, someone with real life accounting experience, someone with geology, someone with engineering, someone with experience running a company.” If you can manage all that, Brussa says, the rewards are waiting. “If you’re on top of how the business has changed, there’s real money to be made,” he says. “If not, you’re roadkill.”
“[A board] is like a hockey team: You don’t want 23 stay-at-home defencemen, but you don’t want 23 flashy Russian left wingers, either.”
– John Brussa