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Short-term solutions

The chief executives at Alberta’s biggest energy companies are here for a good time, not a long time

Apr 10, 2014

The chief executives at Alberta’s biggest energy companies are here for a good time, not a long time. At least that’s what Christopher Chen, an expert on executive compensation with Hay Group, sees when he looks at the sector. According to the Hay Group’s data, since 2009 energy companies listed on the TSX 60 have endured 17 changes at the top, the most of any sector in Canada. “The information about average CEO tenure [for the energy industry] is sort of shocking,” Chen says.

“If you’re not showing returns, boards are not as hesitant as they used to be to make a change at the very top.”

But what’s driving it? Simple demographics is part of it, as baby boomers approach and enter retirement, but “a lot of what’s been happening is that because shareholders are just so much more demanding – in terms of trying to get profits and trying to get returns on their investments – that their patience level is lower than it ever has been,” Chen says. “There’s a need to show returns, quickly, and if you’re not, boards are not as hesitant as they used to be to make a change at the very top.”

The growing influence of activist investor groups and pension funds also isn’t making it easy for underperforming CEOs to execute a longer-term game plan. “A lot of these institutional investors have banded together and formed their own policy arms, which explain to the market what they want to see,” Chen says. “If you don’t meet those requirements, or manage your organization the way they think is best, they’ll vote with their feet.” In other words, if you’re a company looking to execute a plan that extends beyond the next quarter, you might want to stay away from the public markets.

One Of A Kind

The energy sector’s executive boardrooms are dominated by white men. The average percentage of women on their boards is just 15 per cent, while just four per cent are visible minorities. Both figures are well below equally underwhelming averages for the TSX 60 as a whole. “It’s slow in coming,” Chen says of board-level diversity. “When we go to all of these committee meetings, it’s still a fairly homogenous group.”It’s also questionable whether or not Alberta’s energy companies are interested in improving the situation.

Every year, the Hay Group surveys corporate secretaries across Canada – in 2013, it talked to more than 100 of them. The survey asks what a company’s priorities are for recruiting new board members. Only 25 per cent said that they had, or were planning to implement, a board-diversity policy. And when asked to rank the top four criteria when adding new directors, guess how many ranked gender or racial diversity? Zero.Thing is, energy companies should probably think about that disinterest. As a 2012 McKinsey & Company report noted, there is a direct correlation between board diversity and financial performance. Among companies ranking in the top quartile of executive-board diversity, it found that return on equity was 53 per cent higher than in companies in the bottom diversity quartile, while EBIT margins were 14 per cent higher.

saxberg

Last Man Standing

Among energy companies listed on the TSX 60, only Crescent Point Energy has kept its CEO throughout the five-year window that the Hay Group used for its analysis. Indeed, Scott Saxberg has been around since 2003. That’s practically an eternity in his sector.

girling

Honourable Mention

Asim Ghosh, who was appointed CEO of Husky Energy in June 2010, and Russ Girling, who took over as CEO of TransCanada a month later, are the second and third longest-tenured CEOs in the patch’s TSX 60 companies.

nunns

Nice Knowing You

At the other end of the scale is Murray Nunns, former CEO of Penn West Energy. He took over from Bill Andrew on August 10, 2011 and was replaced less than two years later by David Roberts.

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