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For the sixth year in a row, Report on Business has marked Canada's corporate boards using a rigorous set of governance criteria designed to go far beyond the minimum mandatory rules imposed by regulators. The guidelines were developed from the recommendations of major institutional investors, academics and industry associations, and are reviewed each year to ensure they keep pace with shifting standards of excellence in corporate governance.

The criteria for 2007 are largely identical to the marking system used in 2006, which was significantly revised from prior years. However, while the questions and the mark distribution were not changed, ROB adopted more stringent marking standards that companies had to meet to receive full marks for some questions.

For example, when assessing the adequacy of share ownership guidelines for their directors, ROB based its calculations on the value of the basic cash retainer paid to directors, as well as the value of any regular grants of shares or share units to directors.

The previous standard used only cash retainers. But with many companies now choosing to pay their directors with a mix of cash and share components, the standard was adjusted to take into account the higher level of base pay given to directors in whatever form it is paid.

ROB also toughened its methodology for marking whether boards do performance reviews of their directors, as well as its standard for assessing whether independent directors meet without management present at all meetings.

The rules for disclosing meeting attendance were also changed, with each director having to attend at least three-quarters of the meetings of each key board committee to receive full marks.

Because the methodology for Board Games is toughened each year, the marks are not closely comparable with scores from prior years. Nonetheless, the charts show overall totals from three earlier years to provide some indication of scoring trends.

The data are based on information published in the most recent annual shareholder proxy circulars of companies that comprised Canada's benchmark S&P/TSX composite index as of Sept. 30. Some companies do not have marks for prior years because they were not members of the index at that time.

The marking system probes board operations in four key areas: board composition, compensation, shareholder rights and disclosure. The charts show the total marks awarded in each of four broad categories, as well as the total score for each company.

ROB has developed three sets of marking standards: one for corporations, one for income trusts with internal management and another for income trusts with external management.

The income trusts have somewhat different criteria than corporations, because some corporate governance issues are not as relevant at trusts. For example, income trusts are far more likely than major corporations to have related-party transactions involving their managers, so the trust methodology includes an assessment of the volume of related-party transactions that have occurred.

There are two categories of trusts, because a significant portion of these entities do not have the same internal management teams found at corporations, and are managed under contract by an external party. ROB developed a separate marking system for these trusts, because it is difficult to apply normal compensation disclosure standards when trusts do not have executives, and may not disclose compensation information for their outside managers.

Instead, the marking system focuses on the quality of disclosure of information about the management contract and the external managers. The marking system also somewhat penalizes trusts for having external management. This is because there is widespread concern about whether large firms should be run by an outside manager — a practice virtually unheard of in the corporate world.

Because income trusts were marked last year for the first time, there is only one year of previous data available for comparison on the income trust charts.

The charts also include the five-year total return for each company, as of Sept. 30, to address concerns from some low-scoring companies that it is more important to consider their history of strong financial performance than features such as board composition, compensation practices or disclosure standards. Total return data is not provided for companies that do not have five years of trading history on the Toronto Stock Exchange.

The marking for the corporations assessed in the study was done by the Clarkson Centre for Business Ethics & Board Effectiveness at the University of Toronto. The income trusts were marked by ROB.