Canada's corporate directors have a surprisingly wide difference of opinion about what they are responsible for overseeing in the areas of succession and executive compensation at their companies.
A sweeping new survey of hundreds of Canadian board members shows directors don't always agree about which "human capital" matters they should be directly supervising and which are best left to management.
The directors surveyed all agreed that the board is directly responsible for overseeing chief executive officers' pay, but they had different opinions about whether they had the same responsibility for overseeing compensation of other members of the executive team working with the CEO.
Corporate director Courtney Pratt, who is chairman of Knightsbridge Human Capital Solutions, said the growing "war on talent" means boards need to place more focus on managing their people as a key driver of competitive advantage.
"CEO compensation has been dominating the board's human capital agenda, to the detriment of other critical human capital issues," he said.
The report was based on a survey of 242 corporate directors in Canada and was prepared by the Clarkson Centre for Board Effectiveness at the University of Toronto and Knightsbridge Human Capital Solutions, in partnership with the Institute of Corporate Directors.
Matt Fullbrook, manager of the Clarkson Centre, said he did not anticipate finding such a significant lack of consensus among directors about what their core job description entails.
“You can’t say that means directors are doing a bad job, but it is very surprising,” he said.
The survey found 62 per cent of directors said boards should “monitor” pay for executives below the CEO, while 33 per cent said the board had direct responsibility for the job.
As for CEO succession, the survey found 83 per cent of directors said boards have a direct responsibility for overseeing it, while 17 per cent said they should only monitor the issue. And just over one-fifth of directors said they should be directly responsible for overseeing succession of top executives below the CEO, while 74 per cent said they should only monitor executive succession below the CEO.
Mr. Fullbrook said the survey also found directors said it was hard to follow through even when they agree that a subject is their area of direct responsibility. Although most directors agreed they are directly responsible for CEO succession, for example, only about half said their boards had a succession plan in place with a short list of possible replacement candidates, and fewer than that were confident their succession plan would ensure seamless leadership under unexpected circumstances.
Mr. Fullbrook said only one of 14 directors questioned in a more detailed follow-up interview could describe a detailed and formal process the board uses to build and update the company’s succession plan.
“The general tone was that they’ve got processes and everything is fine, but only one director said, ‘This is what we do, and here’s the board’s role in it, and here’s how we follow up on it,’” he said.
“It seems like it is hard for boards to even know what a formal process would look like that would be effective.”
