The British-North American Committee may not ring a bell, but the names of its blue-chip membership surely will. The 41-year-old policy forum boasts a glittering roster that includes retired U.S. general Wesley Clark, British business leader Sir Paul Judge, Moosehead brewer Derek Oland, and retired forestry executive William Turner. Founded in 1969, the panel’s name evokes a time when maintaining the Canadian-British-U.S. connection was of compelling concern – before China’s rise and the financial meltdown.
Now, the BNAC wades into the debate on governance of financial institutions, offering a post-meltdown prescription for transparency. As chairman of the committee that wrote the report, the 81-year-old Mr. Turner, a veteran director and CEO of former forestry giant Consolidated-Bathurst Inc., explains the thinking behind the document – and offers some of his own perspective on events.
No one would argue with your recommendations for greater transparency on financial statements and stronger regulatory oversight. But aren’t you closing this door after the horse has bolted from the barn?
That’s fair comment, but 15 years ago there wasn’t anyone who wanted to listen to this. The thing is the guys on this committee have actually run companies. This isn’t something from a university professor who is giving a 45-minute lecture, and just assumes the problem is already solved.
You also say that limits on directors’ years of service is not conducive to building an effective board.
The Brits made a huge mistake when they decided that any outside director on a public board who lasted 10 years was automatically an insider. It forced a lot of people to get off their boards. There is sort of a feeling like that in Canada, but it has never been expressed in law. In some of these huge complicated international companies, as a director you don’t know what’s going on for the first five or six years. The best time for directors is often in those [later] years.
One recommendation is that financial institutions should compensate executives based on three- to five-year performance. Is that practical?
There is a tendency now to judge everything on a single year’s basis. When you get around to compensation for mergers or big deals, one year is not an appropriate period on which to judge if the deal has been successful. In the financial world, there is a great tendency to do one big deal, make a hell of a lot of money from it, and you could care less what happened to the company afterward.
But if you merge with another company and the stock goes up or down in the first year, you shouldn’t judge the impact on that basis. Judge it on a five-year basis. That keeps the people worrying about their success in the long run instead of just the short run. And I wouldn’t pay executives much in cash. I would pay them stock in the company and I wouldn’t let them be able to sell it for a while.
Would this require a new mindset among financial executives?
When I got into business world in the 1950s, there were a lot of people in the financial business who believed their job was to be an adviser to the corporation. They were looking to see their corporate clients through good and bad times. Nowadays, everything is done on the basis of a single deal. Look at the Potash [Corp. of Saskatchewan Inc.] thing that is going on right now.
I’m reading a book about the financier Siegmund Warburg, whom I met once when [industrialist] Maurice Strong was running Power Corp. and I was the No. 2. Warburg was a marvellous guy and his view of being a financier was to be a consultant for life. It’s switched from that attitude to Wall Street today, where everyone wants to do the big deal and then quit and become a professor somewhere.
