“If I had to use one term to characterize boards 15 to 20 years ago, that would be ‘passive,’” says corporate director Peter Dey, who drafted the first board governance guidelines for the Toronto Stock Exchange in the 1990s.
“Today in my experience, they are very engaged … A lot of boards were constituted with people connected to the CEO and they felt beholden to the CEO. It made it difficult for them to challenge what management wanted to do. That, in my experience, has completely changed.”
After 10 years of measuring governance practices at Canada’s largest companies, The Globe and Mail’s own data clearly show that boards are more independent than they were a decade ago. So, too, are their audit and compensation committees, where much of the hard work is done in keeping CEOs accountable. (Slideshow: A decade of Board Games)
While 43 per cent of companies had directors connected to management on their audit committees in 2002 – using the Globe’s strict definition of independence – just 10 per cent fall in that group today.
When the Globe started Board Games, more than half of companies (58 per cent) had related directors on their compensation committees; in many cases, a CEO’s close friend influenced the size of his paycheque. That number is down to 23 per cent now. While CEOs often sat on their own audit and compensation committees in 2002, that practice has since been banned.
Nevertheless, no governance reform can change the fact boards are not equally competent, says Toronto-Dominion Bank chairman Brian Levitt.
The best 15 per cent of boards did well before Enron and would have done well without any reforms, he says. The 70 per cent in the middle have benefitted most from the governance revolution, and the 15 per cent at the bottom are unchanged.
“It hasn’t made boards that are hopeless workable,” Mr. Levitt says. “And it hasn’t made boards that were very good better.”
See the rankings: Board Games 2011 corporate governance rankings
Take our survey: Poll: How does corporate governance inform your investment decisions?
