This article is the first in a series that profiles boards that stand out for their drive to constantly raise their game. The authors, who are partners at Guided Futures, have interviewed over 75 directors, chairs and CEOs on how boards must evolve to make a real difference to their company’s future success. Read part two EPCOR tackles hard choices with ambitious board, part three Raising the bar at CN Rail and part four Related contentCorporate Governance: From golden rules to golden principles.
How does a board of directors prepare itself – and its company – for a very different future? This challenge becomes more acute when a business rises to global leadership. At Methanex Corp. – Canada’s world leader in methanol production and distribution – a new era in board governance began in 2004. Pierre Choquette, the long-time CEO who had guided the firm to its worldwide prominence, handed over the reins to his trusted successor, Bruce Aitken.
At the Board’s urging, Pierre did not retire, but became chair – a conscious breaking of governance best practice. He recalled: “People said the CEO should disappear”. His joining the board was seen as “holding up your pants with both a belt and suspenders”.
He proceeded anyway, on one key condition: He was convinced that the board should embark on a program of wholesale renewal, to equip itself to provide the governance and guidance worthy of a growing global enterprise.
This renewal has taken many forms, beginning with composition. Urgently, the board needed more directors able to guide the company Methanex had become. Over the past five years, out of 10 outside directors, five new members have joined to bring richer industry expertise, insight into world markets, and more diverse life experiences. The turnover continued last year when Tom Hamilton, a senior U.S. oil and gas executive, became the new chair.
In light of these changes, fostering director involvement and a constructive board culture has won top priority. Both the current and past chairs have invited all members to contribute more widely, often seeking the views of each director, in turn. While some may be apt to defer to greater expertise, the message is clear: All are welcome – and expected – to speak up.
To participate is one thing, but to express controversial or contrarian views is much riskier. This board works hard to ensure that they build the trust that makes risk-taking possible. They take time to get to know each other, along with members of senior management. As more new members join in future, renewing this trust and board chemistry will remain a pre-occupation.
Many may see this story as a reversion to the Best Friends Forever model of the past. This board acknowledges the risk, but will not let closeness degenerate into clubbiness. They stress that candid conversations only take place with deep personal trust. As with the ex-CEO becoming chair, if the spirit and the motives are right, behaviours that may break classic governance taboos may also be right.
This trust has delivered the greatest dividends at watershed moments in the life of the company. Just four years ago, Argentina sharply cut the natural gas supply to company production facilities in Chile. That one event ushered in a new era of uncertainty and market disruption, establishing a more complex environment for doing business.
Years before, Methanex had risen to global dominance on the wings of a simple, compelling business model. Locate abundant supplies of stranded natural gas in countries with stable governments in attractive regional markets, sign 20-year contracts at fair prices, and build production facilities to profit from that certainty. No one has done this as well as Methanex.
Today, key elements of that model are in question. Governments are far less prone to sign long-term supply contracts, or honour them if signed. Capital spending choices now confront riskier returns. Countries thought to be stable are in turmoil. Changing long-run price differentials between fuels can shift the best location for new production facilities. With China now the world’s largest market, more complex changes and choices are coming. Methanex is still best at what it does, but is pursuing new ways to exploit that advantage.
Back in 2007, under the pressure to act, management rolled up their sleeves, got to work, and brought many creative solutions to the board: re-thinking the use of the shipping fleet, promoting gas exploration and production, and integrating upstream. The board also rose to the occasion, probing, testing, strengthening and supporting. Janice Rennie, then a new director, reported: “As a board, we opened ourselves to different ideas with one goal in mind – how do we find new sources of methanol and not disappoint our customers?”
New levels of trust and collaboration were forged between executives and directors that today sustain their latest discussions on new markets and capital projects. In this new world, board and management can expect to engage in many vigorous conversations on where to take the company next. Tom Hamilton sees world markets becoming less linear and more dynamic. The board can best contribute by “thinking around the corner and over the horizon”.
Still, there are real limits to what this board should do. As one senior executive put it: “Directors aren’t super managers...they touch the company once every six weeks.” Full-time, expert management must continue to design, build and execute strategy. The board can be a feedstock of ideas, challenges, and encouragement, as management takes the next big leap forward.
Recently, the board renewal has stepped up a notch, with a major streamlining of committee membership, processes and reports. By clearing the decks of low-value activity, the board can become more productive, efficient, and focused. Director education is already thorough and ongoing. Searching evaluations lead to three or four new priorities each year for board improvement. The quest for "better" continues.
Close-knit, productive, strategic – definitely. Willing to declare victory – not just yet.