Note: All references to directors also include trustees at income trusts. All references to shares also include units of income trusts.
Board Games Methodology 2012
All companies, corporations and income trusts
Board Composition: worth 31 marks out of 100
1. What percentage of the company’s directors are fully independent? That means directors who are not management, relatives of management, former members of management within the previous five years, or people whose firms do business with the company – including, for example, lawyers, accountants, suppliers, consultants or investment bankers. Board Games also marks as related those directors who are controlling shareholders of the company or who work for a parent company that controls the public subsidiary. Four marks for boards with at least two-thirds independents. Two marks if more than 50 per cent of directors are independent. Zero marks if there is a majority of related directors.
2. What percentage of the audit committee is fully independent? Three marks if the committee is fully independent. One mark if there are one or more related directors who are not management. Zero marks if a member of management is on the committee.
3. What percentage of the compensation committee – the committee that determines executive pay – is fully independent? Two marks if the committee is fully independent. One mark if there are one or more related directors who are not management. Zero marks if a member of management is on the committee or if there is no committee.
4. What percentage of the nominating committee – the committee responsible for recommending new directors to join the board – is fully independent? Two marks if the committee is fully independent. One mark if there are one or more related directors who are not management. Zero marks if a member of management is on the committee or if there is no committee.
5. Is the role of chairperson and CEO split? Four marks if the roles are split and there is a fully independent chairperson. Two marks if they are split, but the chairperson is a related director. One mark if they are split, but the chairperson is a member of management. Zero marks if the roles are not split. (Note: There is no longer credit for not splitting the roles but having a lead director.)
6. a) Do two or more directors sit together on two or more other boards of publicly traded companies, creating the potential for a close-knit bloc of directors? Or, do three or more directors sit on any other corporate board? One mark if no, zero if yes.
6. b) Do any directors sit on five or more S&P/TSX company boards? One mark if no, zero if yes.
7. Are there any women on the board? Four marks if at least 33 per cent of directors are women. Two marks if 25 per cent to 33 per cent of the board are women. One mark if there is at least one woman on the board. Zero marks if there are no women.
8. Does the board have a system to evaluate its performance? Three marks if there is a formal board evaluation and a formal individual director evaluation including peer review, with detailed disclosure of what sort of process is used for both. Two marks if there is a formal board evaluation and director evaluation, but no peer review. Also two marks if the company has a formal peer review process but does not mention or describe any board or committee review process. One mark if there is a formal board assessment, but not an assessment of individual directors, or if there is reference to a director assessment but not board or committee review. Zero marks if there is no evaluation or there is only vague description of how the assessment is done with no details of the process used.
9. Do independent directors meet without management? Three marks if they meet without management at every board meeting. Two marks if they meet without management at regular board meetings, but not all board meetings. One mark if they meet sometimes, but not every regular board meeting. Zero marks if there is no mention or if there are no meetings without management. Also zero marks if the company uses vague wording – for example, that “time is available for in-camera meetings” – that do not specify whether the meetings are actually held.
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