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Standing in the rain in the Kenyan bush with a satellite phone, David O'Brien realized that being a corporate director isn't like it used to be.
Mr. O'Brien was on safari last January while Fairmont Hotels & Resorts Inc. was considering a hostile takeover bid. Despite his remote location, he knew he had to participate in a board discussion.
"There I was, standing out at 10 in the evening in Kenya, with the rain pouring down, trying to point toward the sky so I wouldn't lose contact," he says. "I was standing there for an hour and a half discussing the Fairmont issues."
It has been five years since the collapse of Enron Corp. led to a revolution in boardroom practices and director behaviour. And during that time, corporate governance has moved from the sidelines to centre field as directors face an increasingly demanding job.
It's a situation few would have imagined a decade ago when governance took a back seat while corporate profits soared and executive compensation began to hit the stratosphere. But those carefree days came to an abrupt end after a series of corporate scandals led to new regulations for boards and new expectations from investors.
This year, Report on Business completed its fifth annual survey of corporate governance practices at Canada's largest public companies. As part of the project, ROB examined whether all the reform has made a difference for Canada's largest companies. Does governance matter? And has it led to better practices?
The answer is clear: Yes, governance matters, and, yes, real and meaningful reforms have happened in Canada's boardrooms. With five years of data available, it is undeniable that most corporate boards are more independent from management than ever before.
And most have also adopted significant new practices to ensure they are operating professionally — such as director performance reviews.
As part of our review this year, ROB asked an array of senior corporate directors how they feel governance has panned out in practice — whether the trends have made a meaningful difference in the real world at the board table. Some directors cited concerns about details of various reforms that have emerged, but all were unanimous in agreeing that profound and positive change has occurred.
For Mr. O'Brien, there is no doubt that governance has changed for the better — even if it means having to attend late-night board meetings in the rain.
"The experiences of Enron and WorldCom and others focused the mind as to what the role of the board was," says Mr. O'Brien, who is chairman of both Royal Bank of Canada and EnCana Corp. "I think the whole emphasis on governance has raised the bar substantially in terms of board performance."
Agrium Inc. chairman Frank Proto says one of the key developments in the whole corporate governance movement has been that it has forced long-time directors to go back to the grassroots and "re-examine" that they are working for shareholders.
"There were a lot of boards where directors and management were getting too close," he says.
"I have sat on boards of public corporations for some years, and I remember some meetings of committees and board meetings which were almost perfunctory — I'm not proud of that," recalls Alcan Inc. chairman Yves Fortier.
"But today there is an awareness that makes it mandatory for directors to spend a hell of a lot more time, to do a heck of a lot more work and preparation, and to be more conscientious and diligent."
Beyond a change in director attitudes, one of the most important developments in recent years has come from the investor community, where good governance has emerged as a key concern. Investors are increasingly criticizing weak practices or voting proxies to express unhappiness with board decisions, such as excessive compensation.
Governance expert Peter Dey says he believes the most important development in corporate governance in recent years has been the realization by investors that it is linked to good performance.
"If you're still debating whether good governance contributes to corporate performance, then you're back in the last century. That debate is finished," Mr. Dey argues.
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