It has been five years since Enron Corp. collapsed, turning a spotlight on the work of boards of directors and the governance practices at public companies. Since then, new laws and regulations have been drafted to improve corporate governance, and companies have also faced a growing tide of shareholder activism. In Canada, a group of large institutional investors banded together to create the Canadian Coalition for Good Governance, which has lobbied boards to voluntarily adopt a variety of governance practices, especially greater disclosure of compensation information.
In 2002, Report on Business launched an annual assessment of the governance practices of large public companies, scoring and ranking them based on various recommended best practices for boards. This year marks the fifth installment of the Board Games project, and the data shows a dramatic shift over five years in many key areas. For example, boards and their key committees are far more independent from management than they were five years ago, and many more boards have adopted practices like annual director evaluations and in-camera meetings without management present. Share ownership by directors has also soared with the spread of ownership requirements for board members, while disclosure of key information -- such as attendance records for directors -- has exploded.
Join Janet McFarland at 1 p.m. Wednesday for an on-line discussion on the changes in corporate governance since the Board Games project was launched five years ago.
Leave a question for Ms. McFarland through the comment feature on this story.
Editor's Note: globeandmail.com editors will read and allow or reject each question/comment. Comments/questions may be edited for length. clarity or relevance. HTML is not allowed. We will not publish questions/comments that include personal attacks on Globe journalists, other participants in these discussions, questions/comments that make false or unsubstantiated allegations, that purport to quote people or reports where the purported quote or fact cannot be easily verified, or questions/comments that include vulgar language or libellous statements. Preference will be given to readers who submit questions/comments using their full name and home town, rather than a pseudonym.
Sasha Nagy, Business Features Editor, globeandmail.com: Hi Janet: Thanks for answering reader questions about the Globe's annual corporate governance rankings, Board Games. This is your fifth year, and without going over every point of your extensive report here. I would be interested in your personal observations on how the rankings have changed since the first year you embarked on this investiation back in 2002.
Can you answer the question that the headline in Tuesday's Globe asked: "Do better boards make better companies?"
Janet McFarland: Hi Sasha. It's been an interesting five years on this project. We've been carefully looking at all sorts of issues around the ways corporations are governed -- things like the composition of their boards of directors, the various rights they grant to shareholders and the quality of information they disclose around topics like executive compensation. We've really come to believe that better boards do make a difference, even though there are still skeptics out there. Better structures don't guarantee anything, obviously, but they should help boards operate professionally and thoroughly, and that can't hurt in terms of nipping potential problems in the bud or responding appropriately when they emerge. Many investors particularly think that real change stems from greater discipline about executive compensation, and hopefully that will happen as boards feel pressured to disclose more information and justify their decisions to investors. This year, we asked a lot of corporate directors what they think about governance reforms, and they were unanimous in telling us that governance has improved dramatically. They say directors themselves have changed the way they approach their jobs -- they feel pressured to be far more diligent and dedicated to the task. And they say investors have also changed their attitudes and appreciate good governance more than ever. This really has the potential to cause profound changes. There's nothing companies want more than to be attractive to new investors, because there is so much choice out there about where to put your money.
Jim Terrets of Vancouver writes: Ms. McFarland, colour me skeptical on this issue. Based on my experience in corporate Canada, I believe these changes in corporate governance are tantamount to changing the ribbon on a pig -- the ribbon was red and now it's blue, but it's still a ribbon on a pig. I believe the lack of accountability in corporate Canada is rooted in systemic causes such as: a high degree of corporate concentration, legislation insulating key economic sectors such as banking from global competition, and a dearth of enforcement mechanisms stemming from the lack of a national securities regulator. Am I right? Are these changes mere window dressing, or does your experience and knowledge tell you that these changes are leading to more accountable and transparent corporate governance in Canada?
