As they try to prevent a repeat of the global financial crisis, governments and regulators have been wading into bank boardrooms. John Thompson, chairman of Toronto-Dominion Bank, is unfazed.
Canada's largest financial services companies have already agreed to allow their shareholders to vote next year on resolutions approving the pay packages for their top executives, giving shareholders a "say on pay."
And the TD chief expects that companies in others sectors will soon make changes in areas that financial institutions have already acted upon, such as compensation reform.
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"I think they'll watch to see what happens, and I think that the larger organizations are likely to do it," said Mr. Thompson, whose company - a leader when it comes to disclosure and compensation packages - tied with SNC-Lavalin Group Inc. for top spot in the Report on Business Board Games survey of corporate governance practices.
Amid the scrutiny of financial institutions, watchdogs including Canada's top banking regulator are speaking out about the lack of bankers on bank boards. But the TD chairman is confident his board meets the test, saying that six of the 18 directors understand banking very well.
When recruiting directors, he has a checklist of key criteria. "To begin with, you want people who are top in their field. Then what you look at is diversity." That includes diversity by gender and ethnicity as well as region. "We need to represent the West, we need to represent Quebec, we need to represent the Maritimes, and we need to represent the U.S., because that's where half of our branches are," he said.
The third important factor is an individual's personal skills: "You want people who are risk experts, banking experts, people who understand audits for a complex company, people who understand compensation."
The most recent recruit to the TD board is former B.C. finance minister Carole Taylor. "I wanted somebody who came from the West, who was top in their field, who had very good contacts, and I was looking for a female," Mr. Thompson said.
Ten years ago, he noted, the bank's chief executive officer looked around for potential board members and then told the board who it would be. "That doesn't happen any more. As chairman, I chair the nominating and governance committee, we select directors for presentation to the full board who would then vote, and then we would extend an offer to somebody."
In general, he believes Canadian CEOs are much more collaborative than in years past. "I think they're less imperial, they're more consultative, and they know much better in this day and age how to use a board as a sounding vehicle to try out ideas to get a debate going up front before making decisions."
Board Games methodology: Corporations The Globe and Mail's Board Games 2009 evaluates and ranks corporate governance practices in Canada. See the methodology we use in compiling the survey
Succession planning for the CEO and other top executives is one of the most important duties a board has, he said.
TD's management resource committee (which most boards call the compensation committee) spends about half of its time now on succession and talent development, a significant increase.
"To do a good succession plan, you need at least five years. That doesn't mean you've identified somebody five years out, but you have identified a handful of candidates. And then what you do is try to develop them and put them in jobs where they can really show their stuff and demonstrate that they have the skills to be the CEO."
TD's board members have direct contact with senior bank executives; different sets of executives are invited to dinner at each board meeting. Three years ago, the bank instituted interactive sessions where directors meet with mid-level executives from a specific business unit.
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In general, Mr. Thompson believes that there have been major strides in governance in recent years, and that boards are representing shareholders much better than in the past. "I joined the board in 1988 and it was really an old-style board back then compared to what we do today," he said. "It's like night and day."