Robert Prichard is the poster boy for corporate Canada. So much so that a study published by the University of Toronto’s Rotman School of Management back in 2004 deemed him a “principal gatekeeper of governance reform” because he sits on so many boards. The research, which mapped Mr. Prichard’s web of business connections, put him at the centre of an exclusive network of corporate elites. Much to their surprise, the academics concluded that “old boys’ network" was having a positive impact on corporate governance.
Being an influential director has always been Mr. Prichard’s calling card, but these days it’s proving to be his Achilles heel. He’s the chairman of both the Bank of Montreal and Torys LLP, the law firm representing SNC-Lavalin Group Inc. in its criminal case on fraud and bribery charges. He’s also a director for two other large companies and a major Toronto hospital. His Rolodex is a who’s who of Canada’s establishment.
There’s nothing wrong with having clout. Let’s face it, perky self-promotion is one way to navigate Bay Street’s cliquish corporate culture. But by sitting on so many major boards, Mr. Prichard has unwittingly entangled Canada’s oldest bank in the SNC-Lavalin affair. Regulators should be paying attention. Mr. Prichard’s story is a cautionary tale about the hazards that arise when individuals take on too many directorships or occupy those roles for too long.
Mr. Prichard is a seasoned director, which is why he should have known better. He’s been BMO’s chairman since 2012 and has served on BMO’s board since 2000. Being the bank’s chairman is a part-time job, but investors pay him richly – nearly $600,000 a year – to put their interests first.
He’s also a long-time director of buyout firm Onex Corp. and sits on the board of food company George Weston Ltd., owner of major retail brands such as Loblaw Cos. Ltd. and Shoppers Drug Mart Corp. He has previously served on the boards of Barrick Gold Corp. and transit agency Metrolinx. He’s also a trustee for the Hospital for Sick Children.
He’s a busy guy. But BMO’s proxy circular – the document it sends to shareholders every year that describes how the board works – states that a director’s duty is to represent the bank 365 days a year. Directors are expected to be independent and ensure their outside interests, including business and political activities, don’t create real or perceived conflicts for the bank.
That’s why Mr. Prichard had no business getting involved in SNC’s criminal case while he was chairman of BMO. Although the charges against SNC have not been tested in court, lobbying for the Montreal engineering company was evidently fraught with risks.
For his part, Mr. Prichard says he did nothing wrong. He told The Globe and Mail in a written statement that he informed BMO of all his outside activities, including his decision to join the Torys legal team advising SNC, and recused himself appropriately.
“I comply with both the ISS and Glass Lewis guidelines on maximum number of boards. My attendance record at all my boards is strong, rarely falling below 100 per cent. In all my years as a director, no one on any of the boards has to my knowledge ever questioned my commitment, engagement or availability,” Mr. Prichard said in an e-mail on Friday.
“I was elected a Fellow of the Institute of Corporate Directors in recognition of my work as a director, the highest honour available in Canada for directors, which is some evidence of my standing in that community. And I was elected to a second term as chair of BMO by my colleagues, again some evidence of their view that I was fulfilling the role effectively."
The bank was aware that Mr. Prichard’s interests were aligned with those of BMO vice-chair Kevin Lynch, who is also chair of SNC. Further, BMO officials knew that both men were working for SNC
– lobbying former Treasury Board president Scott Brison to make the case for a deferred prosecution agreement, it turns out – before the politician was hired in February as a vice-chair for the bank’s capital-markets division.
“With respect to conflicts, most active directors face conflicts from time to time arising from their multiple boards and other professional and executive roles. The key is that the board have a good policy governing how to deal with conflicts and ensuring all directors abide by them. BMO’s policy addresses this directly,” Mr. Prichard said in his e-mail.
There’s little doubt that Mr. Prichard complied with the bank’s conflict-of-interest rules. The trouble is those rules allowed him to put himself first.
Bank stocks are among the most widely held equities in the country. Every Canadian has exposure to banks either directly as shareholders, or indirectly through pension plans or other funds. Canada’s economy is tied to the health of our banks. That’s why there’s nothing banks fear more than reputational risk.
Indeed, it’s right there on the first page of BMO’s code of conduct for employees. “Our reputation depends on how we behave with all stakeholders. Whether acting in our capacity as BMO representatives or as individual citizens, our actions reveal who we are, what we believe and what we stand for. Living up to our values is much more than just following the law and our policies. It is making sure we always do the right thing."
Whose name is signed at the bottom of those words? Step forward, Mr. Prichard.
In keeping with that spirit of transparency, BMO owes its shareholders a proper explanation about why it was alright for Mr. Prichard to get involved with SNC’s case. Further, investors deserve to know how Mr. Brison came to work at the bank and if Mr. Prichard and Mr. Lynch discussed any BMO business while lobbying him on SNC. (Mr. Prichard says he never discussed the bank’s affairs with Mr. Brison before the latter became an employee and had no involvement in his hiring.)
BMO also owes it to shareholders to toughen up its conflict-of-interest rules. The bank has said that Mr. Prichard intends to step down as chairman at the bank’s next annual meeting, at which time he will have hit the 20-year term limit and 70-year age limit for grandfathered BMO directors.
Directors who joined BMO’s board after 2010 are subject to a 15-year term limit, but the bank reserves the right to waive the age and term limits for directors, the chairman and committee chairs. That loophole should be closed.
Regulators, meanwhile, should consider imposing consistent age and term limits for all federally regulated companies. They should also follow the example of countries that have stricter rules on director independence. In France, for instance, a director is no longer considered independent after serving on a board for 12 years.
Term and age limits prevent directors from getting too cozy with management and ensure that boards benefit from fresh blood and diverse points of view. Otherwise, members of Canada’s old boys’ network will always be tempted to put themselves first.