“If I were sitting on the outside and knew what I know on the inside of the boards I’m on, I’d just be much happier now [about how corporations are governed]than before.”
For Inmet Mining Corp. chairman David Beatty, the lesson from the dissatisfaction is that boards need to profoundly rethink their roles. ( Chat with Inmet Mining chair David Beatty on Friday)
“More and more we see with these ‘Occupy’ movements that you’ve got to earn the social right to operate … I think you have to have a more holistic definition [of your role]now, and you have to get away from the idea that our job is to maximize shareholder value in the next quarter.”
With the passage of time, more directors are willing to tell stories about the “bad old days” of board governance in the pre-Enron era. One wry old joke goes like this: A new director goes to his first board meeting and is told by the chairman it is customary for new directors to not speak for the first year. He replies, “Okay. I’ll be back next year,” and leaves.
“It wasn’t that many years ago where it was more at the board level, ‘Speak when spoken to,’” recalls Bank of Nova Scotia chairman John Mayberry.
“And the [combined]chairman and CEO held the gavel and dominated the discussion and the content of the discussion … I think the board dynamic has changed rather dramatically, not just on bank boards but on all boards.”
Veteran corporate director Bill Dimma, who has been a director on more than 90 boards over his long business career, says a typical board meeting 20 years ago may have lasted for just two hours, during which directors quickly approved everything management proposed. ( See Bill Dimma in a Globe video)
Then everyone had a sumptuous lunch accompanied by wines “with which even the most dedicated oenophile could find no fault” before heading home.
Some boards didn’t even hand out material to read before meetings, Ms. Mogford says of her early days on boards 30 years ago.
Today, directors do far more work. A 2010 survey showed directors spend an average of 227 hours each year on work for a large corporate board, including volumes of reading before two-day-long committee and board marathons.
Companies have also adopted new ongoing director education programs, organizing training sessions each year to keep boards current. Calgary energy company Nexen Inc., for example, lists 49 educational events it held for directors in 2010, including sessions on accounting changes, securities regulation and the petroleum market.
“If I had to use one term to characterize boards 15 to 20 years ago, that would be ‘passive,’” says corporate director Peter Dey, who drafted the first board governance guidelines for the Toronto Stock Exchange in the 1990s.
“Today in my experience, they are very engaged … A lot of boards were constituted with people connected to the CEO and they felt beholden to the CEO. It made it difficult for them to challenge what management wanted to do. That, in my experience, has completely changed.”
After 10 years of measuring governance practices at Canada’s largest companies, The Globe and Mail’s own data clearly show that boards are more independent than they were a decade ago. So, too, are their audit and compensation committees, where much of the hard work is done in keeping CEOs accountable. ( Slideshow: A decade of Board Games)
While 43 per cent of companies had directors connected to management on their audit committees in 2002 – using the Globe’s strict definition of independence – just 10 per cent fall in that group today.
When the Globe started Board Games, more than half of companies (58 per cent) had related directors on their compensation committees; in many cases, a CEO’s close friend influenced the size of his paycheque. That number is down to 23 per cent now. While CEOs often sat on their own audit and compensation committees in 2002, that practice has since been banned.
Nevertheless, no governance reform can change the fact boards are not equally competent, says Toronto-Dominion Bank chairman Brian Levitt.
The best 15 per cent of boards did well before Enron and would have done well without any reforms, he says. The 70 per cent in the middle have benefitted most from the governance revolution, and the 15 per cent at the bottom are unchanged.
“It hasn’t made boards that are hopeless workable,” Mr. Levitt says. “And it hasn’t made boards that were very good better.”
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