The Report on Business developed a marking system to rate Canada's boards of directors. The marks are based on a tough set of "best practices" culled from the corporate governance guidelines and recommendations of U.S. and Canadian regulators, as well as major institutional investors and associations.
The marks are based on information published by companies in their most recently available proxy information circular for shareholders. The companies studied were those in the S&P/TSX index at the beginning of September. In total, 270 companies were marked, five others were excluded -- two are mutual funds, and three recently underwent mergers and did not have a new proxy circular.
What follows are the categories the ROB looked at. Board composition, worth a maximum of 40 marks out of 100 1. What percentage of a company's directors are fully independent? By fully independent, the survey means no management, no relatives of management, no former members of management, and no lawyers, accountants, consultants or investment bankers whose firms do business with the company. The ROB also marked as "related" those directors who come from a parent company that controls the public subsidiary.
Eight marks for boards with at least two-thirds independent directors, four marks if more than 50 per cent are independent, and zero if there are a majority of related directors by our measure. 2. What percentage of the audit committee is fully independent?
Six marks if the committee is fully independent, two if there are one or more related directors who are not management, and zero if a member of management is on the committee. 3. What percentage of the compensation committee -- the committee that determines executive pay -- is fully independent?
Four marks if the committee is fully independent, two marks if there is one or more related directors who are not management, and zero if a member of management is on the committee. None if there's no compensation committee. 4. What percentage of the nominating committee -- the committee responsible for recommending new directors -- is fully independent?
Three marks if the committee is fully independent, two marks if there is one or more related directors who are not management, and zero if a member of management is on the committee. No marks if there's no nominating committee. 5. Is the role of chairman and CEO split? And if not, is there a lead director?
Five marks if the jobs are split, two marks if the chairman is also a related director. And three marks if the job is not split, but there is an independent lead director. 6. Are there cozy or clubby relationships among directors? Are directors stretched too thin? Start with a maximum of 5 points.
Minus three points if the CEO (or executive chairman) of the company swaps boards with the CEO of another company. Minus two whenever three or more directors are together on the board of another public company. Minus two for any director who is on more than eight other for-profit corporate boards. (Score can go below zero.) 7. Is the company's CEO busy with outside commitments?
Zero points if the CEO sits on four or more other boards of publicly traded companies. Two points if three or fewer. 8. Does the company have a formal system to evaluate the performance of the board and individual directors?
Two points if yes, zero if no. 9. Do directors sometimes meet without management present? Two points if yes, zero if no. 10. How often does the board meet? And how often do the key committees meet?
Three points if the information is disclosed, and the board meets at least four times a year and the audit committee meets at least four times. One point if they meet less often, or if there is only partial information about the number of meetings. Zero points if the company does not disclose how often its directors met last year. Shareholding and compensation issues, worth a maximum of 23 points out of 100
1. Are directors required to own stock? (Stock options don't count.)
Four points if share ownership is mandatory and equals at least three times the annual retainer paid to directors. Two points if mandatory, but ownership requirement is lower. Zero if ownership is not mandatory.
Do the directors own stock? Four points maximum. Minus a point for each director who has less than 1,000 shares after sitting on the board for at least a year. (Can go below zero.) 2. Is the CEO required to own stock? (Stock options don't count.)
Three points if it is required, or if the CEO is the majority or controlling shareholder of the firm.
Does the CEO own shares? Three points if the CEO owns more than 50,000 shares after two years on the job. Two points if more than 20,000 shares. Zero if less than 20,000 shares. For CEOs on the job for under two years, the ROB lowered the ownership levels to qualify for full marks. 3. Are directors in their own separate option plan?
Separate plans are usually a good way to ensure directors have strict limits on the number of stock options they can grant themselves.
Three points if yes, or if directors don't get stock options. 4. Does the company give loans to directors or officers?
Six points if there are no loans, or if the company is a bank and makes consumer loans with interest payable.
Zero points if loans are interest free. Part marks were given for companies that make loans with interest for share purchases, or for other purposes. Marks decline depending on the size of the loans. Shareholder rights issues, maximum 22 marks out of 100 1. Do all directors stand for re-election annually? Or is the board elected on staggered terms to make it difficult to oust an unpopular group?
Two points for annual election of all directors. Zero points for staggered boards. 2. Are employee stock options excessively dilutive for shareholders?
(The ROB assessed the number of options outstanding, plus the number that have been approved for issuance but have not yet been granted. For companies with multiple classes of shares, the survey measured the dilution against the class of shares widely publicly held and diluted by the options.)
Eight points if dilution is less than 5 per cent of outstanding shares. Six points if dilution is between 5 and 10 per cent because this is high but within acceptable levels. No points if options are more than 10 per cent dilutive to shareholders. 3. Did the company reprice its options in 2001 or 2002? (Or extend their exercise date, or allow them to be exchanged for lower-priced options.)
Four points for no, zero for yes. 4. Are there non-voting or subordinate voting shares?
Eight marks if no. The ROB gave reduced marks depending on the size of the gap between voting control and the equity ownership of the major shareholder. No marks if the voting control is five times greater than the ownership stake. Disclosure issues, worth a maximum of 15 points out of 100
1. Does the company have a full statement of corporate governance practices? Three marks if the company fully addresses all topics required by the Ontario Securities Commission, including a discussion of whether it complies with each guideline, and, if not, why not.
One mark if the company gives partial answers or chooses to discuss some of the requirements. No marks if there is no statement of governance practices. 2. Does the company fully name and explain which of its directors are "related," and why?
Four points for full disclosure of relationships. Two points if information is missing. One point if the company lists the number of related and unrelated without identifying the individuals. One point if the company lists as "unrelated" anyone the ROB considers related. 3. Does the company disclose how much it paid its auditor for consulting and other work?
Four marks for disclosure. But minus a mark if the work exceeds the value of the audit, and minus two marks if the work is more than double the value of the audit work. 4. Does the company disclose full biographies of its board members? Does it list the other boards its directors sit on? A point for each. 5. Does the company disclose attendance records of its directors at board and committee meetings?
Two points for disclosure, but minus one for poor attendance.
Report on Business corporate governance rankings
1 Board composition (out of 40)
2 Compensation (out of 23)
3 Shareholder rights (out of 22)
4 Disclosure (out of 15)
Total (out of 100)
COMPANY 1 2 3 4 TOTALManulife Financial Corp 40 23 18 15 96 TransAlta Corp 40 22 22 12 96 TransCanada PipeLines Ltd 38 20 22 13 93 Canada Life Financial Corp 38 22 20 13 93 Finning International Inc 38 22 20 11 91 Bank of Montreal 36 22 20 12 90 CAE Inc 37 23 20 9 89 Abitibi-Consolidated Inc 38 16 22 12 88 BCE Inc 34 23 22 9 88 Canadian Imperial Bank of Commerce 38 19 20 10 87 Methanex Corp 38 18 22 9 87 Dofasco Inc 36 20 22 9 87 Suncor Energy Inc 34 23 20 9 86 Rothmans Inc 37 13 22 13 85 Royal Bank of Canada 33 22 20 10 85 Canadian Pacific Railway Ltd 37 19 20 9 85 Inco Ltd 31 20 20 13 84 O&Y Properties Corp 40 15 20 8 83 Toronto-Dominion Bank 33 19 22 9 83 Hudson's Bay Co 40 14 20 8 82 CP Ships Ltd 37 18 20 7 82 Sun Life Financial Services of Canada 33 22 18 9 82 Potash Corp. of Saskatchewan 40 15 14 12 81 Talisman Energy Inc 36 17 20 8 81 Emera Inc 38 13 22 8 81 Shell Canada Ltd 38 12 22 8 80 Fairmont Hotels & Resorts Inc 28 23 20 9 80 Air Canada 36 20 17 7 80 Laurentian Bank of Canada 40 9 20 11 80 Petro-Canada 38 14 20 7 79 Stelco Inc 37 20 20 2 79 Bank of Nova Scotia 30 19 20 9 78 Moore Corp. Ltd 35 17 14 12 78 MDS Inc 34 17 20 7 78 Kingsway Financial Services Inc 32 13 20 13 78 Enbridge Inc 29 20 20 9 78 Placer Dome Inc 40 9 20 9 78 Canadian Western Bank 38 12 20 7 77 Agrium Inc 37 13 20 7 77 Stantec Inc 36 14 20 7 77 Alcan Inc 34 14 22 7 77 SNC-Lavalin Group Inc 33 14 20 9 76 Uni-Select Inc 32 15 22 7 76 Loblaw Cos. Ltd 27 16 22 10 75 Co-Steel Inc 38 10 22 5 75 Domtar Inc 36 12 22 5 75 ATS Automation Tooling Systems 34 16 20 5 75 TVX Gold Inc 33 12 22 8 75 Nexen Inc 27 17 20 11 75 BC Gas Inc 38 7 20 9 74 Westport Innovations Inc 38 13 16 7 74 Boardwalk Equities Inc 37 16 14 7 74 Western Oil Sands Inc 34 12 20 8 74 Richelieu Hardware Ltd 32 15 20 7 74 Maple Leaf Foods Inc 35 20 9 9 73 Manitoba Telecom Services Inc 34 14 20 5 73 Vasogen Inc 33 13 20 7 73 Precision Drilling Corp 31 13 20 9 73 Aliant Inc 30 17 22 4 73 Canadian National Railway Co 31 13 20 8 72 Mosaic Group Inc 38 7 20 7 72 Nortel Networks Corp 34 20 10 8 72 Héroux-Devtek Inc 32 13 20 7 72 Ipsco Inc 36 11 20 5 72 MacDonald Dettwiler & Associates Ltd 36 10 14 11 71 Cable Satisfaction International 35 12 14 10 71 Enerflex Systems Ltd 35 9 20 7 71 Concert Industries Ltd 33 11 20 7 71 Slocan Forest Products Ltd 31 13 20 7 71 Toromont Industries Ltd 31 13 20 7 71 National Bank of Canada 32 15 14 9 70 Forzani Group Ltd 35 7 20 8 70 Tembec Inc 34 9 20 7 70 Biomira Inc 33 10 20 7 70 Goldcorp Inc 31 9 20 10 70 ELK Point Resources Inc 30 13 20 7 70 Nova Chemicals Corp 27 14 20 9 70 Gennum Corp 28 13 22 7 70 Slater Steel Inc 31 10 20 8 69 Westaim Corp 33 17 14 5 69 Mullen Transportation Inc 26 16 20 7 69 Kasten Chase Applied Research Ltd 36 11 20 1 68 Masonite International Corp 28 13 20 7 68 WestJet Airlines Ltd 24 19 20 5 68 QLT Inc 34 7 14 13 68 Canfor Corp 36 7 20 5 68 Meridian Gold Inc 33 11 20 4 68 Telus Corp 32 11 11 13 67 Stressgen Biotechnologies 34 8 14 11 67 Canadian 88 Energy Corp 33 7 20 7 67 Industrial-Alliance Life Insurance Co 33 9 18 7 67 Cameco Corp 19 17 20 11 67 Cott Corp 31 13 11 12 67 Fording Inc 19 22 20 6 67 Exfo Electro Optical Engineering Inc 31 14 11 10 66 AnorMed Inc 37 10 14 5 66 Vincor International Inc 28 13 20 5 66 Jean Coutu Group Inc 23 17 19 7 66 Echo Bay Mines Ltd 22 12 22 10 66 Niko Resources 22 13 20 11 66 Global Thermoelectric Inc 37 10 14 4 65 Hemosol Inc 31 10 20 4 65 Canadian Tire Corp 30 14 12 9 65 Molson Inc 26 17 12 10 65 Tesco Corp 25 13 20 7 65 Patheon Inc 24 12 20 9 65 George Weston Ltd 23 14 22 6 65 TVA Group Inc 30 16 14 5 65 Brookfield Properties Co 22 13 22 8 65 Lorus Therapeutics Inc 36 10 16 2 64 Agnico-Eagle Mines Ltd 33 7 20 4 64 Vector Aerospace Corp 30 7 20 7 64 NQL Drilling Tools Inc 29 11 20 4 64 Trojan Technologies Inc 28 9 20 7 64 Kinross Gold Corp 23 13 22 6 64 Imperial Oil Ltd 22 13 20 9 64 Compton Petroleum Corp 37 7 14 5 63 Creo Inc 33 13 10 7 63 Van Houtte Inc 29 10 17 7 63 Vermilion Resources Ltd 29 13 14 7 63 Cognicase Inc 28 8 20 7 63 Hurricane Hydrocarbons 26 13 20 4 63 Norske Skog Canada Inc 24 11 22 6 63 Pan American Silver Corp 21 15 20 7 63 Husky Injection Molding Systems Ltd 17 17 22 7 63 North American Palladium Ltd 23 6 22 11 62 Com Dev International Ltd 28 12 20 2 62 Wi-Lan Inc 28 13 14 7 62 Theratechnologies Inc 25 16 14 7 62 Baytex Energy Ltd 21 13 20 8 62 Cara Operations Ltd 28 14 11 9 62 Teknion Corp 26 17 11 7 61 Aber Diamond Corp 24 13 20 4 61 Hydrogenics Corp 24 12 18 7 61 Iamgold Corp 24 10 14 13 61 GSI Lumonics Inc 29 10 12 9 60 Sleeman Breweries Ltd 28 12 12 8 60 Zenon Environmental Inc 30 8 17 4 59 GTC Transcontinental Group 28 7 15 9 59 Ballard Power Systems Inc 21 11 20 7 59 Biovail Corp 19 9 20 11 59 Hummingbird Ltd 26 12 14 7 59 Linamar Corp 17 16 20 5 58 Axcan Pharma Inc 29 11 14 4 58 Intrawest Corp 29 5 20 4 58 Fortis Inc 28 6 20 4 58 International Forest Products 28 9 15 6 58 Trican Well Service Ltd 21 13 20 4 58 DuPont Canada Inc 24 9 20 5 58 AEterna Laboratories Inc 21 14 15 7 57 Assante Corp 17 12 22 6 57 Bonavista Petroleum Ltd 17 13 20 7 57 Quebecor World Inc 22 12 16 7 57 BCE Emergis Inc 15 16 20 6 57 Nexfor Inc 19 10 22 6 57 Torstar Corp 23 12 15 6 56 Paramount Resources Ltd 18 16 20 2 56 Falconbridge Ltd 14 14 20 8 56 Magellan Aerospace Corp 11 20 20 5 56 Ultra Petroleum Corp 13 13 20 10 56 Thomson Corp 21 11 22 2 56 CHC Helicopter Corp 28 10 11 7 56 Brascan Corp 21 11 17 6 55 Corel Corp 27 10 14 4 55 Dundee Realty Corp 21 10 20 4 55 Noranda Inc 13 12 22 8 55 Sears Canada Inc 18 13 20 4 55 Magna International Inc 16 15 12 11 54 Tundra Semiconductor Corp 27 13 10 4 54 Maax Inc 24 9 14 7 54 Stratos Global Corp 21 9 20 4 54 Cognos Inc 20 12 14 8 54 Transat AT Inc 19 17 14 4 54 Ensign Resource Service Group 17 12 20 5 54 Glamis Gold Ltd 17 13 20 4 54 Meota Resources Corp 16 11 22 5 54 Burntsand Inc 31 7 14 1 53 Labopharm Inc 26 9 14 4 53 ID Biomedical Corp 24 12 14 3 53 Persona Inc 22 6 20 5 53 Research in Motion Ltd 22 8 14 9 53 Ivanhoe Mines Ltd./CA 21 11 14 7 53 Isotechnika Inc 19 7 20 7 53 Onex Corp 22 11 15 5 53 CGI Group Inc 24 15 9 4 52 ATI Technologies Inc 20 14 14 4 52 Cascades Inc 12 16 20 4 52 AUR Resources Inc 15 15 20 2 52 Sierra Wireless 29 9 10 3 51 CFM Corp 17 16 14 4 51 Ketch Energy 16 7 20 8 51 Bombardier Inc 15 16 16 4 51 Lionore Mining International Ltd 12 16 20 3 51 Quebecor Inc 15 22 10 4 51 Zarlink Semiconductor Inc 26 9 10 6 51 Gildan Activewear Inc 27 10 9 4 50 Pivotal Corp 26 2 14 8 50 Canam Manac Group Inc 21 10 17 2 50 Extendicare Inc 20 7 15 8 50 Dorel Industries 19 15 9 7 50 Fairfax Financial Holdings Inc 19 13 17 1 50 Penn West Petroleum Ltd 13 12 20 5 50 Tesma International Inc 12 16 17 5 50 Power Financial Corp 11 15 22 2 50 Descartes Systems Group Inc 22 12 14 2 50 Barrick Gold Corp 19 4 20 6 49 Wescast Industries Inc 20 5 17 7 49 Aastra Technologies Ltd 11 15 14 9 49 Corus Entertainment Inc 25 7 12 4 48 Intertape Polymer Group Inc 23 7 16 2 48 Sceptre Investment Counsel Ltd 20 13 6 9 48 Royal Group Technologies Ltd 18 16 9 5 48 TLC Vision Corp 16 13 10 9 48 Sobeys Inc 15 9 22 2 48 CanWest Global Communications Corp 16 11 17 3 47 AltaGas Services Inc 18 13 14 2 47 Geac Computer Corp. Ltd 21 12 10 4 47 Husky Energy Inc 15 6 22 4 47 Dundee Bancorp Inc 22 9 9 7 47 ShawCor Ltd 14 15 9 8 46 Rogers Wireless Communications Inc 12 7 18 9 46 Empire Co. Ltd 12 13 19 2 46 Inex Pharmaceuticals Corp 27 -1 14 6 46 Leitch Technology Corp 24 4 14 4 46 CCL Industries 20 10 12 4 46 Teck Cominco Ltd 17 13 14 2 46 Shoppers Drug Mart Corp 12 7 20 7 46 Decoma International Inc 17 10 11 7 45 Angiotech Pharmaceuticals Inc 14 10 14 7 45 Martinrea International Inc 11 7 20 7 45 Saputo Inc 11 15 14 5 45 Cogeco Cable Inc 19 8 16 2 45 Leon's Furniture Ltd 9 11 22 2 44 Gabriel Resources Ltd 16 11 14 3 44 Four Seasons Hotels Inc 21 8 6 9 44 Dimethaid Research Inc 14 14 14 2 44 Cogeco Inc 15 12 15 2 44 Cinram International Inc 12 6 20 6 44 Rogers Communications Inc 14 14 9 6 43 Guardian Capital Group Ltd 25 11 2 5 43 Sherritt International Corp 18 4 12 9 43 Open Text Corp 15 10 14 4 43 Canadian Natural Resources Ltd 13 13 14 3 43 Metro Inc 20 10 6 7 43 West Fraser Timber Co. Ltd 13 6 20 4 43 Canadian Medical Laboratories Ltd 11 9 20 2 42 Astral Media Inc 28 5 6 2 41 CryoCath Technologies Inc 21 1 14 5 41 MDC Corp. Inc 20 7 6 8 41 Shaw Communications Inc 20 5 14 2 41 Mosaid Technologies Inc 19 8 10 4 41 Corby Distilleries Ltd 18 2 19 2 41 CryptoLogic Inc 18 4 14 5 41 Alimentation Couche Tard Inc 15 14 10 2 41 Celestica Inc 17 10 7 7 41 Acetex Corp 13 12 14 2 41 BakBone Software Inc 13 13 14 1 41 St. Lawrence Cement Inc 12 6 19 4 41 Investors Group Inc 6 13 20 2 41 Atco Ltd 17 7 12 4 40 FirstService Corp 23 9 6 2 40 Canadian Utilities Ltd 11 9 16 4 40 Hub International Ltd 11 6 20 3 40 Pangeo Pharma Inc 11 10 14 4 39 Power Corp. of Canada 5 16 16 2 39 Crystallex International Corp 11 11 14 2 38 Great-West Lifeco Inc 4 8 22 3 37 Rand A Technologies Corp 22 4 10 1 37 Bema Gold Corp 11 5 18 2 36 Alliance Atlantis Communications Inc 14 12 6 4 36
Janet McFarland