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corporate governance

This is the first instalment of a special six-part series examining corporate governance issues in Canada.

Shareholders are increasingly taking matters of governance seriously – perhaps none more so than whether directors are actually attending board meetings.

For evidence, witness the vote at the annual meeting of Power Corp. of Canada, held May 13. Pierre Beaudoin, a Power Corp. director and executive chairman of Bombardier, had 20.28 per cent of shareholder votes withheld in the director election. (Shareholders are asked to vote "for" a director or to "withhold" their votes. At nearly all companies, there is no "against.")

The total is significant, as only a handful of directors at companies in the S&P/TSX 60 have had "withhold" percentages in the double digits this spring. The number is even more striking, however, as the founding family's Desmarais Family Residuary Trust has 59.19 per cent of Power Corp.'s votes, leaving just 40.81 per cent of the votes to shareholders outside the trust. In that context, Mr. Beaudoin's withhold totals represent nearly half the Power Corp. votes outside the family trust.

The vote is not a referendum on Mr. Beaudoin's performance at Bombardier Inc., where he served as chief executive officer until February, 2015, before transitioning to executive chairman. Instead, it's an expression of displeasure of how Bombardier took his attention away from Power Corp. Mr. Beaudoin attended just two of six Power Corp. board meetings, and missed one of the two meetings of the board's Related Party and Conduct Review Committee.

This attendance record easily runs afoul of proxy advisory services and other governance advocates, who typically believe directors should attend at least 75 per cent of board meetings. Institutional Shareholder Services (ISS) and Glass Lewis & Co. recommended a "withhold" vote on Mr. Beaudoin to their clients.

Stéphane Lemay, the company's general counsel, pointed to the company's explanation in its proxy circular. Mr. Beaudoin, it said, attended 75 to 83 per cent of meetings in the years 2012 to 2014, but "was unable to attend as many meetings during 2015 because of commitments related to the business of Bombardier. … Mr. Beaudoin is a dedicated director who makes important contributions in respect of the corporation and who brings to the board his vast and valuable experience with Bombardier, a leading international manufacturer."

Mr. Lemay declined to address a question about Mr. Beaudoin's 2016 attendance, and a Bombardier spokeswoman did not return an e-mail message sent Monday.

Beaudoin received $111,000 for his 2015 service on the Power Corp. board, $50,000 of which was paid in company shares.

It is not the first time Power Corp. has felt shareholder anger at director attendance issues. Director Laurent Dassault did not stand for re-election this year after two years of poor vote totals owing to his attendance track record.

In issuing the strong rebuke to Mr. Beaudoin, Power Corp. shareholders demonstrated that attendance issues outweigh other governance concerns. ISS also recommended a "withhold" vote for both André and Paul Desmarais, the brothers who serve as co-CEOs of Power Corp. ISS's objection is that both, as company insiders, sit on the board committee that nominates directors.

As a result, independent directors make up just 50 per cent of the committee. ISS's recommendation (as well as Canadian Securities Administrators' corporate governance guidelines) is that no insiders sit on a board's nominating and compensation committees in "order to maintain, however, the independent balance of power necessary for independent directors to fulfill their oversight mandate and make difficult decisions that may run counter to management's self-interests." (Glass Lewis recommended a "for" vote for the brothers.)

Shareholders withheld 13.81 per cent of votes from Paul Desmarais and 11.39 per cent of votes from André Desmarais. That translates to about 34 and 28 per cent of non-Trust votes.

Mr. Lemay says: "We strongly disagree with ISS's position in this regard" and pointed to the company's Statement of Corporate Governance Practices. "In the board's view, no single corporate governance model is superior or appropriate in all respects. The board's approach reflects its belief that governance must be focused on substance rather than the application of generic processes and standardized rules and guidelines. Formal checklists cannot replace real care, responsibility and personal engagement.

Editor's note: A previous version of this story said that Pierre Beaudoin is executive chairman of Power Corp. He is a director.