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corporate governance

Louis Vachon, president and chief executive officer of National Bank Financial Group, gestures prior to their annual general meeting in Montreal April 4, 2012.CHRISTINNE MUSCHI/Reuters

This is part of a series examining corporate governance issues at Canadian companies.

Is Louis Vachon, chief executive officer of National Bank, spending too much time in the boardroom? Some say the answer is yes, and it raises the prospect that Mr. Vachon could see some shareholder unhappiness next year.

The issue is called "overboarding," when corporate directors sit on multiple boards. The job of director has got more complex and demanding – a 2014 Korn Ferry survey suggested that the typical Canadian corporate director spends 300 hours per year fulfilling his or her duties – and shareholders are increasingly asking whether certain directors are spreading themselves too thin with multiple director gigs.

The issue is alive at National Bank, where Lino A. Saputo Jr., the CEO of his family dairy company, sits on the board. National Bank shareholders withheld 22.43 per cent of the votes for him in this spring's director election, a distinctly negative result where no other director had 1.44 per cent of shares withheld. (In most corporate board elections, there is one slate of nominees, and shareholders must vote "for" the candidate or "withhold" their votes. There is no "no.")

The two major proxy-advisory firms found Mr. Saputo to be "overboarded," as he is the CEO of a public company and sits on a total of four corporate boards, including his own. Glass Lewis recommended this spring that shareholders withhold their votes from Mr. Saputo. Institutional Shareholder Services noted his overboarding, but did not recommend withholds, given that Mr. Saputo met its standard of attending at least 75 per cent of board meetings. (In fact, he attended 100 per cent of National Bank board and committee meetings.)

Both ISS and Glass Lewis intend to tighten their rules on overboarding in 2017, and those changes will also ensnare Mr. Vachon, as he sits on two public company boards in addition to his National Bank directorship.

In an interview, Mr. Vachon says National Bank has been in discussions with both firms to take a different look at what Mr. Saputo and Mr. Vachon are doing. One of Mr. Vachon's directorships is with Fiera Capital Corp., in which National Bank acquired an ownership interest in 2012. There are two seats on the Fiera board reserved for National Bank, which owns about 25 per cent of the company, and Mr. Vachon uses one of them.

Similarly, Mr. Saputo sits on the board of Warrnambool Cheese and Butter Factory Co. Holdings Ltd., an Australian company of which Saputo Inc. owns nearly two-thirds. (His fourth board is Transcontinental Inc.)

"The issue for Lino and myself is the same, that is, in both cases, we have a board that we feel is related to our current responsibilities," Mr. Vachon says. "The point Lino has been making with Glass Lewis and ISS is, 'Listen, I'm representing a significant economic interest of Saputo, so that should not count twice.' We made the same argument for myself.

"We're not arguing over the overboarding, because we get where they're coming from," he continues. "The discussion with ISS and Glass Lewis is how should that be treated, should there be an exception when one of the boards is directly related to our fiduciary responsibility to the main entity. Either make an exception, or at least highlight that in the discussion and let the individual shareholders decide."

Under ISS's Canadian policies, which differ from those in the United States, it will not recommend a "withhold" vote unless the overboarded director misses too many meetings. Glass Lewis, however, has a stricter view of the matter, and it recommends "withholds" once the overboarding threshold is crossed. This raises the possibility that Glass Lewis will recommend "withholds" for Mr. Vachon in 2017, at least for the director elections at Fiera and at Molson Coors Brewing Co., his other outside directorship.

Other options available to Mr. Vachon and Mr. Saputo are to resign from one of their outside boards, or pick another executive from their companies to sit on the Fiera and Warrnambool boards.

"All options are on the table," Mr. Vachon says, "but it would be kind of odd to say to a CEO you can't sit on an external board even though your company is a major shareholder."

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