Posted on January 20, 2016
A good, healthy company balances long- and short-term priorities.
Risk management has shot to the top of the list of corporate priorities since the 2008 global financial crisis. Strategic communications and world-class corporate governance standards are integral to every effective risk management strategy—something Carol Hansell knows all about.
As the founder and senior partner at Hansell LLP, Hansell is widely recognized as one of Canada’s leading experts in the field of corporate governance. A director, frequent speaker and instructor at the Rotman School of Business, she has provided expert, independent advice to senior corporate management, directors, shareholders and other stakeholders.
Hansell spoke to Perspectives about the current state of play in Canada’s board rooms:
Are Canada’s corporate boards as ‘clubby’ as they used to be?
About 30 per cent of board searches are now done by professional firms, but the rest are still done by the organizations themselves. They do tend to reach out to candidates they already know, but it’s not ‘clubby’ in the traditional sense. It tends to be that way because in addition to skills, there are issues of ‘fit’ and experience and degree of comfort with the board dynamic. It’s a very delicate process and a hard one to delegate.
What are some of the issues currently shaping board appointments?
Every crisis re-orders the list of skills that are most in demand.
Around 2000 and Y2K, everyone wanted an IT expert. In the post-Enron period, financial expertise was in greatest demand. When executive pay levels made headlines, HR experts moved up the list. In the aftermath of the 2008 global financial crisis, the focus is on risk management.
Are such demands for specific expertise typically reactive?
In Canada, the head of the governance waterfall is the banks. They report year-end financial results at the end of October, so they are out first, and often set the tone. They are also cross-listed on U.S. stock exchanges, but even though they don’t have to comply with U.S. governance rules, they voluntarily adopt the same standards because they want to be on the radar with U.S. analysts and investors. That leads them to become leaders in best practices in Canada.
Can you provide an example of how the governance ripple effect works?
In 2013, in the aftermath of the financial crisis, OSFI (Office of the Superintendent of Financial Institutions) issued new corporate governance guidelines with a heavy emphasis on risk management. It established a new vocabulary around risk appetite and frameworks and that became more broadly socialized across the spectrum. Still, financial statements are audited. And there’s still nothing close to that for risk.
Canada has a number of large, publicly traded, family-controlled businesses. What are their unique corporate governance challenges?
Family-controlled companies are very thoughtful about governance. Power Corporation and Shaw Communications have been innovative and thoughtful.
The families provide long-term stability, but people always question the dual-class share structures. But capital markets vote on the issue by buying and trading the subordinate shares—at least in the companies where they see value and sound management.
Family-controlled companies are still the exception when it comes to separating the roles of chair and CEO. Investors look for a strong lead director to offset that.
The Minister for the Status of Women, Kellie Leitch, has set a target of 30 per cent female directors, but are quotas the way to address this long-standing issue?
We’ve discussed this issue for years and the problem is still not solved, even though we already have the tools we need to address it.
Quotas are a very blunt tool. Nobody really wants diversity quotas—voluntary compliance is always best. That said, senior women say nothing else is working.
Term limits for directors are catching on over the past 10 years as a result of investor pressure in Canada. That does make room for women, at least theoretically. And it’s in Canada’s interest to look like other jurisdictions on these issues.
How has the rise of shareholder activism affected corporate governance?
The term ‘activism’ is deceptively sensational. Institutions are always consulting with management. And being engaged and active isn’t really ‘activism.’
In the case of CP, Bill Ackman changed the mindset of institutions. The year before, shareholders were highly supportive and no one expressed dissatisfaction with the board. But, they were prepared to listen. And boards need to remember that shareholders do listen. And not just to them.
A good, healthy company balances long- and short-term priorities. There are a lot of long-term investors out there, and organizations are doing better at proactively explaining their performance.
Are the director education programs having a positive effect on governance?
The directors’ programs are a very positive development, but it’s important to remember that it doesn’t automatically mean you’ll get a board seat. There’s often a misapprehension about that.