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Independent directors key to effective board
Tuesday, April 01, 2003
What makes a good board of directors?
Purdy Crawford, chairman of AT&T Canada Corp. and director of various other companies, advocates boards composed of people with diverse backgrounds and expertise, including "a fair number of women," and supplemented by director education.
Mr. Crawford's appointments include the boards of Canadian National Railway Co. of Montreal and Petro-Canada of Calgary. "My own history of this is that people who have confidence in themselves, and are open to admitting mistakes and putting their cards on the table, are good people to work with. . .A tone of integrity is essential."
This is supported by the research of Richard LeBlanc, a lawyer, consultant and professor who directs and teaches courses related to boards and directors in the MBA and Executive MBA programs at York University's Schulich School of Business.
Prof. LeBlanc has studied 39 boards of directors in Canada, attending board and committee meetings and conducting interviews with 194 directors. He believes director independence is important, but that director competencies are moreso.
"I think we need to move beyond the related/unrelated distinction and move into the realm of competencies," he says, "particularly for the qualifications of directors. Financial literacy is certainly one important area, but we need to move [to] a culture of effectiveness."
From his research, Prof. LeBlanc developed a model of functional and dysfunctional director types.
The five director types common to the effective boards he observed were:
The change agent;
The consensus builder;
The five dysfunctional types, which he found were common to companies with an inferior board process, were:
"In recruitment and selection of board members, the type tends to be constant across time," Prof. LeBlanc says. But, "that's not to say a critic can't become a challenger."
Director competencies as they relate to the strategic environment of a company also need to be evaluated on an ongoing basis, he says, and director education provided.
Doug Whitehead is president of Vancouver-based Finning International Inc. and a director of two other public companies. Asked about the tendency for directorships of different companies to be shared among relatively few people, he says: "You're always going to end up with one or two individuals, in a country like Canada, who'll be pre-eminent, and sought out for a few boards. I'd rather have a pre-eminent board member adding value to my company, and I'd worry less about whether there was corporate [board] concentration."
Jeffrey Gandz, a professor at the Richard Ivey School of Business at the University of Western Ontario, finds that "for the most part, corporate directors are knowledgeable, conscientious, and try to do a good job."
However, he says their numbers are "relatively few," they don't necessarily have time to do their jobs, and the system is vulnerable to managers who provide most of the information directors use.
Directors generally don't have an independent source of information, he says, and rely on auditors for it. This means a primary responsibility in good corporate governance "is to select management who are extremely trustworthy." One recommendation is to separate the roles of chief executive officer and chairman of the board, who are often the same person. As well, "directors should hold reasonable amounts of shares in the company," Prof. Gandz says, [not share options] in order to align their interests with those of shareholders.
Prof. Gandz stresses, though, that "a large number of large companies are run extremely well" by good boards of directors, and Prof. LeBlanc concurs.
"I think over all, Canada has a very effective corporate governance system," he says. "There are boards out there that clearly could use some assistance, but over all I think that we're in very good shape."
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