Canadian corporations have made great strides in improving their systems of corporate governance in recent years. However, there still remains much work to be done to achieve a "culture of governance" -- a culture in which directors and managers are passionately committed to optimizing returns to shareholders through effective systems of governance
Working towards this objective means addressing the issue at both the public policy level and the corporate level.
At the public policy level, I would do two things:
1. Continue the reforms already initiated by the Toronto Stock Exchange and elevate two more guidelines from voluntary to mandatory status. This has already been proposed by the TSX for the guidelines on codes of ethics and audit committees.
The guideline requiring boards of directors to be composed of a majority of unrelated directors and the guideline requiring each board of directors to have a non-executive chair or a lead director should be made mandatory for TSX companies. Although many companies already comply with these guidelines, it is important that the corporate sector sees the direction of reform and feels a constant push for reform from the public sector.
2. I would apply the voluntary guideline regime, together with the disclosure requirement, to all other public companies, for instance, companies listed on the TSX Venture Exchange.
At the corporate level, there are eight features of governance systems that can be enhanced to improve the quality of governance of Canadian corporations:
1. Make the board more conscious of its role, along with senior management, in establishing the ethical and cultural values for the corporation.
2. Continue the trend of appointing unrelated non-executive chairs of boards. A lead director is an alternative, but is much less desirable.
3. Apply a rigorous evaluation system to the board as a whole and to individual directors to ensure that the board has the necessary commitment and range of skills, and that board meetings have the interaction necessary to promote open and constructive discussion.
4. Every board should take responsibility for ensuring that management regards it as a valuable resource and that management is open to -- not defensive about -- response to board comments, challenges and criticism.
5. Improve the logistics of board meetings to enhance the chemistry in the boardroom. This can involve simple things like scheduling meetings of board committees in the afternoon, followed by an informal board dinner, perhaps including senior managers, then have the board of directors' meeting the next day.
6. Boards should be more creative in recruiting directors. Boards need to take more risk and look for new perspectives in the academic and public sectors and in the domestic scene and should also look deeper into the ranks of other corporations.
7. Expose the board of directors periodically to institutional shareholders so that they may hear directly the views of shareholders about what creates value.
8. Make the job of being a director more interesting. Change agendas to highlight different aspects of the company. Conduct regular discussions of strategy. Move meetings to different corporate locations or other venues.
© The Globe and Mail
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