50% more American executives on Canadian boards
5 February 2001 - The 8th annual
edition of the Report on Corporate Board Governance and Director Compensation
in Canada shows that the percentage of directors of Canadian businesses who
are U.S. residents rose from 10% in 1995 to 15% in 1999. The report, prepared by
Patrick O'Callaghan & Associates in partnership with Korn/Ferry International, is
based on information collected from 324 public companies - including personal
interviews, media reports, annual reports, management proxy circulars and information
circulars for fiscal year-ends in 1999.
Elan Pratzer, managing director of Korn/Ferry International in Toronto said:
"The trend to U.S. directors on Canadian boards is not surprising, but it is
significant. As Canada's economy shifts increasingly north-south, Canadian companies
are coming to view North America as their core market. So it makes sense that they
would want counsel at the board level from people who are expert in 90% of that core
market. If anything, the internationalization of Canadian boards will accelerate as
our largest companies become more global in their presence and marketing."
The Report notes also that the boards of Canadian companies have made major
improvements in the way they identify and select new directors. Selection criteria
procedures are more rigorous in developing selection criteria and ensuring there is a real
selection process for new directors. What's more, nominating and governance
committees, rather than CEOs, are increasingly providing leadership to their
Boards in identifying and selection new directors. In fact, as a result of
pressure from institutional shareholders and others, the number of companies
with Governance Committees has risen from 2% in 1993 to 65% in 1999, and with
Compensation and Human Resources Committees, from 82% in 1993 to 93% in 1999.
Clearly, the so-called Dey Report, published in 1994, has had a positive
effect on all governance matters with Canadian public companies, including
director independence. However, while reporting against the Dey Committee
Guidelines is mandatory for TSE-listed corporations, 51% of the companies in
this survey did not report their practices against all of the guidelines.
Concluded Patrick O'Callaghan, the author of the 2000 Report: "There's an
opportunity for the TSE and other Exchanges to set much higher standards with
respect to the quality of reporting against the deadlines, and of course,
institutional shareholders can also be a powerful influence on this issue."
Other findings in the 2000 Report include:
* Compensation for board service - This is shifting from almost exclusively
cash to programs that include cash and equity, often with some kind of minimum
shareholding. Directors who own significant amounts of stock are more likely
to focus on long-term value and be pro-active in addressing issues that
jeopardize shareholder value. 65% of the companies surveyed in 2000 had a
stock component as part of their compensation program compared to 22% in 1993.
* CEO performance evaluation - Boards are becoming more disciplined with
respect to the annual performance evaluation of the Chief Executive Officer.
They now tend to have both formal and informal assessment processes that
encourage an active dialogue between the CEO and the Board on both individual
and corporate performance.
* Strategic planning - Boards today are much more actively engaged in the
company's strategic planning process, generally in partnership with the senior
management team. In addition, management is working harder to utilize their
directors' expertise and experience, and the directors are more concerned with
the most effective way for them to add value.
Canadian Human Resources
