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The Evolution of Corporate Governance in Canada

February 15, 2019

Is your Board bringing enough to the Table?

Corporate scandals, executive misconduct, security breaches, investor activism, environmental and social impact management and the #MeToo movement have been dominating the news in the past few years. In times of rapid change, responsible and sustainable governance around ethics, compliance and fiduciary responsibility becomes more important than ever before.

Just ask the shareholders of General Electric. Their board oversaw a $150 Billion loss in shareholder value over 6 short years because they were not equipped to manage a reckless CEO or understand financial and audit practices. And GE is not the only organization to deal with an ineffective and unbalanced board.

Struggles at Facebook, Google, Nissan, Tesla, Uber, Samsung, Hydro One and Wells Fargo have resulted in long term negative impact on share values and reputations. Boards have become more visible as the gatekeepers of corporate accountability, business ethics and values; stepping into the public domain to provide a stable voice during turbulent times.

Financial markets are relentless in pressuring organizations to grow at ever greater rates and to do so in an environment dominated by tremendous turbulence and transformation. The art and impact of educated directorship to being wisdom, strategic thinking and integrity to the board tables had become a necessity.

Dr. Michael Hartmann, Principal, The Directors College

In 2019 and beyond, crown, non-profit and corporate directors will need to quickly and continuously improve their skills, through Directors Education program in part, to get an understanding on several fronts:

Governance for Good

Only 2% of companies in Canada provide incentive for board members to manage climate-related risks and opportunities. Large investment firms are beginning to push companies to disclose risks associated with climate change and how future business models may be impacted by global efforts to meet the targets from the Paris Agreement.

Corporate leaders need to understand not only how business activities are impacting the natural environments where they operate, but also the risk of global climate change on their companies’ bottom line.

Beyond environmental concerns, socially responsible governance is the new norm. Activist shareholder, employee and customer groups have begun to strengthen pressure on the boardroom to be accountable as social issues gain momentum. This pressure is changing from expecting boards to have an understanding of the issues to ensuring that an organization is taking action to help resolve them.

Governance for All

Global investment firms and regulators like the Ontario Securities Commission, and the royal asset of Bill C-25 are calling for organizations to set specific goals and timetables to improve diversity on their boards.

And still, it is estimated that, at the current rate of change, it will take until 2097 to achieve gender parity on Canada’s boards – and much longer for visible minorities, indigenous people, people with disabilities and LGBTQ++ to achieve significant footing.

In addition to having leadership more representative of the stakeholders of the organization, the inclusion of diverse voices and perspectives in the boardroom is proven to create better governance outcomes and reduce risk.

Ensuring a balanced mix of board members, including independent directors, improves oversight, communication and collaboration with management in the establishment of a clear sense of purpose, direction, strategy, and priorities.

Understanding good corporate governance is an important prerequisite for eligibility for boards of directors.

David Tsubouchi, C.Dir., Board Member OMERS Pension Fund and Former Ontario Cabinet Minister

Governance for All

Digital innovation driven by cloud computing, mobile technologies, social media, and big data analytics, is disrupting traditional business approaches in favor of new models and market valuations.

Progressive organizations are now placing innovation at the core of their strategy and are in need of directors who understand the challenges, opportunities and risks arising from digital innovation, so they may help build forward-thinking agendas and minimize the impacts of evolving cyber threats.

The adoption of the General Data Protection Regulation by the EU in May of 2018 is forcing businesses to take the processing, storage and protection of personal data very seriously.

The future of executive management must also be a high priority for boards. A 2018 study of the world’s 2,500 largest public companies showed that companies that scramble to find replacements for departing CEOs forgo an average of $1.8 billion in shareholder value.

Boards must consider how future leaders are being developed, mentored and sponsored to infuse new thinking into the business. Transparency around succession planning and a structure that ensures that the company’s management and board have visibility into all business areas can prevent damaging outcomes when too much power and too much personality are driving policy.

Corporate boards must evolve and embrace diversity, innovation and agile thinking to mitigate risk, manage shareholder engagement and protect brand reputation. And, the importance of having prepared and insightful directors, including graduates from Directors Education programs, who have the courage to ask important questions and the ability to collaborate in the boardroom is an imperative to effective corporate governance.

Originally published in the Canadian Business Journal, February 2019