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Coalition Leads Improvement In Governance Practices

By: Paul Schneider

For investors, advances in governance are important. Improving governance mitigates the risk of boards and chief executive officers exhibiting the egregious behaviours seen in past corporate scandals. It follows that a reduction in governance risk should help restore investor confidence damaged as a result of the many examples of corporate malfeasance of recent years.

To effect change in Canadian corporate governance, the Canadian Coalition for Good Governance (CCGG) was formed. Its members include leaders of large pension fund managers – some of which are competitors – and major institutional investors who came together to spur improvements in the governance of Canadian companies. Judging by the improving state of corporate governance in Canada, the CCGG has been a catalyst for positive change in the ways Canadian companies approach their governance. The CCGG has had a very busy and productive first year, achieving significant accomplishments.

First, we have seen encouraging results in the more than 115 companies reviewed on their governance practices.

Then, in September 2003, we released the coalition’s ‘Corporate Governance Guidelines for Building High Performance Boards.’

Finally, we entered the public policy arena as ‘the voice of the shareholder.’

However, what is also evident is that more work needs to be done. In the upcoming year, we will continue to push boards to align their governance practices with our guidelines.

Company Evaluations Encouraging

One of the first tasks we undertook was to understand where we should be focusing our efforts. To do so, we created a Governance Risk Matrix, which arrays the ownership levels of our membership with the governance scores emanating from the Board Shareholder Confidence Index (BSCI) developed by the Rotman School of Management at the University of Toronto. By placing our ‘investee’ companies within this matrix, we identified companies needing our attention – companies in which our members have a combined significant investment and in which governance is weak or suspect.

We placed more than 130 companies in the matrix. For 115 of them, we performed a more detailed review of their governance procedures, comparing current practices with the minimum standards and best practices set out in our guidelines.

Next, we sent all the board chairs a letter either congratulating them on their governance practices or identifying governance improvement opportunities. In both cases, we asked to initiate a dialogue between the company and the CCGG either to learn more about their good governance practices or to discuss ways companies could improve. Over the course of the year, the coalition had face-to-face conversations with more than 50 companies.

We believe our efforts have been successful. For each company identified as having high or medium governance risk, we evaluated its 2004 proxy and compared the governance practices listed therein to the governance improvement opportunities identified during the 2003 proxy review.

The results are encouraging. Of the 38 companies whose 2004 Proxy we have reviewed to date, 16 have made significant improvements. These have not been confined to any particular governance practice, but occur across a wide range of governance activities. Implementing share ownership targets for directors and/or senior executives; improving the disclosure of, or establishing, board, director, committee, and chair evaluation processes; and decoupling the role of chair and CEO are some of the more common governance improvements we found through our research.

Governance Guidelines Well-Received

The publication of the CCGG’s ‘Corporate Governance Guidelines for Building High Performance Boards’ was wellreceived. The 12 guidelines fall under three broad categories:

For each guideline, we established minimum standards and best practices. The document was endorsed by the Toronto Stock Exchange (TSX), which distributed a copy of the guidelines to each listed company stating, “We believe the guidelines are a strong indication of the future direction of corporate governance….”

Voice Of The Shareholder

We became the voice of the shareholder.

The coalition has participated extensively in the shaping of public policy. During the year, we provided comments to the OSC on its proposed corporate governance guidelines, to the government of Ontario on Bill 198 and provisions for civil liability for continuous disclosure in the secondary market, and to the SEC on security holder director nominations. Visit our website at for a complete list and text of our submissions.

Over the next year we will continue working on improving corporate governance in Canada. We will carry on evaluating companies against our guidelines. We will develop and publish a series of best practices in corporate governance. We will continue to be the ‘voice of the shareholder’ in the evolution of public policy related to good corporate governance.

Through the ongoing efforts of the coalition, we expect to see continued governance improvements and the resulting reduction in governance risk ultimately leading to the restoration of investor confidence in Canadian capital markets.

Paul Schneider is director of research for the Canadian Coalition for Good Governance.

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