The Evolution of Corporate Governance in Canada
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 the consequences of poor corporate governance. Struggles at Facebook, Nissan, Tesla, Uber, Samsung, Hydro One and Wells Fargo have had adverse impacts 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.
In 2019 and beyond, crown, non-proﬁt and corporate directors will need to quickly and continuously improve their skills and 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 becoming 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 LGBTQ2+ 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. 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. It also creates the opportunity for experienced directors to share their knowledge and mentor a new generation of board directors.
Governance for the Future
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. 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. 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 future of executive management must also be a high priority for boards. A PwC Strategy& CEO Success 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, explore new opportunities, manage shareholder engagement and protect brand reputation. And, the importance of having prepared and insightful directors who have the courage to ask important questions and the ability to collaborate in the boardroom is an imperative to effective corporate governance.
Since 2003, The Directors College Chartered Director Program (C.Dir.) has been equipping board directors with the knowledge, skills, and behaviours necessary to bring more to the table as a productive and valued board member. A DeGroote School of Business offering, the Chartered Director Program is the original University Accredited Directors Education Program (DEP) in Canada, in partnership with McMaster University and The Conference Board of Canada.
For more information on The Directors College Chartered Director Program (C.Dir.) please visit their website. https://thedirectorscollege.com