© 2014 Hay Group Limited. All rights reserved. www.haygroup.com/ca
2014 Corporate Governance Best Practices Report
In collaboration with the
Canadian Society of Corporate Secretaries
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Table of Contents
EXECUTIVE SUMMARY............................................................................................. 1
Corporate governance overview ....................................................................................................................... 1
Sustainability, ethics & environmental governance .......................................................................................... 1
Use of technology in implementing governance ............................................................................................... 1
Effective Board operation & governance maximization processes .................................................................... 1
Stakeholder engagement .................................................................................................................................. 1
Boardroom diversity ......................................................................................................................................... 1
Risk management ............................................................................................................................................. 1
Executive pay .................................................................................................................................................... 1
LOOKING AHEAD – THE FUTURE OF CORPORATE GOVERNANCE ................... 2
INTRODUCTION ......................................................................................................... 3
The Canadian Society of Corporate Secretaries (CSCS) ...................................................................................... 3
Hay Group......................................................................................................................................................... 3
Corporate Governance ...................................................................................................................................... 3
OUR APPROACH ....................................................................................................... 4
Methodology .................................................................................................................................................... 4
Participant profile ............................................................................................................................................. 5
CORPORATE GOVERNANCE OVERVIEW............................................................... 7
Risk management and oversight ....................................................................................................................... 8
Corporate governance legislation ..................................................................................................................... 9
Top Board matters .......................................................................................................................................... 10
Regulatory compliance ................................................................................................................................... 11
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SUSTAINABILITY, ETHICS & ENVIRONMENTAL GOVERNANCE ....................... 12
CSR ................................................................................................................................................................. 12
Environment ................................................................................................................................................... 14
Ethics .............................................................................................................................................................. 15
Environmental/ethical shortcomings .............................................................................................................. 16
USE OF TECHNOLOGY IN IMPLEMENTING GOVERNANCE ............................... 17
Advancements in technology .......................................................................................................................... 17
Board support & communication .................................................................................................................... 18
Board meetings ............................................................................................................................................... 19
Documentation management ......................................................................................................................... 19
EFFECTIVE BOARD OPERATION & GOVERNANCE MAXIMIZATION PROCESSES ............................................................................................................ 20
Board performance ......................................................................................................................................... 20
Director education and assessment ................................................................................................................ 21
New directors ................................................................................................................................................. 23
CEO evaluation ............................................................................................................................................... 23
CEO succession planning ................................................................................................................................. 24
Mission critical staffing ................................................................................................................................... 25
Role of the corporate secretary ...................................................................................................................... 26
What makes an appropriate Board? ............................................................................................................... 27
STAKEHOLDER ENGAGEMENT ............................................................................ 28
Stakeholder communication ........................................................................................................................... 28
Engaging with stakeholders ............................................................................................................................ 30
BOARDROOM DIVERSITY ...................................................................................... 31
Overall diversity.............................................................................................................................................. 31
Facts & figures within the Canadian Boardroom ............................................................................................. 33
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Recruitment of Board members ...................................................................................................................... 34
Hurdles to greater Boardroom diversity ......................................................................................................... 35
RISK MANAGEMENT & EXECUTIVE PAY .............................................................. 36
Risk management ........................................................................................................................................... 36
Executive pay .................................................................................................................................................. 37
Performance incentives .................................................................................................................................. 39
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Executive summary
This report details the prevalence of corporate governance views and practices among organizations in
Canada.
Corporate governance overview
Through they are time consuming, Canadian organizations view corporate governance rules and legislation
as having had a positive impact. The guidelines provide organizational clarity on shareholder information
needs and creates a common benchmark. Overall, risk management continues to be top of mind for
Canadian Boards.
Sustainability, ethics & environmental governance
Organizations in Canada are actively engaging employees in various environmental and sustainability
initiatives and working towards reducing their carbon footprint. As well, they are taking proactive measures
to reduce unethical behaviour through training, whistleblower policies and some are linking CSR metrics
to their executive incentive plans.
Use of technology in implementing governance
Several technological initiatives are being implemented to enhance the Board’s operations through
technology. Many organizations are using web-based governance and compliance materials for training,
reporting and tracking initiatives. Most organizations are distributing material to Board members 5-10 days
in advance of meetings through secure internal portal or email systems.
Effective Board operation & governance maximization processes
Most Canadian organizations surveyed have a formal process for evaluating Boards and their CEO. They
are focused on training and education for onboarding new directors as well as continuing education though
training at Board meetings and attending external education programs. Generally, they are confident in
their ability to recruit and retain talent at the management and Board level.
Stakeholder engagement
Stakeholder communication is still the mandate of the CEO but at some organizations there is a trend to
appoint an Investor Relations Officer (IRO) for this purpose. Boards are also taking on more responsibility
for stakeholder communication and we have noted an increase in the frequency Boards communicate with
various stakeholder groups. Rightly so, stakeholder opinions continue to influence Boardroom decisions.
Boardroom diversity
A focus on diversity is growing at Canadian organizations. We have noted more organizations
implementing formal diversity policies and Board recruitment policies. Their objective is to broaden their
pool of candidates by gender, geography and skill. Many view diversity as a form of competitive advantage.
Risk management
Many organizations have implemented formal enterprise risk management policies and appointed a Chief
Risk Officer. Risk continues to be incorporated into the pay packages for executives.
Executive pay
Performance and market practices are the two most prominent factors affecting executive pay design, while
external compensation consultants continue to have a large input over executive pay packages.
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Looking ahead – the future of corporate governance
We asked survey participants what changes they expect to
see with regard to corporate governance best practices for
2015. The most prevalent responses are:
Boardroom diversity was the top trend in future
corporate governance. The Ontario Securities
Commission has created a ‘comply or explain’
policy for increasing diversity in the Board and the
executive management team. There is a perception
that organizations need to recruit candidates that
can add different perspectives to the Board. Many
also feel that the prevalence of director term limits
will increase over the next year
Risk management has stood out as one of the major
focus areas for the Board. Many organizations have
implemented formal policies for risk management
and oversight with continuous monitoring,
updating and scrutiny of these risks
Many organizations believe the amount of
disclosure, regulation and reporting is going to
increase. For example, reporting on diversity, risk,
financials and compensation. With an increase in
reporting, many organizations expect further clarity from regulators and corporate governance
commentators on new rules and regulations
Executive compensation is also a major concern for most organizations due to increasing
shareholder scrutiny and trends such as Say on Pay. Boards are expecting to spend more time
reviewing their executive pay policies
Organizations will continue to focus on director training and education. The number of training
programs made available to directors is expected to increase with a focus on increasing education
to improve organization performance
***
Top 5 most voted corporate
governance trends for 2015:
Board diversity
Focus on risk management
Increased regulation and additional
reporting
Board and executive compensation
Director training and education
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Introduction
The Corporate Governance Best Practices Report is an annual report reflecting the trends of corporate
governance in Canada. This year, Hay Group, along with the Canadian Society of Corporate Secretaries
(CSCS) conducted surveys and interviews with corporate secretaries and other governance professionals at
over 110 organizations across the country. This report highlights the key findings of our research, outlines
the views shared by survey respondents and provides greater context on the current corporate governance
landscape in Canada.
The Canadian Society of Corporate Secretaries (CSCS)
The CSCS is a leading resource for Corporate Secretaries and Corporate Governance professionals. It is
recognized as being the most important professional organization for good corporate governance in Canada.
Aside from striving to enhance the visibility and credibility of the office of the corporate secretary, it also
offers a unified voice and proven tools for best practices in corporate governance.
Hay Group
Hay Group is a global management consulting firm that works with leaders to transform strategy into
reality. We develop talent, organize people to be more effective and motivate them to perform at their best.
As organizations strive to attract and retain top talent in the face of increased public and shareholder
scrutiny, executive pay, succession, performance and competence are vital. Hay Group's consultants work
with boards as well as senior management across the sectors, from large global players to not-for-profit,
helping them address these issues.
Corporate Governance
Corporate governance has become a more pressing issue for Canadian organizations. Shareholders are
calling for increased disclosure and regulatory reform for more Board transparency.
Boardroom and executive diversity continue to be topical issues for corporate governance. For example,
the Ontario Securities Commission (OSC) proposed rule amendments’ regarding disclosure of women on
Boards and in senior management positions. The proposed amendments would require organizations listed
on the TSX to disclose the following items:
Director term limits;
Policies regarding the representation of women on the Board;
The Board’s or nominating committee’s consideration of the representation of women in the
director identification and selection process;
The issuer’s consideration of the representation of women in executive officer positions when
making executive officer appointments;
Targets regarding the representation of women on the Board and in executive officer positions;
and
The number of women on the Board and in executive officer positions1.
1 Ontario Securities Commission. (2014, January 14). News and Events. Retrieved February 2014, from Ontario Securities
Commission: http://www.osc.gov.on.ca/en/NewsEvents_nr_20140116_osc-amd-wob.htm
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Our Approach
Hay Group, in conjunction with the CSCS, conducted the 2014 Corporate Governance Practices Survey
(Appendix A) which included over 110 respondents from organizations of varying sizes, industries and
structures. We sought perspectives on the following topics:
Corporate governance generally
Sustainability, ethics & environmental governance
Use of technology in implementing governance
Effective Board operation & governance maximization processes
Stakeholder engagement
Boardroom diversity
Risk management & executive pay
The results from these areas have been summarized and presented in this report. Additionally, these results
were also used for the purpose of identifying nominations by category for the Annual CSCS Excellence in
Governance awards. The categories for these awards are similar to those conducted via the online survey
described above and include:
Best overall corporate governance
Best sustainability, ethics & environmental governance
Best use of technology in governance, risk and compliance
Best approach to Board and committee support
Best shareholder or stakeholder engagement by a governance team
Best approach to Board diversity
Best approach to strategic planning, oversight and value creation by a governance team
CSCS used the compiled results of the survey as one of the sources of reference in determining the nominees
for these awards.
Methodology
Several question formats are used in the survey, including multiple choice and rating options in order of
preference. For questions where multiple options could be selected, each option was weighted based on
the number of times it was selected by a respondent. For those questions that asked the respondent to rate
options in order of preference, the options were weighted based on the rating and frequency. ‘Non-
applicable’ responses were not featured into the analysis.
Hay Group also conducted detailed interviews with the corporate secretaries (or equivalent positions) of all
organizations that were nominated under each of the categories of the CSCS Excellence in Governance
awards. These nominees span a variety of industries including the financial, oil & gas and not-for-profit
sectors, among others. Information and anonymous quotes from respondents were collected during these
interviews and were used to add further insight to various sections of this report.
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Participant profile
The respondents spanned a range of 22 industries in total, with the majority of responses coming from the
financial services, mining, professional services and the broader public sector.
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In terms of ownership structure, the highest percentage of organizations were publicly traded and not-for-
profit organizations.
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Corporate governance overview
In this section, we examine the impact of corporate governance as a whole on organizations. The topics
raised include risk management and oversight, corporate governance legislation, formal policies, and
reporting procedures.
Risk Management and oversight features as one of the most prominent corporate governance issues.
Other pressing issues include dynamic regulatory compliance, Board diversity and the amount of
disclosure.
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Risk management and oversight
The most prevalent issue for Canadian Boards year over year when examining the 2013 and 2014 Best
Practice in Corporate Governance survey responses continues to be ‘risk management and oversight.’ Many
organizations strive to overcome this challenge by putting in place effective risk management systems to
mitigate underlying risks.
Our interviews with the nominees of this category for the CSCS ‘Excellence in Governance awards’ have
helped us obtain insight on common trends that could be termed ‘best practice’ measures to deal with this
issue. These include:
Risk registry: Several of the Excellence in Governance award nominees’ have a risk registry to
track and monitor organizational risks. Risk registries are seen as a “living document” that is
constantly monitored and updated to include all possible risks facing the organization.
Management and the Board provide input into the registry and detailed plans are put into place to
monitor, manage and mitigate risk.
Reporting of risks to appropriate committees: Risk reporting is typically on the agenda at each
Board meeting and includes apportioning risks to different committees of the Board. Typically, the
Risk Committee, Audit Committee or Governance Committee will be responsible for risk
oversight.
Corporate risk profiles: This includes knowing your risks and categorizing the type of risk you
are willing to accept. Many of the nominated organizations regularly review their risk appetite.
Board and management work together to determine the amount of risk that is appropriate and
develop high and low risk strategies for the organization. Typically, no one person should be able
to benefit from taking excessive risk through the compensation system.
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Corporate governance legislation
Most organizations are of the opinion that corporate governance codes and legislation have had a positive
impact on Board operations. This is slightly more positive than responses from our 2013 survey.
We asked nominees of the Excellence in Governance awards to provide their perspectives on the benefits
and drawbacks of corporate governance legislation.
The positive impacts: o Progress towards transparency and better guidelines in overall corporate governance
o Standardization across industries by requiring everyone to disclose the same information
o Adds clarity on expectations and standards of corporate governance
o Necessary to increase accountability and shareholder understanding
o Being proactive in implementing corporate governance best practices minimizes the impact when
practices become legislative requirements. This includes the Ontario Securities Commission
(OSC) “comply or explain gender diversity guidelines” or the Secutities Exchange Commission
(SEC) “CEO to average worker pay ratio”
The negative impacts:
o Regulation limits organizations with a one-size-fits-all approach.
o The regulation can be very limiting for smaller organizations that lack the adequate/appropriate
resources
o Directors now have to understand multiple pieces of legislation and regulation (large amount of
work that continues to increase)
o It is timely and costly for management to comply
o There is no global standard. Organizations have to balance complying with Canadian legislation
but also try to comply with legislation in other countries where they operate. There are times
when the Canadian legislation conflicts with the legislation in other countries such as the U.S.
o It can be difficult to find a balance between simplifying your language in a way that shareholders
can understand and still complying from a legal perspective
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Although most of the corporate governance legislation only directly impacts publicly traded organizations,
we have also seen an impact on private and broader public sector organizations:
Positive impact in terms of providing a benchmark (eg. conflict of interests or drafting Board
policies). Even though they are not subject to reporting under the Securities Act, many broader
public sector organizations are choosing to be guided by the standards and are looking to meet or
exceed them.
However, broader public sector organizations are expected to have higher accountability to the
public. As a result, more transparency of Board compensation, composition and diversity
principles, can bring on intense media scrutinty.
Voice of the Corporate Secretary
“I don’t think it’s the legislation that’s driving the changes, but rather the “quasi-legislative” third parties,
such as the ISS, Globe and Mail’s Board Games, and the CCGG. Their thought leadership and setting of
expectations is probably the most effective force in enhancing corporate governance in Canada.”
“We view regulators more as partners than people who need to be managed. They have the ability to tell
us how to make our programs better, and it can’t be done unless someone can see the big picture.”
Top Board matters
According to survey responses, the most important issues for Boards include regulatory compliance,
strategic planning and risk management.
0%
5%
10%
15%
20%
25%
30%
% o
f re
spo
nse
s
Top 3 Board matters (1 being most important)
1
2
3
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Regulatory compliance
Regulatory compliance is typically in the form of written objectives, processes and reports. Many
organizations have very detailed policies to ensure regulatory compliance in terms of risk reporting,
executive compensation, and corporate social responsibility (“CSR”), among others, which are disclosed
in publicly available documents such as a risk registry, annual report or proxy circular. Some have also
implemented policies for shareholder ownership guidelines and tenure policies for the Board.
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Sustainability, ethics & environmental governance
This section covers information related to Corporate Social Responsibility (CSR), sustainability initiatives,
ethical considerations and related policies implemented by organizations across various industries.
CSR
More than half of the respondents do not have a
formal CSR policy in place. Only one third of
organizations have a formal policy or are in the
process of implementing one. The nominees for the
Excellence in Governance awards define CSR as
creating “sustainable value”. Many believe that it is
about:
1) giving back to the community
2) protecting the environment
3) being a good neighbour
4) generating sustainable organizational
practices
Generally, sustainable organizational practices will include health and safety, security, human rights,
community relations, the environment, corporate citizenship, and governance impact.
In our survey, we found that most organizations participate in several employee supported initiatives.
The Excellence in Governance award nominees take CSR into account when discussing new organizational
developments including products, services or initiatives. It becomes integrated into everyday business.
Specific strategies are developed to improve their carbon footprint, ensuring business practices are green,
using renewable energy, encouraging community involvement, and employee volunteering among others.
Voice of the Corporate Secretary
“We manage codes of environmental and sustainability responsibilities through our code of conducts and
ethics, a safe disclosure policy, and culture of ethical business conduct. Our employee CSR culture
includes wellness, recognition for employees who perform well and a flexible working environment.”
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Many organizations invest significant resources to incorporate their CSR initiatives into their overall
business strategy. Aside from the activities described above, some organizations have a department whose
primary responsibility is to focus on ethics, sustainability and CSR related work. Trends within this area
include:
Sustainability committee: Creating a sustainability committee at the Board level to review
performance on a quarterly basis
Charitable wellness programs: Integrated into the culture of the organization
IT related operations: By introducing paper-less systems, electronic transfer of information,
and/or related performance metrics such as waste per employee, etc.
Generating awareness: Ensuring every employee is aware of ethical and environmental policies
and procedures
Fostering culture for CSR: Creating a culture of ethical conduct, a safe environment and
continuous improvement for CSR
All of the Excellence in Governance award nominees include CSR-related metrics in their overall
performance measures. In terms of executive compensation, a scorecard is used to assess the results of
CSR initiatives. CSR is ingrained in the long term strategic plan and constantly monitored for success and
areas of improvement.
Voice of the Corporate Secretary
“The organization monitors the KPI’s on a strategic level, and we try to measure more of the work we do
because we believe ‘what gets measured gets done.”
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Environment
Just over 50% of Canadian organizations surveyed have a formal environmental policy with no change year
over year. The use of an environmental policy is much greater at organizations in the Mining, Utilities and
Oil & Gas industries in which almost 80% have a policy.
Despite not having a formal policy, most organizations engage in several sustainability-related initiatives.
As demonstrated in the chart below, organizations engage in a variety of ways to protect the environment.
Only about 20% of organizations surveyed have elements of senior executives’ compensation plans tied to,
or affected by, the organization’s performance around its sustainability initiatives. For the organizations
who do, many see this as a form of competitive advantage and this is supported by the rationale that
minimized environmental damage would lead to long term economic growth.
Many organizations are taking their sustainability initiatives to new lengths in the hope of reducing their
carbon footprint and saving money in the long run by using green energy to power buildings. Some
organizations are working to ensure their buildings are certified as BOMA Best or LEED certified, and
ISO:14001 certificates for their environmental management systems.
0% 10% 20% 30% 40% 50% 60% 70% 80%
Other
Cutting emissions or pollutants
Enhancing impact on local communities
Improving environment around facilities
Improving energy efficiency
% of responses
Sustainability initiatives
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Ethics
70% of the respondents have an official whistleblower policy, with the oversight of the process divided
amongst the Audit Committee, the entire Board, or the Corporate Governance/Nominating Committee. All
organizations nominated for the Excellence in Governance awards have a formal whistleblower policy and
provide their employees with training on several important issues. This training is typically tracked and
measured on a quarterly or annual basis. This tends to be the most common practice among the
organizations in our survey.
80% of the survey respondents stated that they engage in employee training and sensitization to ethical
requirements (which includes code of conduct, insider trading policies, among others). The chart below
outlines the prevalence of training topics in Canadian organizations’ ethical training programs.
Harassment and discrimination,
conflicts of interest and reporting
incidents are the most prevalent
types of ethical training. 80% of
organizations in the financial sector
train their employees on anti-money
laundering and over 50% of
financial sector organization train
their employees in securities
transactions and insider trading.
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Environmental/ethical shortcomings
Most organizations have elaborated on individual shortcomings faced either on the environmental or ethical
front. However, many ethical shortcomings are being seen as opportunities to improve.
Some organizations view their office building emissions as an ethical shortcoming. Although they have
plans to raise their buildings to an acceptable standard, in some cases a long lease agreement with a building
or property manager can slow down progress. Other organizations are looking to improve their monitoring
and reporting procedures and create new ethical training programs for employees on topics such as anti-
corruption or anti-bribery.
Organizations strive for constant improvement to increase their score.
Voice of the Corporate Secretary
“In terms of environmental sustainability, we noticed we were not “walking the talk”. An important part
of our business is to ensure we work with our customers to help them reduce their energy consumption
and conserve energy; we realized we weren’t doing as much of that as we should.”
“At times, it can be difficult to put a number on soft targets such as community involvement and
employee volunteer programs. We must have a quantitative goal that is easier to align and show with
numbers how our goals are impactful to the organization.”
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Use of technology in implementing governance
This section focuses on the most prevalent ways in which organizations use technology as a way to improve
Board operations and manage communication, risk management and documentation.
Advancements in technology
Most organizations are continuously looking
for measures to update their existing
technology. Some recently adopted trends in
this field include the use of tablets, secure
Board portals, web training programs and risk
management software.
More organizations are using technology to
reduce the environmental impact of paper
copies of meeting materials. Some
organizations have stopped printing hard
copies of meeting materials and make
materials available through a secure Board portal.
Organizations are putting some or all of their corporate information online to dramatically reduce paper
consumption. One of the Excellence in Governance nominees has a global entity management system that
has a legal entity based lens of the organization. It stores all annual corporate filings, legal licenses to
operate in different parts of the world, tracks the number of Boards that an employee sits on and monitors
the maximum number of Boards served and the compensation structure amounts for executives.
Internally, technology has been adopted in operations such as payroll, tracking deferred share units and
general record keeping to help reduce human error.
Less than half of our respondents use an IT system for the purpose of managing compliance related risks.
The publicly traded organizations feel that they are able to effectively communicate with shareholders
through technology. For example, one organization in financial services has moved to an electronic voting
platform for the proxy material which has contributed to a 9% increase in shareholder voting.
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Board support & communication
Technology continues to provide ever-evolving benefits of improving cost-efficiency, accuracy and
increasing communication.
The advantages of implementing technology in the Boardroom, according to the organizations we
interviewed, are as follows:
Secure email and portals allow for easy transmission, storage, compilation and access to information
Streamlines information access so that only relevant people have access to relevant information
Meetings have become more efficient because of the advanced methods of communication via
teleconferencing, reconfigured Board meetings and higher security, enabling better informed
decision-making
Ability to track and monitor shareholder communications including complaints and questions
through emails and the corporate website
Directors use video-conferencing technology, such as Skype, to participate in Board meetings from
anywhere in the world. Unlike a teleconference, Directors are able to communicate without missing
non-verbal cues
Organizations may be apprehensive in adopting technology due to potential issues in online security. As a
result, highly secure communication and documentation is the top priority of most organizations.
Voice of the Corporate Secretary
“We give our directors iPads and created our own internet site so we have full control of access. If any
of the directors lose their iPads, we can wipe out the data anywhere in the world.”
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Board meetings
The majority conduct Board meetings between 3 and 6 times annually, closely followed by organizations
who conduct them between 7 and 10 times annually.
Most organizations distribute materials for these meetings via internal or external Board portals, while
secure e-mail or tablet devices are also common. Board materials are typically delivered to Board members
between 5 to 10 days in advance of the meeting.
Documentation management
Two-thirds of organizations surveyed have a system in place for either documentation management or
regulatory filing.
Overall, organizations have successfully eased into the use of technology and have adopted similar
measures across industries for the purpose of communication, information access and storage. However,
with technology continuing to evolve, it will be challenging to stay on the leading edge.
Voice of the Corporate Secretary
“Our team keeps current on the latest capabilities; we are doing a competitive review for suppliers to
enhance our existing offering to directors.”
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Effective Board operation & governance maximization processes
This section covers methods used to increase the effectiveness of Board operations via evaluation,
education, assessment and succession planning.
Board performance
Approximately two-thirds of survey respondents report having a formal director evaluation process, out of
which the vast majority conducts the performance evaluation once a year.
Only 26% of organizations conduct their director evaluations through a third-party consultant. All other
organizations conduct the evaluations internally.
Methods of evaluating Board directors include individual peer-evaluation led by either the Corporate
Secretary or other in-house personnel, or a peer-evaluation led by a third-party facilitator.
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Director education and assessment
The majority of organizations have a formal policy for director education that is publicly disclosed.
For the purpose of evaluation and assessment, annual formal Board evaluation processes using third-party
professionals, peer evaluations and self-assessments are common methods used.
Most organizations encourage their directors to receive education and training for relevant topics to help
the organization grow and prosper. Based on the results of our survey, we have noted that just less than
50% of directors actually participate in the education programs available to them.
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The nominees for the Excellence in Governance awards conduct very detailed assessments of director
capabilities and foster a culture of training and education at the Board level.
Some organizations use psychometric testing to get a clearer picture of the skills, capabilities and
personalities of directors. Moreover, directors conduct assessments with the Chair and also conduct self-
assessments.
One nominee cautioned that assessments should be conducted for quantitative and qualitative results.
Excellence in Governance award nominee example
One financial organization used to rate everything on a scale from 1-5, soon learned that this wasn’t
as effective in providing feedback in a way that could help the director improve. In order to
provide valuable information to Board members, organizations should have a rating scale as well
as a place for open-ended responses. This allows for further analysis to find common themes and
create a list of action items.
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New directors
Nearly 75% of organizations have a formal orientation program in place for new directors. Based on our
discussions with the nominees for the Excellence in Governance awards, we found orientation programs
may include a full day director orientation, mentors for new directors, site visits, and rigorous training
programs.
Our survey showed that many organizations have detailed orientation plans for new directors which include
formal training and education on a wide range of topics.
Directors are usually made aware of these education programs through the corporate secretary or
alternatively, through other directors or management.
Voice of the Corporate Secretary
“New directors go through an orientation program that covers all business groups and key
corporate functions, and ongoing training and education is set aside on meeting agendas for
education topics and in-depth review.”
CEO evaluation
Approximately 80% of respondents have a formal policy for CEO performance evaluation and most
commonly this evaluation is conducted once a year. The prime responsibility of conducting the CEO’s
evaluation is mostly given to the entire Board or the compensation committee as shown below.
Excellence in Governance award nominee example
A financial services organization has a standard on-boarding plan as well as a customized plan for each
director, tailoring it to their level of previous training, education and prior experience. During that process
they have connection meetings with members in each area of the organization.
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CEO succession planning
Only 49% of our respondents have a formal succession planning policy for the CEO that is currently in
place or is being implemented.
About half of the respondents review these plans annually; while 30% review succession plans only when
there is a specific development requiring them to do so.
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Mission critical staffing
Turnover at the executive level is always a concern. Although most organizations estimate that less than
10% of their executive team will leave the organization over the next 3 years, others are not as optimistic.
When creating a recruiting strategy to fill some of the mission critical executive roles, most organizations
seek to have a balance of internal and external talent.
Our interviews with the nominees for the Excellence in Governance awards helped shed some light on
retention of key employees. Some of the ways they increase retention are through:
Identifying high performance individuals and engaging them in social interaction with the Board
Succession planning at the executive level which is reviewed every 6 months
Formalized programs for coaching and mentoring programs
Building the right culture where employees believe in the goals of the organizations and are able
to enjoy their work
Creating informal leadership roles by project where management is given the opportunity to take
on additional responsibility
Almost two-thirds of organizations feel that they are prepared to fill mission critical roles. However, 33%
stated that they are only moderately confident in their ability to fill the roles.
Voice of the Corporate Secretary
“Over the years, there has been more interaction between the Board and non-executives, where they are
able to present issues to the Board…if we see potential in a candidate we make sure they have the
opportunities to build rapport with the Board.”
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Role of the corporate secretary
Corporate governance
Corporate governance is a standing agenda topic at some organizations and the corporate secretary is
responsible for managing the organization’s governance practices, tracking new trends and ensuring that
the Board and organization are up to date on all corporate governance matters. Through our interviews
with the Excellence in Governance award nominees, we found that a good corporate secretary will push the
Board for continuous improvement in their governance practices.
Linking to the external environment
The corporate secretary needs to keep an eye on the outside environment to ensure they are fully informed
when it comes to trends in corporate governance, emerging issues and best practices. It is part of their role
to bring this information forward to the Board and engage them in discussions.
Voice of the Corporate Secretary
“At regular Board and committee meetings, the corporate secretary is knowledgeable of all
discussions…this minimizes gaps in information and insight that is available to internal and external
situations.”
“The corporate secretary is crucial to ensuring the Board is fully prepared and informed.”
Informing and preparing the Board The corporate secretary needs to work to ensure the Board is prepared and informed. The information
should be put in the context of what the Board needs to know in order to exercise their due diligence and
roles. The corporate secretary works to ensure there is consistency in Board documents and that only the
most relevant material is being presented to the Board.
Two-way dialogue between stakeholders The corporate secretary is the intermediary between the Board and the organization. In many cases,
organizations have their governance practices centralized through the corporate secretary to ensure all
information has gone through a vetting process and is presented in a way that the Board can easily
understand.
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What makes an appropriate Board?
Many organizations have mentioned that the appropriate Board consists of a mix of skills, which generally
focuses on key competencies, areas of expertise and diversity requirements. Organizations are not willing
to recruit a Board member for the purpose of filling a diversity quota, but are actively looking for a Board
that represents the customer base they serve.
The organizations we spoke to have a skills assessment process and skills matrix which allows them to
determine where possible gaps in skills and knowledge exist among the Board. They use the skills
assessment to recruit directors based on long term requirements. In some cases, directors are asked to self-
identify and give a justification of their skills during the assessment process. When a director’s tenure is
expiring or they are expected to retire, the organization will often look to recruit for similar skill sets to the
director they are losing.
Many organizations use external recruiters and encourage the current Board members to give names of
contacts in the industry who meet the requirements set out by the skills matrix. Names and applications
then go to a selection/nominating committee of the Board to determine the short-list and interview process.
Voice of the Corporate Secretary
“Our company does an analysis of what we expect from Board members to contribute, and do a gap
analysis through the Board assessment process.”
“We look for directors even when we don’t have vacancies on the Board, understanding the needs
and mapping it against the existing Board.”
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Stakeholder engagement
Stakeholder communication
The CEO is most often selected as the primary contact point for investors, regulators and the government.
In some cases, the Investor Relations Officer (IRO) or the corporate secretary are considered the primary
point of contact. Although it is typically an executive who is the point of contact for stakeholders, this year,
we have noticed a slight increase in the number of times the Board communicates with stakeholders.
The proportion of respondents indicating that the Board interacts with shareholders less than twice per year
is still over 50%, however there is a slight increase in Board communication with stakeholders 3 or more
times per year. Regulators and the media are the stakeholders that the Board interacts with most.
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The chart below indicates how many times Boards participate in communicating substantive issues to
various stakeholders (such as analysts, shareholders and investors) in the past year.
In some cases, Boards do not interact directly with shareholders in order to maintain the Board’s focus on
strategy, and thereby avoid potential regulatory issues. Most organizations engage with shareholders
primarily through the corporate secretary or the Investor Relations Officer (IRO) as they are typically better
equipped with information and knowledge of day-to-day operations.
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Voice of the Corporate Secretary
“We have very strong coordination internally between the investor relations and the corporate secretary
and are able to effectively communicate with all stakeholder groups.”
“We aim to stay involved with our stakeholder groups; our manager of public affairs has a disciplined
program to ensure our CSR program is applied to the right areas with ongoing dialogue.”
Engaging with stakeholders
Nominees for the Excellence in Governance awards outlined several benefits and problems in
communicating with various stakeholder groups.
Benefits
Better understanding of what stakeholders are looking for. Ongoing dialogue with various
stakeholder groups gives organizations the opportunity to elicit feedback and identify emerging
issues
Staying involved with stakeholders helps to promote economic development and achievement of
developmental goals
Forming partnerships with stakeholders can build credibility
Engaging with stakeholders and creating open dialogue allows organizations to maintain
transparent relationships
Establishing relationships with stakeholders makes it easier for organizations to reach out when
problem situations arise. Stakeholders will be more sympathetic to someone they know than to an
organization who only reaches out when they need something
Problems
Stakeholder communications requires time and attention
Can receive different messages and issues from opposing stakeholder groups, and conflicts can
arise from helping one group over another
Directors need to be conscious of the legal issues when engaging with stakeholders, and should be
coached beforehand
Stakeholders may not always want to engage with directors if there isn’t a problem
Voice of the Corporate Secretary
“We engage and reach out to the stakeholders of our organization. There is always a benefit from
engaging whether we agree or disagree with their point of view.”
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Boardroom diversity
This section covers perspectives on how Boards define ‘diversity’ and what measures they have put in place
to achieve their diversity targets, if any.
Overall diversity
The Excellence in Governance award nominees define diversity around having different thoughts and ideas.
What constitutes diversity varies: educational backgrounds, professional backgrounds, industry experience,
customer experience, race, gender, sexual orientation, religion, socio-economic status, language,
generational differences, or nationalities.
Less than one quarter of the respondents have a formal Board diversity policy although many are
considering implementing one. But this number has significantly increased from our 2013 results where
over half of the respondents said they did not have a formal policy and were not considering implementing
one. We hypothesize that this is a result of a majority of organizations standing against the concept of
‘quotas’ as this undermines the importance of skills and expertise during the recruitment process.
Many organizations develop a matrix with various factors (based on self-identification) including age, sex,
gender, race, etc. alongside existing skills and expertise on the team. They use this opportunity to identify
gaps and opportunities and alter recruitment/promotion objectives accordingly.
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When recruiting directors, organizations focus on gaps in competencies and fill positions with candidates
that meet their needs in terms of skills and expertise. The Canadian organizations who lead in Boardroom
diversity seek to ensure they have a wide pool of candidates to choose from when electing new directors.
They don’t just seek to hire a person that is known in the industry or is already a director. Instead,
organizations try to have a large pool of qualified candidates that include a number of people who are
women or members of a visible minority. Some organizations try to stay away from setting diversity targets,
but look to have a Board that is reflective of their customer base.
Although gender and racial diversity are still low on the list of critical factors for recruiting Board members,
we anticipate these factors will increase in importance over the coming years. Many survey participants
listed increasing regulation and scrutiny around Boardroom diversity as being an expected trend for
corporate governance in 2015.
Voice of the Corporate Secretary
“In our hiring program, if all things equal, we will often give the position to the candidate who has
diversity characteristics.”
“We are proud of the record we have with establishing diversity at the Board level. We not only adhere
to a skills matrix, but also pay attention to diversity.”
“Diversity isn’t necessarily about ethnicity or gender…diversity is about creating the right Board, full
of the right people with qualifications, skills, experience and background that can add value to executive
management.”
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Facts & figures within the Canadian Boardroom
Boards with female representation 80%
Boards with visible minority representation 41%
Common age of the youngest director Over 40 years old
Common age of the oldest director 70-75 years old
Simple average age of the Board directors 56-60 years
Boards including non-residents of Canada 32%
When comparing statistics year over year, we have seen no change in the number of women or the number
of visible minorities serving on Boards. Among Boards who do have women and a visible minority serving,
the percentage representation of total composition is typically less than 25%.
The majority of organizations who have a higher percentage of female Board members are typically from
broader public sector organizations (including crown corporations and not-for-profits).
Voice of the Corporate Secretary
“We look at the value that women can bring to senior management positions that would drive them to
be future Board members in organizations.”
“30% of our Board members are female. Not because we have targets, but we look at the skills and
capabilities of individuals, and they happen to be female.”
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Recruitment of Board members
49% of respondents do not have a formal recruitment policy; however 44% do have a fully implemented
policy in place. This is significantly higher than our 2013 survey results where only 33% had a formal
policy in place.
Half of our survey respondents have a formal director term limit policy in place, which has increased from
35% in 2013. A term limit between 3 to 6 years of service is the most popular among organizations who
do have a policy in place.
Nearly 85% of organizations have no restrictions on the number of Boards a director can serve on. Most
organizations have between 6 and 10 Board members in total. Survey results show that over 95% of
organizations have directors that serve on more than one Board.
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Hurdles to greater Boardroom diversity
We asked nominees for the Excellence in Governance awards what hurdles they face in achieving greater
Boardroom diversity. The main issue deals with the selection pool of candidates. Most people perceive
that in order to be a director, they need to have past Board experience, or come from a certain field, and
thus the pool of “known people” from which firms recruit has less diversity.
Some organizations feel that diversity can be achieved through asking tough questions and developing a
plan to tackle the issues.
Voice of the Corporate Secretary
“We are supportive of the recent Ontario Securities Commission initiative, because it strikes the balance
with their ‘comply or explain’ approach.”
“We are hopeful that quotas will not be required, even though some commentators express concerns
of plateau in terms of Boardroom diversity.”
“Quotas are a terrible way to increase diversity. We applaud those interested in agencies like Catalyst
Canada who go out to encourage people to adopt these best practices.”
Excellence in Governance award nominee example
One organization looked at their diversity statistics and started asking “why?” They had policies to
achieve diversity targets but in some areas they were under-representing certain areas of the community
they served. In order to overcome these challenges, the organization created a recruitment campaign
targeted at directors from this diversity group.
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Risk management & executive pay
Risk management is noted as being a top of mind issue for Canadian Board members. This section covers
organizational risk and the differences in executive pay practices in organizations across Canada.
Risk management
Organizations have begun to place major importance on the topic of risk management. Nearly 65% of
respondents have a formal risk policy in place, of those the majority have a policy fully implemented.
Many organizations have also introduced a Risk Committee at the Board level. Canadian Boards are most
focused on operational and financial risks while fewer Boards focus on human resources or environmental
risks. Most organizations have the responsibility of managing risk allocated to the entire Board while some
delegate the responsibility to the Risk or Audit Committees of the Board. Most organizations also have a
corporate wide system for enterprise risk management. Often, individual departments are also responsible
for the tracking and monitoring of their risks and they are continuously monitored and updated by these
committees and management.
Voice of the Corporate Secretary
“We have a well-articulated Risk committee at the Board level that is dedicated to looking at the
organizational risk and ensuring that systems, policies, tolerances and limits are in place to control and
manage risk.”
Risks are categorized based on the level of importance and their effects on overall business operations. In
order to strengthen risk governance, many organizations have begun to introduce quarterly or annual
disclosures in the form of risk reports. As indicated on the next page, risk management responsibilities are
also incorporated into performance goals, especially that of senior management.
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When looking at year over year statistics, we have seen a 12% increase in the percentage of responses who
include risk management in the performance goals of senior management. The number of organizations
that do not include risk responsibilities in their organizational goals has decreased from 25% to 19%.
The risk management considerations that are most considered in incentive plans include a portion of the
annual incentive tied to overall corporate results, multiple incentive plan metrics, and balancing the short
and long term incentives.
Executive pay
Incentive plans for executives
In terms of designing an executive pay program, ‘market practice’ and ‘company performance’ have the
biggest impact on the final design of executive compensation.
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More than half of the respondents review their executive compensation on a continuous basis, while the
rest only review it if there is a specific development that requires them to do so.
Managing executive compensation strategy
65% of the survey respondents agree that the executive compensation strategy aligns with the
overall corporate strategy and 28% have a neutral opinion
55% agree that it contributes to the setting of the overall strategy, while 36% had a neutral opinion
59% said it provides adequate information for executive compensation oversight, 33% had a neutral
opinion
Only a few organizations felt that their executive compensation strategy does not align and contribute to
the overall strategy or provide the Board with adequate insight.
Voice of the Corporate Secretary
“There is definitely a need for external compensation consulting given the increased complexity of
executive pay.”
Influence on executive compensation
There are several resources that organizations use to obtain advice on executive compensation for their
executive management teams. The most prevalent resource is to use external compensation advisors.
More than half the respondents currently engage an external compensation consultant to obtain advice on
executive pay policy, as indicated below:
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Performance incentives
The most frequent incentives used by respondents to measure performance include the following:
Financial performance: Usually measured by metrics such as profits, revenue, cash flow, earnings per
share, return on investment, economic value added, to name a few.
Individual performance: Measured through the individuals’ goals against performance.
Operational performance: Includes measuring unit cost, productivity, labour efficiency, product quality,
speed of production, etc. to determine level of performance.
Customer feedback: Despite being the least frequent measure of performance, it is still used widely as
indicated below. This includes measures of satisfaction, attraction and loyalty, and is obtained through
surveys, questionnaires and other forms of market research.
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In some organizations, executive compensation is directly linked to the achievement of established goals.
The pay-at-risk increases in proportion to an executive’s accountability to deliver on their goals. Most
organizations link the achievement of goals to both short and long term performance goals.