Putting quiet pressure on boards to increase governance standards
It has been said people are necessary to bring about change, and institutions to make change take root. David Beatty is taking no chances – he’s trying to change both people and institutions. As a teacher of business ethics, Beatty is responsible for shaping the next generation of corporate leaders. And, as the first managing director of the Canadian Coalition for Good Governance (CCGG), his job is to pressure – Beatty would say ‘convince’ – company boards to improve governance standards.
One way or another, a visit, phone call or letter from Beatty often gets results. A CCGG survey of 30 large governance-challenged companies found 22 had made significant progress last year. Of course, Beatty offers more than polite, reasonable argument – he’s got a fair bit of muscle behind him. The CCGG, a new group of about 50 institutional investors managing more than C$500 bn ($384.7 bn) in assets, aims to be the ‘voice of the shareholder in the evolution of the public policy, legal and regulatory frameworks that shape the investment industry’. The group works quietly, but it does indeed seem to be working. Corporate Secretary magazine asked Beatty about his role as corporate governance catalyst and the shape of Canadian corporate boards to come.
How do you sell better governance to companies? Can you prove it makes money?
Concern about investor trust in capital markets has piqued the interest of most boards in Canada. Enron, WorldCom and the rest shattered the old perception that doing nothing was fine. I don’t sell good governance based on a particular company’s share price improving – that depends on too many things – but rather in the sense that we’re all part of the same capital market in Canada.
We need capital to grow this nation and anything that impedes growth will be a negative. It happens that Canadian corporate governance is among the world’s best and we’d like to keep it that way. But it’s a moving target. The status quo is not an option.
What do you want to change?
We polled our members on the kinds of performance links executive compensation plans should have and we want companies to provide more detail about how they determine compensation. Individual director peer evaluation is another priority.
Overall, we’re assembling a series of corporate governance best practices and publishing them on our web site (www.ccgg.ca). That should help IR people understand the buy side’s needs. We hope it will be a useful reference source for those looking at next year’s annual report and proxy statement.
What if companies just ignore it?
My job is to get companies that do care about this moving forward, so I don’t feel like I’m pushing a stone uphill. Rather, I’m running behind it, rolling it downhill. We put out guidelines and then talk to corporations about whether those guidelines make sense to them. It’s not an adversarial relationship.
Are you more comfortable doing so quietly, behind the scenes?
Our audience is the directors of Canada’s largest firms. I don’t find it necessary or appealing to end up in the newspapers.
What are shareholders looking for in a director?
It starts with personal integrity. The hard part is ensuring a culture of honesty extends to all company departments. Ethical awareness and how companies measure compliance is important to investors, plus the whole legal and regulatory framework is undergoing radical change. Being a board member is a profession – and continuing education is critical to being an effective director.
