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	<title>IGOPPIndependence of Board members &#8211; IGOPP</title>
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		<title>Memorandum of IGOPP on Regulations 58-101 and 58-201</title>
		<link>https://igopp.org/en/memorandum-of-igopp-on-regulations-58-101-and-58-201/</link>
		<comments>https://igopp.org/en/memorandum-of-igopp-on-regulations-58-101-and-58-201/#respond</comments>
		<pubDate>Sat, 01 Jul 2023 20:59:06 +0000</pubDate>
		<dc:creator><![CDATA[IGOPP Site web]]></dc:creator>
				<category><![CDATA[Memoranda and Opinions]]></category>
		<category><![CDATA[Diversity]]></category>
		<category><![CDATA[Independence of Board members]]></category>

		<guid isPermaLink="false">https://igopp.org/memoire-aux-membres-des-acvm-sur-les-reglements-58-101-et-58-201/</guid>
		<description><![CDATA[“Any organization governed by a board of directors must strive to constitute a board that is both legitimate and credible.”[1] A board’s credibility is indispensable to its effectiveness and “[its] credibility is measured not only by its in-depth knowledge of the company’s industry and its markets, of its business model, and its value-creation drivers, but [&#8230;]]]></description>
		<content><![CDATA[“Any organization governed by a board of directors must strive to constitute a board that is both legitimate and credible.”[1] [1] A board’s credibility is indispensable to its effectiveness and “[its] credibility is measured not only by its in-depth knowledge of the company’s industry and its markets, of its business model, and its value-creation drivers, but also by the integrity and the trustworthiness of its board members.”[2] [2]

Board members have responsibilities and must comply with obligations that are particularly important in a highly regulated environment. The resulting disclosure of information is analyzed by numerous stakeholders with sometimes divergent objectives and interests. The issue of diversity in the composition of a board is now a major concern, a criterion which can sometimes even influence the nature of the votes cast when electing certain members.

Beyond social recognition and legitimacy, a board consisting of members with varied social and personal attributes can contribute to a greater diversity of skills and perspectives. In addition, a diverse board has many potential benefits, such as: 1) helping to bring in more diverse knowledge and points of view; 2) mitigating the risk of groupthink; 3) demonstrating and fostering a more inclusive corporate culture; 4) helping provide a broader view of risk management, and; 5) contributing to better brand and corporate reputation by aligning its stated values with its actions.

The literature also shows that recruitment and employee retention are facilitated when the forms of diversity present are representative of employees and the population of the main communities in which a company operates—at its highest echelons.

Given the importance of this issue, it is essential for boards to ensure that diversity is fully integrated and encouraged at all levels of the organization by insisting on these aspects with management, making the latter accountable for achieving levels of representativeness— established jointly with management based on the company's reality—among employees and in management positions at every level.

In our research into diversity disclosure, the main benefit that emerged was a demonstrated willingness to consider diverse candidates when selecting new members. In fact, as early as the second year of mandatory disclosure, there was a notable increase in the percentage of new members from diverse backgrounds, particularly from visible minorities, among the largest listed companies. This determination is also evident in the explanatory texts accompanying the disclosed diversity data.

The importance of “broader” diversity illustrates the evolution of civil society's expectations of its major institutions. Major listed companies are now observed and scrutinized through the prism of these new expectations, where their role and responsibilities toward stakeholders and civil society in general are now perceived (rightly or wrongly, depending on the case) much more widely. Some large institutional investors are also acting as watchdogs of listed companies in this respect.

The issue of board diversity is, however, not new. Academics have been interested in the question for several decades, especially if all the research into group dynamics is included. The benefits of diversity are obvious and go far beyond the simple desire for companies to retain a form of social legitimacy by conforming to minimum expectations. However, for these benefits to be fully realized, the issue of diversity needs to be approached thoughtfully; it needs to be contextualized.

Issuers need to take a pragmatic approach to this issue, in line with their organization's current and future strategy. Diversity must be fully embraced and instilled as a belief. This is how a real climate of inclusion will be fostered at all levels of society. It is also from this perspective that we have analyzed the question and the draft amendments submitted as part of this Notice of Consultation.

[1] [3] Allaire, Y. The Independence of Board Members: A Quest for Legitimacy, Policy Paper no. 3, IGOPP, September 2008

[2] [4] Allaire, Y. Board Members Are Independent but Are They Legitimate and Credible? Policy Paper no. 10, IGOPP, 2018

[1] https://igopp.org#_ftn1
[2] https://igopp.org#_ftn2
[3] https://igopp.org#_ftnref1
[4] https://igopp.org#_ftnref2]]></content>
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		<item>
		<title>Transat v. Group Mach: what’s the score?</title>
		<link>https://igopp.org/en/transat-v-group-mach-whats-the-score/</link>
		<comments>https://igopp.org/en/transat-v-group-mach-whats-the-score/#respond</comments>
		<pubDate>Thu, 08 Aug 2019 18:46:27 +0000</pubDate>
		<dc:creator><![CDATA[IGOPP Site web]]></dc:creator>
				<category><![CDATA[News Articles]]></category>
		<category><![CDATA[Hostile takeovers]]></category>
		<category><![CDATA[Independence of Board members]]></category>
		<category><![CDATA[Shareholders]]></category>

		<guid isPermaLink="false">https://igopp.org/transat-contre-groupe-mach-qui-a-raison/</guid>
		<description><![CDATA[Mergers and acquisitions are well-choreographed ballets. Both companies call on financial and legal advisers. The board of the target company sets up an independent committee, which promptly retains its own independent legal and financial advisers. Financial advisers produce an opinion letter assuring all and sundry that the price offered is a fair one for the [&#8230;]]]></description>
		<content><![CDATA[Mergers and acquisitions are well-choreographed ballets. Both companies call on financial and legal advisers. The board of the target company sets up an independent committee, which promptly retains its own independent legal and financial advisers. Financial advisers produce an opinion letter assuring all and sundry that the price offered is a fair one for the target company’s shareholders. Both boards approve the transaction, which is then submitted to a vote of the target company’s shareholders.

The Air Canada acquisition of Transat followed the guidebook to the letter. The only step remaining is set to occur on August 23rd when, at a special meeting, shareholders holding at least two-thirds of Transat’s class B shares are expected to vote in favour of the transaction as per the recommendation of Transat’s board of directors.

But Group Mach, a Quebec-based real-estate investor and operator, is trying to throw a monkey-wrench in this well-oiled mechanics (or, not to mix metaphors, to trip the ballerina). The group has come up with an unusual maneuver in an attempt to block the transaction. They are proposing that shareholders (representing at least 19.5% of class B shares) transfer their voting rights to Mach in exchange for a promise of $14 a share (as compared to the $13 offered by Air Canada).

That promise is highly contingent. If Mach does not receive at least 19.5% of the shares, it will simply return the shares to their owners. If Mach does receive the requisite number of shares but somehow the transaction still gets more than 66.6% of votes supporting it, then again Mach’s offer is moot and the shares tended to them will simply be returned to their owners.

If this stratagem seems too clever by half, well it is. Shareholders are asked to transfer their voting rights in exchange for an iffy promise of a $1 gain above the Air Canada offer. Yet, it creates a “prisoner’s dilemma situation” for shareholders of Transat: if one believes that other large shareholders may also reject the transaction, thus blocking it, better get in the $14 safety boat as the Transat’s stock price will drop precipitously on August 24th. (But if the number of shares tended exceed the 19.5%, only a proportional number of shares will be bought by Mach).

Indeed if the move is successful in blocking the transaction Transat’s share price will quickly drop to what it was before the prospective acquisition became public and perhaps even lower as Transat has been announcing bad news ever since. It is unclear how Group Mach would turn around the situation and bring back the stock price. They state rather vaguely: “Mach intends to work with other stakeholders and shareholders to advocate for improved corporate governance, management accountability and financial performance at Transat, with a view to maximizing returns for Transat shareholders.”

Of course one may wish that Transat had continued as an independent operator providing some needed competition to Air Canada. Mach pushes the argument that with their offer one gets cash right away while the Air Canada transaction will not close until 2020 and hints at competition hurdles with regulatory authorities.

So shareholders may favour the transaction with Air Canada but fear that it will be blocked thus motivating them to accept the Mach offer. If a large number of shares, much more than 19.5%, were tended, the $14 offer would apply only to a fraction of their shareholding, the balance would suffer from the ensuing drop in Transat’s share price. Mach’s offer is valid until August 13th. It would be useful if large shareholders of Transat were to announce their voting intentions before that date.

All in all, the Mach proposal is unusual and does put shareholders, particularly small shareholders, in a sort of double-bind; it deserves scrutiny by the securities commissions.

&#160;

Opinions expressed are strictly those of the author.
]]></content>
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		<item>
		<title>Are Independent Board Members Necessarily Credible?</title>
		<link>https://igopp.org/en/are-independent-board-members-necessarily-credible/</link>
		<comments>https://igopp.org/en/are-independent-board-members-necessarily-credible/#respond</comments>
		<pubDate>Wed, 08 Aug 2018 18:46:15 +0000</pubDate>
		<dc:creator><![CDATA[IGOPP Site web]]></dc:creator>
				<category><![CDATA[News Articles]]></category>
		<category><![CDATA[American governance]]></category>
		<category><![CDATA[Financial crisis]]></category>
		<category><![CDATA[Independence of Board members]]></category>
		<category><![CDATA[Value-creating governance]]></category>

		<guid isPermaLink="false">https://igopp.org/are-independent-board-members-necessarily-credible/</guid>
		<description><![CDATA[By the late 2000s, independent directors were in the majority on the boards of almost every type of U.S. organization. While this achievement may have improved corporate governance, it was not the panacea that some had anticipated, as subsequent events like the financial crisis of 2008 brought down even some of the best governed corporations. [&#8230;]]]></description>
		<content><![CDATA[By the late 2000s, independent directors were in the majority on the boards of almost every type of U.S. organization. While this achievement may have improved corporate governance, it was not the panacea that some had anticipated, as subsequent events like the financial crisis of 2008 brought down even some of the best governed corporations.

The tragic fate of Lehman Brothers, which declared bankruptcy on September 15, 2008, the triggering event of the financial crisis, illustrates the limitations of independent board members. Lehman's board of directors, typical for the time, was made up of independent people, many of whom were ex-CEOs of large corporations like IBM, GlaxoSmithKline, Haliburton, Telemundo Group, and Sotheby’s.

The board made its decisions on the basis of the members’ experience, which had little relevance to the business of Lehman, an investment bank and a large trading operation that dealt with complex financial products.

The report of the examiner appointed by the bankruptcy court to determine the responsibility of Lehman's board of directors for the bank’s collapse (the Jenner &#38; Block Report) is instructive. For the board meeting on March 20th, 2007 at which a fateful decision was made about Lehman’s larger financial commitment to the sub-prime mortgage market, the people responsible for preparing a presentation for the president of Lehman exchanged e-mails conveying his expectations. One e-mail read:

Board is not sophisticated around subprime market- Joe [the president of Lehman] doesn’t want too much detail. He wants to candidly talk about the risks to Lehman but be optimistic and constructive – talk about the opportunities that this market creates and how we are uniquely positioned to take advantage of them (Jenner &#38; Block Report, p.90).

Later in the report, the examiner wrote:

Although Lehman’s management did not provide the Board with all available information concerning the risks faced by the firm in 2007 and early 2008, that fact is not surprising given the Board’s limited role in overseeing the firm’s risk management, and the extraordinarily detailed information available to management. (Jenner &#38; Block Report, p. 185).

Thus, a board made up of independent members with impressive biographies is not ipso facto credible. This helps explain why corporate governance falls short at too many organizations.

A board's credibility rests ultimately with management’s assessment of the board: does the management feel that the board understands in depth their strategic choices, the real drivers of performance, the complexity and ramification of proposed decisions? Do the members of the management team feel that discussions with the board are productive and stimulating, bring out new viewpoints and add value to the decision-making process? A board of directors is only credible to the extent that a significant number of its members are able to interact knowledgeably with management on the multiple factors that influence performance. This type of exchange calls for a board’s deep and systemic understanding of the company’s business model.

That’s why so many experienced, real-world, observers of corporate governance have begun to advocate "specific competence" and "understanding the company's business model." (See, for example, William, 2013; Bailey and Koller, 2014; and Lorsch et al., 2012, The Future of Governance).

Having interviewed 78 board members of large U.S. companies, Jay W. Lorsch, professor at the Harvard Business School, reported that they, unanimously or nearly so, said boards must significantly enhance their skills, and lamented "the huge deficits in expertise and understanding of the business."

The more complex a business is, the more important it is that the board can count on directors who are well versed in the arcane aspects of its operations, although it may be at the price of their independence.

Lorsch concludes that "It is difficult, if not impossible, to find directors who possess deep knowledge of a company’s process, products, and industries who can also be considered independent."

The current, conventional, approach to selecting board members consists of drawing up a list of the different types of professional expertise that would serve the company well. The search also includes a number of retired or active senior managers from diverse corporations. This process will not necessarily lead to a credible board, because the senior managers selected too often lack experience in the business sectors where the company to be governed operates.

The selection process should begin by identifying industries with characteristics in common with the industry in which the target company operates. Those characteristic should include capital intensity, time horizon of investments, industrial vs. consumer markets, international scope of competition, key success factors, and generic strategies. Executives with experience in such industries will more quickly master the essential aspects of the company while also qualifying as independent, thus reconciling independence with credibility.

This approach should also apply to the selection of a director with, say, an expertise in finance. The selection process should stress that candidates must have experience acquired in an industry with characteristics similar to those of the target company’s industry. There is very little transferable expertise, whether in financial management, human resources, risk management, or information technology, among a retail business, a resources company, a financial institution, and a firm in the aerospace/defense industry.

If new board members lack credibility, then the board must determine whether they have committed to investing the time necessary to develop it and, have the necessary education and intellect and whether the board itself has created programs to enhance the credibility of new members.

A board’s credibility is the cornerstone of effective governance. Thus, the search for, training, and retention of credible board members has become the dominant issue and inescapable challenge for corporate governance in the 21st century.
]]></content>
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		</item>
		<item>
		<title>Board members are independent but are they legitimate and credible?</title>
		<link>https://igopp.org/en/from-independent-to-legitimate-and-credible-the-challenge-facing-boards-of-directors/</link>
		<comments>https://igopp.org/en/from-independent-to-legitimate-and-credible-the-challenge-facing-boards-of-directors/#respond</comments>
		<pubDate>Thu, 07 Jun 2018 16:00:42 +0000</pubDate>
		<dc:creator><![CDATA[IGOPP Site web]]></dc:creator>
				<category><![CDATA[Policy Papers]]></category>
		<category><![CDATA[Chairman of the Board]]></category>
		<category><![CDATA[Independence of Board members]]></category>
		<category><![CDATA[Value-creating governance]]></category>

		<guid isPermaLink="false">https://igopp.org/?p=9825/</guid>
		<description><![CDATA[That boards should be made up of a majority of independent members, that goal has been achieved in almost every type of organization. While this achievement did undoubtedly raise the quality of governance, it turned out that «independent boards» were not the cure-all medicine that some anticipated. Already in 2008 in a policy paper on [&#8230;]]]></description>
		<content><![CDATA[That boards should be made up of a majority of independent members, that goal has been achieved in almost every type of organization. While this achievement did undoubtedly raise the quality of governance, it turned out that «independent boards» were not the cure-all medicine that some anticipated.

Already in 2008 in a policy paper on that topic, IGOPP predicted that the concept of directors’ independence would not yield the expected results and would prove disappointing in many respects. That policy paper suggested that the concepts of legitimacy and credibility were far superior to the concept of independence in driving the performance of organizations. For IGOPP, independence – a director’s lack of any personal interests contrary to those of the company – was but a necessary condition for legitimacy.

Events since, in particular the financial crisis of 2008, have backed up the position taken by IGOPP at the time and have generated new legitimacy issues such as the diversity of boards, the representation on boards of stakeholders other than shareholders, the right, contingent upon a minimum holding period, to nominate candidates for the board, age and tenure limits for board membership.

As for board’s credibility, the 2008 policy paper proposed that it hinged on “its experience and expertise relevant to the specific issues and challenges of the organization”, on its in-depth knowledge “of the company’s business model and its drivers of economic and social value” (Allaire, 2008). For IGOPP, credibility also entails integrity and mutual trust between management and board members. Therefore, this credibility was so important that it would be acceptable, and even necessary, to trade-off some independence if this was the price to pay for raising the board’s credibility.

IGOPP’s position in 2018 offers some clarification and tackles some of the new issues which have arisen since 2008.

Thus this policy paper proposes a fundamental change in governance with respect to board evaluation, member selection and profile of expertise sought for the board.
]]></content>
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		</item>
		<item>
		<title>Board members are independent but are they legitimate and credible?</title>
		<link>https://igopp.org/en/board-members-are-independent-but-are-they-legitimate-and-credible/</link>
		<comments>https://igopp.org/en/board-members-are-independent-but-are-they-legitimate-and-credible/#respond</comments>
		<pubDate>Thu, 07 Jun 2018 16:00:19 +0000</pubDate>
		<dc:creator><![CDATA[IGOPP Site web]]></dc:creator>
				<category><![CDATA[Press Releases]]></category>
		<category><![CDATA[Chairman of the Board]]></category>
		<category><![CDATA[Independence of Board members]]></category>
		<category><![CDATA[Value-creating governance]]></category>

		<guid isPermaLink="false">https://igopp.org/les-administrateurs-sont-independants-mais-sont-ils-legitimes-et-credibles/</guid>
		<description><![CDATA[Montreal, June 7, 2017 – Today, the Institute for Governance (IGOPP) is publishing a policy paper entitled: From independent to legitimate and credible – The challenge facing boards of directors. Back in 2008, IGOPP had noted that, despite its presumably crucial role and its omnipresence, the concept of «independent» board members lent itself to several [&#8230;]]]></description>
		<content><![CDATA[Montreal, June 7, 2017 – Today, the Institute for Governance (IGOPP) is publishing a policy paper entitled: From independent to legitimate and credible – The challenge facing boards of directors.

Back in 2008, IGOPP had noted that, despite its presumably crucial role and its omnipresence, the concept of «independent» board members lent itself to several interpretations. It was taken for granted that a board made up of a majority of truly independent directors would deliver better governance and a more diligent focus on improving the performance of the organisation for all its stakeholders.

The financial crisis of 2008 and other widely reported mishaps have dented the confidence in «independence» as an assurance of effective monitoring and investor protection. Ever since that time, IGOPP has been advocating for a broader assessment of boards, namely their legitimacy and credibility. Let «independence» be a necessary but insufficient condition of legitimacy. However, the issue of board legitimacy raises a host of relevant questions: who does, or should, nominate members for the board? Who elects, or should elect board members? Why only shareholders may elect board members of publicly traded corporations? Does diversity, or lack of such, become an issue of legitimacy for boards?

Since 2008, IGOPP has also been proposing that a board's credibility is a condition sine qua non of its effectiveness and ability to add value. Clearly, all, or nearly all, boards meet the regulatory requirement of a majority of independent members, but are boards generally credible?

IGOPP proposes that board members be evaluated for their specific knowledge of, and experience with, the type of business or organization they are asked to govern. Do members understand in depth its business model, its drivers of value creation, the risks, issues and challenges in this particular industry, its comparative performance, etc.?

A board of directors is only credible to the extent that a significant number of its members are able to interact knowledgeably with management on components of performance and the multiple factors that have a dynamic influence on that performance. This type of exchange calls for a board’s deep and systemic understanding of the company's business model.

Credibility also implies that board members are perceived as principled and trustworthy. 

The chair of the board and its governance committee should devise a selection grid which corresponds to the current requirements for board membership. Thus, more than half of the members must be independent and a degree of diversity is becoming an essential requirement of the board make-up. Ideally, the board should look for new members who are independent, add to the board's diversity, and are credible within the meaning given to this term in this policy paper.

This policy paper strongly suggests that boards should begin by identifying industries with characteristics that closely track those of the industry in which the target company operates: such as capital intensity, time horizon of investments, industrial vs. consumer markets, international scope of competition, key success factors, strategies and drivers of value.

The reason for this is obvious. As recruiting board members from the same industry will often result in candidates who are not independent for some reason or another, the search should be broadened to industries which are similar in important features.

Executives with experience in such industries will more quickly master the essential aspects of a company operating in a “similar” industry. This recommendation will help reconcile the regulatory need for "independence" and the important quest for "credibility".

The policy paper published today provides guidelines for the selection and evaluation of board members to enhance their legitimacy and credibility.

IGOPP reminds all boards of directors that:

"It is through its legitimacy that a board gets the right and authority to impose its will on management but it is only through its credibility that a board will create value for all stakeholders of the organization" (Allaire, 2008).

&#160;

General Information and Media Inquiries:

Majida Lamnini
Director, Strategic Initiatives, IGOPP
514.439.9301
mlamnini@igopp.org [1]

Ginette Hains
Project Director, IGOPP
514.439.9301
ghains@igopp.org [2]

[1] https://igopp.orgmailto:mlamnini@igopp.org
[2] https://igopp.orgmailto:ghains@igopp.org]]></content>
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		</item>
		<item>
		<title>Board members are independent, but are they credible?</title>
		<link>https://igopp.org/en/board-members-are-independent-but-are-they-credible/</link>
		<comments>https://igopp.org/en/board-members-are-independent-but-are-they-credible/#respond</comments>
		<pubDate>Wed, 06 Jun 2018 13:42:28 +0000</pubDate>
		<dc:creator><![CDATA[IGOPP Site web]]></dc:creator>
				<category><![CDATA[News Articles]]></category>
		<category><![CDATA[Publications ]]></category>
		<category><![CDATA[Financial crisis]]></category>
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		<category><![CDATA[Value-creating governance]]></category>

		<guid isPermaLink="false">https://igopp.org/board-members-are-independent-but-are-they-credible/</guid>
		<description><![CDATA[By the late 2000s, the goal that boards should be made up of a majority of independent members had been achieved in almost every type of organization. While this achievement may have raised the quality of governance, it turned out that independent boards were not the panacea that some had anticipated. Events since, in particular [&#8230;]]]></description>
		<content><![CDATA[By the late 2000s, the goal that boards should be made up of a majority of independent members had been achieved in almost every type of organization. While this achievement may have raised the quality of governance, it turned out that independent boards were not the panacea that some had anticipated.
Events since, in particular the financial crisis of 2008, have shocked the world of corporate governance as impeccably run corporations were cut down one after the other.
Companies, regulators and all savvy observers of governance had to admit that board members’ independence and their general management experience in industries with little in common with the firm to be overseen were an insufficient basis for high-performance governance. Boards must also have a high level of expertise and experience about the specific issues and challenges faced by the company. That’s what board credibility means.
The more complex the company, the more difficult it is for a director to be credible, as was shown in the financial sector during the years leading up to the crisis of 2008.
A board of directors is only credible to the extent that a significant number of its members are able to interact knowledgeably with management on components of performance and the multiple factors that influence performance. This type of exchange calls for a board’s deep and systemic understanding of the company’s business model.
In our day and age, board members will not become, nor remain, credible if they do not master the immense reservoir of information available on the internet to fashion their own independent sources of data.
The current, conventional, approach to board-member selection consists of drawing up a list of the different types of professional expertise that would serve the company well. The search will also include a number of (retired or still active) senior managers from diverse corporations. This process will not lead to a credible board. Actually, the weak link of that process lies in the recruitment of senior managers with experience in business sectors with little in common with the industry in which the company to be governed operates.
The selection process should begin by identifying industries with characteristics that closely track those of the industry in which the target company operates: such as, capital intensity, time horizon of investments, industrial vs. consumer markets, international scope of competition, key success factors, generic strategies. The reason for this is obvious. Executives with experience in such industries will more quickly master the essential aspects of a company operating in a “similar” industry and still qualify as “independent.” This recommendation will help reconcile the regulatory need for “independence” and the important quest for “credibility.”
That recommendation applies equally if and when a board is looking to select some new member with, say, an expertise in finance. The selection process should stress that this experience must have been acquired in an industry with comparable characteristics (as defined above) to that of the target company. There is very little transferable expertise, whether in financial management, human resources, risk management or information technology, between the retail business, a resources company, a financial institution or a firm in the aerospace industry.
If, upon joining the board, new members do not have a high level of credibility, have they committed to invest the necessary time, do they have the education and intellectual wherewithal to become credible within a reasonable period of time … and to maintain that credibility?
The quest for board diversity and “refreshment” has brought about some policies to force automatic termination of board membership. It is now the fashion to impose age limits (70, 72 or 75) and/or tenure limits (15 years on the board).
Those sorts of policies are sub-optimal, but clearly much easier to implement and less emotionally charged, than asking members to leave as a result of his/her performance evaluation. If truly seeking to raise their board’s credibility, board chairs and governance committees should evaluate all board members (whatever their age and the length of their tenure) for their specific knowledge of, and experience with, the type of business or organization they are asked to govern. That’s a tall order, but a necessary step toward more credible boards capable of creating value for all stakeholders of a corporation.
A board’s credibility is the cornerstone of effective governance. Thus, the search for, training and retention of, credible board members has become the dominant issue and inescapable challenge for corporate governance in the 21st century.
]]></content>
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		<title>How a proposed new ‘right’ for shareholders could badly damage corporate boards</title>
		<link>https://igopp.org/en/who-should-pick-board-members-3/</link>
		<comments>https://igopp.org/en/who-should-pick-board-members-3/#respond</comments>
		<pubDate>Thu, 07 Dec 2017 15:52:15 +0000</pubDate>
		<dc:creator><![CDATA[IGOPP Site web]]></dc:creator>
				<category><![CDATA[News Articles]]></category>
		<category><![CDATA[Independence of Board members]]></category>
		<category><![CDATA[Institutional investors]]></category>
		<category><![CDATA[Risk management]]></category>
		<category><![CDATA[Shareholders]]></category>
		<category><![CDATA[Stakeholders]]></category>

		<guid isPermaLink="false">https://igopp.org/?p=9427/</guid>
		<description><![CDATA[There is a frenzied rush to get/give a new ‘right” to shareholders, the right to put up their own nominees for board membership. Boards of directors, so goes a dominant opinion, are not to be fully trusted to pick the right kind of people as directors or to shift the membership swiftly as circumstances change, [&#8230;]]]></description>
		<content><![CDATA[There is a frenzied rush to get/give a new ‘right” to shareholders, the right to put up their own nominees for board membership. Boards of directors, so goes a dominant opinion, are not to be fully trusted to pick the right kind of people as directors or to shift the membership swiftly as circumstances change, unless some Damocles sword is installed over their heads.

By the end of the 2017 proxy season, 60% of S&#38;P 500 companies had, voluntarily or forcibly, adopted proxy access for board nominations. The following provisions have become standard: ownership of 3% of a company’s voting shares for at least three years, and the right to nominate up to 20% of the board by a shareholder or group of up to 20 shareholders.

This access to voting proxies is about to become an integral part of corporate governance in Canada. All banks have come on board, though still claiming that the existing legal threshold of 5% should be maintained.

The Canadian Coalition for Good Governance (CCGG) has now come out swinging in support of this practice for all publicly traded companies. (Janet McFarland and James Bradshaw, Globe and Mail; November 30th 2017)

It is very unlikely that major corporations will try to oppose the movement as many institutional investors are fiercely supportive of this measure. However, the eventual impact of this initiative on corporate governance raises important issues that seem totally absent from the discussions around this new “right” of shareholders.

Proxy access may have adverse effect on internal board dynamics 

Shareholder access to the director nomination process brings forth a host of issues related to its application as well as a significant risk of adverse effects on board dynamics including:

 	A partial takeover of a responsibility historically assumed exclusively by the board;
 	the implicit belief that directors are only accountable to the shareholders and have a duty to promote exclusively the interests of shareholders, in spite of two Supreme court’s interpretation of the board’s responsibility to include other stakeholders;
 	the reputational issues of the directors submitted to a contested election and the self‑protective behaviour this would bring about;
 	the actual risk of secret negotiations being held between management and investors who are intending to propose nominees;
 	the overwhelming influence accruing to proxy voting advisory firms, whose clients would expect their voting recommendations on the nominees;
 	the risk that the independence of directors nominated by shareholders would be compromised or so perceived;
 	the risk of creating factions and a poisonous atmosphere within the board, which would hinder the proper functioning of the board;
 	the risk of ending up with a board deficient in relevant experience or competence;
 	the risk that the process be hijacked by single-issue groups of shareholders.

The consequences for an individual director being very publicly voted out of a board would be significant and painful, both in economic and reputational terms; this is true for both incumbent nominees and the new nominees proposed by the shareholders.

Faced with the risk and arbitrary nature of a contested election, the directors would try to promote their personal contributions with institutional investors (and proxy advisors), thus generating an unhealthy competition among colleagues. In any event, how would the thousands of shareholders, called upon to choose between several nominees, decide for which nominees to vote, which nominees to dismiss when the voting proxy contains more nominees than available seats?

Smaller institutional funds may well come to rely on proxy advisors (such as ISS or Glass Lewis), again increasing by tenfold the influence of these outfits on the governance of public corporations. These proxy advisors will propose, as per their usual practice, some obvious, measurable criteria to make this choice: age of the directors, number of years as a member of the board, which are, in fact, arbitrary criteria, uncorrelated with actual performance.

Even more likely, boards of directors will initiate discussions and negotiations with institutional investors who have indicated their intention to propose their own nominees in an effort to reach common ground. These secret negotiations are likely to result in some of the nominees proposed by institutional investors becoming the nominees of management and some current directors presumably viewed, more or less deservedly, as being weaker (older, longer tenure) forcibly retired.

Anyone believing that this process is likely to produce stronger boards in the long run needs to consider anew the risks imposed on current and prospective board members as well as the likely impact on the climate and dynamics of boards.

This list of plausible consequences from granting shareholders the right to propose their nominees for the board should give pause to this seemingly unstoppable rush and get some thoughtful governance specialists to push back.

&#160;

Opinions expressed here are the author’s own.
]]></content>
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		<title>The tough job of University rector in Quebec</title>
		<link>https://igopp.org/en/the-tough-job-of-university-rector-in-quebec/</link>
		<comments>https://igopp.org/en/the-tough-job-of-university-rector-in-quebec/#respond</comments>
		<pubDate>Wed, 05 Jul 2017 20:10:26 +0000</pubDate>
		<dc:creator><![CDATA[IGOPP Site web]]></dc:creator>
				<category><![CDATA[IGOPP in the Medias]]></category>
		<category><![CDATA[IGOPP in the medias]]></category>
		<category><![CDATA[Governance of universities]]></category>
		<category><![CDATA[Independence of Board members]]></category>
		<category><![CDATA[Public governance]]></category>

		<guid isPermaLink="false">https://igopp.org/?p=8470/</guid>
		<description><![CDATA[There’s been a substantial turnover of university leaders recently in Quebec, and finding replacements has sometimes proven difficult. No fewer than nine university institutions in Quebec have seen their executive head depart since 2015. Several of the rectors – the term used for university presidents in Quebec – left their posts after a single mandate [&#8230;]]]></description>
		<content><![CDATA[There’s been a substantial turnover of university leaders recently in Quebec, and finding replacements has sometimes proven difficult.

No fewer than nine university institutions in Quebec have seen their executive head depart since 2015. Several of the rectors – the term used for university presidents in Quebec – left their posts after a single mandate or partway through one. Is it that tough being a rector?

[ ... ]

Unlike in the rest of Canada, the process to select and appoint a rector is entirely open in Quebec, which could explain the complexity of renewing mandates. This is the opinion of Yvan Allaire, executive chair of the Institute for Governance of Private and Public Organizations, an initiative of HEC Montréal and Concordia University’s John Molson School of Business. The possibility of a candidate for rector being defeated in a very public vote has discouraged a good many people from outside the institution from applying, he said.

Dr. Allaire added that this way of doing things has the effect of entrenching the status quo. “It’s hard for a candidate to propose massive changes because the very profs, students and administrators who elected him or her end up defending their own interests,” he explained.

In 2017, the institute decided that faculty unions and students should be consulted beforehand and help define the ideal candidate profile, but that the new rector should be confidentially appointed by a board of directors consisting chiefly of independent directors. “The faculty union refused point blank,” said Dr. Allaire. “They feared a loss of control and the infiltration of private business into the board of directors.”

Read more [1]

[1] http://www.universityaffairs.ca/news/news-article/tough-job-university-rector-quebec/]]></content>
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		<title>Are our State-owned enterprises well governed?</title>
		<link>https://igopp.org/en/are-our-state-owned-enterprises-well-governed/</link>
		<comments>https://igopp.org/en/are-our-state-owned-enterprises-well-governed/#respond</comments>
		<pubDate>Thu, 08 Jun 2017 17:00:09 +0000</pubDate>
		<dc:creator><![CDATA[IGOPP Site web]]></dc:creator>
				<category><![CDATA[News and Media]]></category>
		<category><![CDATA[Press Releases]]></category>
		<category><![CDATA[Chairman of the Board]]></category>
		<category><![CDATA[Gouvernance créatrice de valeurs]]></category>
		<category><![CDATA[Indépendance des administrateurs]]></category>
		<category><![CDATA[Independence of Board members]]></category>
		<category><![CDATA[Public governance]]></category>
		<category><![CDATA[Value-creating governance]]></category>

		<guid isPermaLink="false">https://igopp.org/?p=8166/</guid>
		<description><![CDATA[Montreal, June 8, 2017 – The Institute for Governance (IGOPP) is unveiling today the results of a study about the quality of governance at 46 Quebec State-owned enterprises, which collectively have revenues of $63 billion, employ some 65,000 people, receive more than $4 billion in subsidies and generate more than $4 billion in dividends for the [&#8230;]]]></description>
		<content><![CDATA[Montreal, June 8, 2017 – The Institute for Governance (IGOPP) is unveiling today the results of a study about the quality of governance at 46 Quebec State-owned enterprises, which collectively have revenues of $63 billion, employ some 65,000 people, receive more than $4 billion in subsidies and generate more than $4 billion in dividends for the government.

Given their economic and fiscal role, it is important to assess the overall governance of these organizations, the make-up of their boards, their transparency, their adherence to best practices.

The governance score given to each State-owned enterprise is based on 47 variables selected to assess four different aspects of governance: (1) Board composition and structure (26% of total score); (2) Dynamic of board meetings (14%); (3) Qualifications of board members and their appointment/selection process (31%); and (4) Transparency, disclosure and accountability (29%).

These are summary findings:

 	Quebec State-owned enterprises achieved grades for governance ranging from 25% to 87%;
 	A significant difference is noted between those organizations which are subjected to the Quebec law on governance of State-owned enterprises enacted in 2006 versus those which are not;
 	Only half of the 46 State-owned enterprises in this study achieved a passing grade (60% and up).

These results lead to specific recommendations addressed in part to the Quebec government and in part to the boards of directors of State-owned enterprises.

The Quebec government should review and amend the outdated statutes governing several corporations so that all are required to implement best governance practices.

All boards of directors should adopt high-level governance principles and processes, even if not called for by their legal statute, provided that they do not thereby infringe the statute's requirements.

All boards should review their governance score and take measures to swiftly improve their score.

It is noteworthy that, with few exceptions, State-owned enterprises do not divulge the profile of expertise and experience they have set for their board, do not, in many cases, provide complete biographies of their board members, and rarely make public the relationship between the profile of expertise set for the board and the individual biographies of board members. Such disclosure has now become inescapable for any corporation listed on an exchange.

Finally, the information on the compensation of executive officers is often incomplete and, too often, their websites are not user-friendly making it difficult to access information on their governance, their financial results, their strategic plan and whatever performance indicators they use to monitor management.

For any information or to request an interview: 

Majida Lamnini
 Director, Strategic Initiatives, IGOPP &#124; 514.439.9301 &#124; mlamnini@igopp.org [1] &#124;www.igopp.org

[1] https://igopp.orgmailto:mlamnini@igopp.org]]></content>
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		<item>
		<title>Enhancing the Dynamics of Boards of Directors</title>
		<link>https://igopp.org/en/enhancing-the-dynamics-of-boards-of-directors/</link>
		<comments>https://igopp.org/en/enhancing-the-dynamics-of-boards-of-directors/#respond</comments>
		<pubDate>Mon, 27 Jun 2016 19:45:19 +0000</pubDate>
		<dc:creator><![CDATA[mlamnini]]></dc:creator>
				<category><![CDATA[Reports & Studies]]></category>
		<category><![CDATA[Chairman of the Board]]></category>
		<category><![CDATA[Diversity]]></category>
		<category><![CDATA[Independence of Board members]]></category>

		<guid isPermaLink="false">https://igopp.org/?p=6444</guid>
		<description><![CDATA[Board members with extensive experience readily observe, and often comment, that the quality of governance and a board’s effectiveness result as much from subtle, dynamic, intangible factors as from strict observance of the fiduciary and formal aspects of governance. These factors take shape in social interaction among members, in the style of the Chair’s leadership, [&#8230;]]]></description>
		<content><![CDATA[Board members with extensive experience readily observe, and often comment, that the quality of governance and a board’s effectiveness result as much from subtle, dynamic, intangible factors as from strict observance of the fiduciary and formal aspects of governance.

These factors take shape in social interaction among members, in the style of the Chair’s leadership, in what happens before and after formal meetings and during discussions at board and committee meetings. That observation is pertinent for every type of organization, be it a listed corporation, a public institution, a State-owned corporation, a cooperative or a non-profit organization.

Thus, initiatives, mechanisms and processes to improve the dynamic interaction and interplay among board members should enhance a board’s effectiveness. Yet, this particular aspect of governance has been the subject of very few empirical studies because, for reasons of confidentiality, boards cannot readily give researchers direct, live, access to board meetings and ancillary board activities.

One notable exception is Richard Leblanc’s doctoral thesis. Due to the network of contacts of his thesis director and co-author, James Gillies, he was able to observe a certain number of boards in action. In 2005 they published Inside the Boardroom, a book which offers an interesting typology of the dominant behaviours of members during board meetings. Focused on what could be observed at formal board meetings, the work by Leblanc and Gillies provides some insight about but one particular facet of board dynamics.

No other empirical study has been conducted on the issue since then.

Our Institute undertook to shed some light on these subtle, dynamic, intangible factors and, possibly, offer suggestions to directors and board chairs on ways to enhance the quality of governance.

Read more [1]

[1] https://igopp.org/wp-content/uploads/2016/09/IGOPP_Rapport_PerformanceDynamiqueConseilsAdmin_EN_v2_WEB.pdf]]></content>
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