Hello Eddy
This on the wire which may have some application here:
New study released on corporate governance
TSE and ICD Release Corporate Governance Scorecard
TORONTO, June 17 /CNW/ - The first official follow-up study on how
closely corporate Canada follows Toronto Stock Exchange corporate governance
guidelines was released today by the TSE and Institute of Corporate Directors.
The study found that the majority of companies that Canadians invest in take
seriously the guidelines released by the TSE in the 1994 Dey Report ''Where
Were the Directors.'' The study also found that although progress is being
made, not all companies embrace the guidelines aimed at improving the
effectiveness of their boards.
''This research presents a rather complex picture,'' said John Carson,
Senior Vice President, Market Regulation with the TSE. ''On one hand the
companies take the TSE guidelines seriously but on the other hand, there are
important areas where companies fall short of adopting.''
While the survey shows widespread adherence to TSE guidelines in certain
key areas -- notably board size, board composition and involvement in
strategic planning -- adaptation is lower when it comes to formalizing the
roles of board members, measuring board performance and training new
directors. Larger cap companies that account for the bulk of Canadian
shareholdings are most likely to adopt the guidelines.
While not mandatory, TSE-listed companies are encouraged to follow all 14
best practice guidelines originally recommended by the TSE Committee on
Corporate Governance, chaired by Peter Dey, in 1994. Recognizing that there is
no ''one size fits all'' solution, the TSE does not require adaptation -- but
every year, listed companies must disclose and explain any differences between
their corporate governance practices and the guidelines.
Decision Resources Inc, an independent research consultancy, was selected
by the TSE and ICD to conduct the survey of Canadian corporate governance
practices and attitudes. The report is based on detailed responses from 635
CEOs of TSE-listed companies, representing a 51 percent response rate.
''Progress has definitely been made. This is encouraging, but for the TSE
and the Institute, the ultimate goal of a survey like this is to find
practical ways to actively promote sound corporate governance and help bridge
any gaps,'' explained Marcelo D. Mackinlay, Chairman of the ICD.
''Corporate governance is not merely of academic interest. It's good
business. Sound governance is a crucial aspect of delivering better returns to
shareholders -- and that can only strengthen our capital markets,'' said Mr.
Carson.
To help public companies take the next step, work has begun on several
fronts:
Evaluation of boards and directors: Boards often lack formal processes
for evaluating their own effectiveness. To help boards assess their
performance, the ICD is designing a scorecard that companies can adapt to
their specific needs.
Disclosure: The TSE will recommend companies use a table format as a best
practice approach to disclosure, which provides a clear picture to
investors of a company's approach on each of the guidelines.
Training: The impending retirement of many among the current generation
of directors suggests that newer board members will have less access to
experienced peers. Today, roughly half the companies have no formal
orientation programs or reference materials for new board members. The
ICD is developing a comprehensive educational program for directors with
the TSE's support.
Risk management: Many boards have no formal processes to evaluate risk.
Later this year, the TSE will pilot a seminar on risk management for
mining and exploration companies.
The fully automated TSE ranks among the world's top exchanges and is
Canada's premier market for senior equities. Accounting for approximately 90%
of equity trading in Canada, the TSE handled over 26 billion shares worth more
than $490 billion in 1998. With a proud 147-year history, the TSE continues to
provide investors with a well-regulated, fair and accessible marketplace.
The Institute of Corporate Directors is a professional association
dedicated to enhancing the standards of corporate governance in Canada.
Decision Resources Inc. is a Toronto-based international business
research and consulting company, with a specialty practice in corporate
performance measurement and research for litigation and regulatory disputes.
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KEY FINDINGS AND ACTION PLANS
The following are the key findings from the report -
''Five Years to the Dey'':
In 1994 the TSE's Corporate Governance Committee's recommended fourteen
best practice guidelines for listed companies. These guidelines were adopted
by the TSE in 1995.
Recognizing that there is no ''one size fits all'' solution, the TSE does
not require compliance with the guidelines -- but every year, listed companies
must disclose and explain any differences between their corporate governance
practices and the guidelines.
Progress has been made on all TSE guidelines. The actual scorecard is
available on p.3 of the report.
Adherence to the guidelines varies with company size and sector.
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Larger companies that account for the bulk of Canadian shareholdings are
most likely to comply with the TSE guidelines, but many smaller issuers need
help.
The attitudes and practices of smaller issuers are well-represented in
the overall survey results: almost 60% of respondents are companies below $100
million equity market capitalization.
Of all the sectors, mining companies are least likely to adhere to the
TSE corporate governance guidelines.
Corporate governance has limited formalization.
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TSE guidelines advocate that boards either assume express responsibility
for developing the corporation's approach to governance or assign this
responsibility to a board committee. In fact, roughly half the companies on
the TSE have little or no formal approach to governance.
Some boards lack formal controls to ensure independence
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TSE guidelines stress the importance of board independence to ensure that
shareholder interests take precedence in all significant decisions. In this
light, certain survey results are concerning:
- 31% of company boards are chaired by the CEO with no independent lead
director.
- only 21% of boards meet at least twice a year without management
present.
- 27% of boards have inside directors on their audit committees.
''We're okay'' confidence in status quo
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65% of boards have no formal process for evaluating their own
effectiveness and simply deal with any issues ''as they arise''. In over half
the cases, board appointments are open-ended rather than for set terms.
Limited training for new directors.
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Only 26% of companies have formal orientation programs for new directors.
Most companies expect board recruits to learn on the job.
Little evidence that liability concerns and inadequate compensation
limit the director pool.
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Most respondents believe directors on their boards are compensated
satisfactorily. Generally, any difficulties in recruiting directors are seen
to result from the limited availability of desirable candidates, rather than
concerns with liability or inadequate compensation.
Opportunities for leadership by the TSE and ICD.
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The survey identified practical ways the TSE and ICD might help companies
improve the quality of governance in Canada. Four initiatives are underway:
- Evaluation of boards and directors: To help boards assess their
performance, the ICD is designing a scorecard that companies can adapt
to their specific needs.
- Disclosure: The TSE will recommend companies use a table format as a
best practice approach to disclosure, which provides a clear picture
to investors of a company's approach on each of the guidelines.
- Training: The ICD is developing a comprehensive educational program
with the TSE's support.
- Risk management: Many boards -- particularly in the gold and precious
minerals sector -- have no formal processes to evaluate risk. Later
this year, the TSE will pilot a seminar on risk management for mining
and exploration companies.
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CURRENT TSE GUIDELINES
The TSE adopted the 1994 Corporate Governance Committee's 14
recommendations as best practice guidelines, rather than hard and fast rules.
Every year, listed companies must disclose and explain any differences between
their corporate governance practices and the guidelines.
Guidelines in Section 474 of the TSE Company Manual
1. The board of directors of every corporation should explicitly assume
responsibility for the stewardship of the corporation and, as part of the
overall stewardship responsibility, should assume responsibility for the
following matters:
a) adoption of a strategic planning process;
b) the identification of the principal risks of the corporation's
business and ensuring the implementation of appropriate systems to
manage these risks;
c) succession planning, including appointing, training and monitoring
senior management;
d) a communications policy for the corporation; and
e) the integrity of the corporation's internal control and management
information systems.
2. The board of directors of every corporation should be constituted with
a majority of individuals who qualify as unrelated directors. An
unrelated director is a director who is independent of management and is
free from any interest and any business or other relationship which
could, or could reasonably be perceived to, materially interfere with the
director's ability to act with a view to the best interests of the
corporation, other than interests and relationships arising from
shareholding.
A related director is a director who is not an unrelated director. If the
corporation has a significant shareholder, in addition to a majority of
unrelated directors, the board should include a number of directors who
do not have interests in or relationships with either the corporation or
the significant shareholder and which fairly reflects the investment in
the corporation by shareholders other than the significant shareholder. A
significant shareholder is a shareholder with the ability to exercise a
majority of the votes for the election of the board of directors.
3. The application of the definition of ''unrelated director'' to the
circumstances of each individual director should be the responsibility of
the board which will be required to disclose on an annual basis whether
the board has a majority of unrelated directors or, in the case of a
corporation with a significant shareholder, whether the board is
constituted with the appropriate number of directors which are not
related to either the corporation or the significant shareholder.
Management directors are related directors. The board will also be
required to disclose on an annual basis the analysis of the application
of the principles supporting this conclusion.
4. The board of directors of every corporation should appoint a committee
of directors composed exclusively of outside, i.e., non-management,
directors, a majority of whom are unrelated directors, with the
responsibility for proposing to the full board new nominees to the board
and for assessing directors on an ongoing basis.
5. Every board of directors should implement a process to be carried out
by the nominating committee or other appropriate committee for assessing
the effectiveness of the board as a whole, the committees of the board
and the contribution of individual directors.
6. Every corporation, as an integral element of the process for
appointing new directors, should provide an orientation and education
program for new recruits to the board.
7. Every board of directors should examine its size and, with a view to
determining the impact of the number upon effectiveness, undertake where
appropriate, a program to reduce the number of directors to a number
which facilitates more effective decision-making.
8. The board of directors should review the adequacy and form of the
compensation of directors and ensure the compensation realistically
reflects the responsibilities and risk involved in being an effective
director.
9. Committees of the board of directors should generally be composed of
outside directors, a majority of whom are unrelated directors, although
some board committees, such as the executive committee, may include one
or more inside directors.
10. Every board of directors should expressly assume responsibility for,
or assign to a committee of directors the general responsibility for,
developing the corporation's approach to governance issues. This
committee would, amongst other things, be responsible for the
corporation's response to these governance guidelines.
11. The board of directors, together with the CEO, should develop
position descriptions for the board and for the CEO, involving the
definition of the limits to management's responsibilities. In addition,
the board should approve or develop the corporate objectives which the
CEO is responsible for meeting.
12. Every board of directors should have in place appropriate structures
and procedures to ensure that the board can function independently of
management. An appropriate structure would be to (i) appoint a chair of
the board who is not a member of management with responsibility to ensure
the board discharges its responsibilities or (ii) adopt alternate means
such as assigning this responsibility to a committee of the board or to a
director, sometimes referred to as the ''lead director''. Appropriate
procedures may involve the board meeting on a regular basis without
management present or may involve expressly assigning the responsibility
for administering the board's relationship to management to a committee
of the board.
13. The audit committee of every board of directors should be composed
only of outside directors. The roles and responsibilities of the audit
committee should be specifically defined so as to provide appropriate
guidance to audit committee members as to their duties. The audit
committee should have direct communication channels with the internal and
external auditors to discuss and review specific issues as appropriate.
The audit committee duties should include oversight responsibility for
management reporting on internal control. While it is management's
responsibility to design and implement an effective system of internal
control, it is the responsibility of the audit committee to ensure that
management has done so.
14. The board of directors should implement a system which enables an
individual director to engage an outside advisor at the expense of the
corporation in appropriate circumstances. The engagement of the outside
advisor should be subject to the approval of an appropriate committee of
the board.
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SURVEY METHODOLOGY
A recommendation in TSE's 1994 Corporate Governance Report ''Where Were
the Directors?'' was that ''a successor committee ... monitor developments in
corporate governance, and evaluate the continued relevance of our
recommendations.''
The Toronto Stock Exchange and the Institute of Corporate Directors (ICD)
commissioned Decision Resources Inc. to research the extent to which corporate
governance of public companies does reflect the TSE guidelines, and to
identify opportunities for the TSE and ICD to support sound practices. The
principal component of the research was a survey of Chief Executive Officers
(who are frequently the Chairs of their boards).
Chief Executive Officers of 1,250 TSE-listed companies were invited to
participate -- more than 95% of issuers listed on the Toronto Stock Exchange.
Issuers that were not operating companies, such as investment trusts, were
excluded. Questionnaires were mailed or couriered in November 1998, covered by
personal letters signed jointly by the Toronto Stock Exchange and the
Institute of Corporate Directors. Respondents were requested to return
completed questionnaires directly to Decision Resources Inc.
The 635 replies constituted a response rate of approximately 51%. This
response rate is two to three times the national average for business surveys
and ensures that the survey results are within 3% of the results that would
have been obtained had all TSE-listed companies participated.
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On a seperate note, I see DB's just took a position in GMD, a play I was hoping HB might try to option into. Too bad.
Regards |
