Priorité à la diversité sur les conseils d’administration | Les entreprises à un tournant !

Selon David A. Katz et Laura A. McIntosh, associés de la firme Wachtell, Lipton, Rosen & Katz, les entreprises américaines ont franchi un point de non-retour eu égard à l’acceptation de la contribution de la diversité à la profitabilité des sociétés.

En effet, il est de plus en plus acquis que l’accroissement de la diversité a des effets positifs sur les deux rôles majeurs du conseil d’administration : (1) la surveillance (oversight) et (2) la création de valeur des entreprises.

Ce court article, publié sur le site du Harvard Law School Forum, décrit les progrès réalisés dans la mise en œuvre de la diversité sur les CA et montre que les entreprises en sont à un tournant dans ce domaine.

Bonne lecture ! Vos commentaires sont appréciés.


Corporate Governance Update: Prioritizing Board Diversity


In what has been called a “breakout year” for gender diversity on U.S. public company boards, corporate America showed increasing enthusiasm for diversity-promoting measures during 2016. Recent studies have demonstrated the greater profitability of companies whose boards are meaningfully diverse. In many cases, companies have collaborated with investors to increase the number of women on their boards, and a number of prominent corporate leaders have publicly encouraged companies to prioritize diversity. The Business Roundtable, a highly influential group of corporate executives, recently released a statement that explicitly links board diversity with board performance in the two key areas of oversight and value creation. Likewise, a group of corporate leaders—including Warren Buffett, Jamie Dimon, Jeff Immelt, and Larry Fink, among others—published their own “Commonsense Principles of Corporate Governance,” (discussed on the Forum here) an open letter highlighting diversity as a key element of board composition.


Momentum toward gender parity on boards is building, particularly in the top tier of public corporations. Pension funds from several states have taken strong stances intended to encourage meaningful board diversity at the 25 percent to 30 percent level. Last year, then-SEC Chair Mary Jo White cited the correlation of board diversity with improved company performance and identified board diversity as an important issue for the Commission, signaling that it may be a priority for regulators going forward. Boards should take note of the evolving best practices in board composition and look for ways to improve, from a diversity standpoint, their candidate search, director nomination, and board refreshment practices. We recommend that boards include this issue as part of an annual discussion on director succession, similar to the annual discussion regarding CEO succession.

Diversity and Performance

A board of directors has two primary roles: oversight and long-term value creation. This year, the Business Roundtable released updated governance guidelines (discussed on the Forum here) that link a commitment to diversity to the successful accomplishment of both goals. Its 2016 guidelines include a statement on diversity that reads, in part, “Diverse backgrounds and experiences on corporate boards … strengthen board performance and promote the creation of long-term shareholder value.” In a statement accompanying the guidelines, Business Roundtable leader John Hayes noted that a “diversity of thought and perspective … adds to good decision-making” and enables “Americans, as well as American corporations, to prosper.” Board success and competence thus is recast to include diversity as an essential element rather than as an afterthought or as a concession to special interests.

Similarly, the “Commonsense Principles of Corporate Governance” (discussed on the Forum here) outlined over the summer by a group of corporate leaders highlights diversity on boards—multi-dimensional diversity—and correlates that diversity with improved performance. The signers of the principles, including an activist investor, a pension plan, and various chief executives, stated unequivocally in their accompanying letter that “diverse boards make better decisions.” A consensus seems to be emerging among corporate leaders that, as stated by the Business Roundtable, boards should include “a diversity of thought, backgrounds, experiences, and expertise and a range of tenures that are appropriate given the company’s current and anticipated circumstances and that, collectively, enable the board to perform its oversight function effectively.” With regard to oversight, a recent study by Spencer Stuart and WomenCorporateDirectors Foundation (discussed on the Forum here) found that female directors generally are more concerned about risks, and are more willing to address them, than are their male colleagues. Boards should, where possible, develop a pipeline of candidates whose career paths are enabling them to acquire the relevant professional expertise to be valuable public company directors in their industry.

In order to promote diversity in board composition, boards should become familiar with director search approaches to identify qualified candidates that would not otherwise come to the attention of the nominating committee. Executive search firms, public databases, and inquiries to organizations such as 2020 Women on Boards are a few of the ways that boards can find candidates that may be beyond their typical field of view. Organizations exist to help companies in their recruitment efforts. Crain’s Detroit Business, for example, has compiled a database of qualified female director candidates in Michigan, who are invited to apply and are vetted for inclusion. Boards may wish to commit to including individuals with diverse backgrounds in the pool of qualified candidates for each vacancy to be filled.

The Future of Diversity

In 2016, shareholder proposals on board diversity met with increased success. The numbers are still small: Nine proposals made it onto the ballot last year, nearly double the total in 2015 and triple the total in 2014. Nonetheless, support reached unprecedented levels in certain cases: A diversity proposal—which was not opposed by management—at FleetCor Technologies received over 70 percent shareholder support. Another diversity proposal—which was opposed by management—at Joy Global received support from 52percent of the voting shares (though the proposal did not pass due to abstentions). Diversity proposals are generally supported by the proxy advisory firms, including Institutional Shareholder Services and Glass Lewis.

Perhaps more significantly, shareholder proposals in several cases resulted in increased board diversity without ever coming to a vote. The pension fund Wespath submitted proposals this year seeking to increase diversity at three major corporations, and in each case withdrew the proposals when the subject companies agreed to add women to their boards. A spokesperson for Wespath stated that the fund had privately communicated their desire for increased diversity and had filed proposals as a “last resort” to spur change.

In a similar effort, CalSTRS recently submitted 125 letters to boards at California corporations whose boards had no women directors; in response, 35 of the companies appointed female board members. CalSTRS has indicated that if its private approaches are unsuccessful, it will proceed with shareholder proposals. The Wespath and CalSTRS examples are valuable for boards. Listening to investors, being responsive, and staying out in front of issues to forestall shareholder proposals is far better than reacting to frustrated investors who feel compelled to resort to extreme measures to get corporate attention. It is also greatly preferable to a situation in which activist investors press for legislative actions such as quotas or other mandatory board composition requirements, as we have seen in other countries.

2017 is likely to be a year in which progress toward greater board diversity significantly accelerates. Indeed, it is becoming clear that gender diversity—if not gender parity—one day will be a standard aspect of board composition. While the process of realizing that future should not be artificially or counterproductively hastened, it should be welcomed as a state of affairs that will be beneficial to all corporate constituents and, beyond, to the greater good of U.S. business and American culture.


Compte rendu hebdomadaire de la Harvard Law School Forum on Corporate Governance | 27 janvier 2017

Voici le compte rendu hebdomadaire du forum de la Harvard Law School sur la gouvernance corporative au 27 janvier 2017.

J’ai relevé les principaux billets.

Bonne lecture !




  1. Why Do Managers Fight Shareholder Proposals? Evidence from No-Action Letter Décisions
  2. Bridging the Data Gap through Shareholder Engagement
  3. Top 10 Topics for Directors in 2017
  4. Mutual Funds As Venture Capitalists? Evidence from Unicorns
  5. Broadening the Boardroom
  6. 2016 Year in Review: Securities Litigation and Regulation
  7. Bebchuk Leads SSRN’s 2016 Citation Rankings
  8. Do Director Elections Matter?
  9. White Collar and Regulatory Enforcement: What to Expect in 2017
  10. Financial Regulatory Reform in the Trump Administration
  11. Dealing with Activist Hedge Funds and Other Activist Investors


Départ du PDG de CPR | 100 millions $ pour mettre son expertise à contribution dans l’opération des chemins de fer aux É.U. !

Ce matin, je partage avec vous un autre excellent article d’Yvan Allaire* et de François Dauphin publié dans le Financial Post le 24 janvier.

Les auteurs reviennent sur le parcours unique de l’ex-président du CN et du CP dans le domaine de la gestion des entreprises de chemins de fer.

Il ressort de ce portrait que le PDG possède une expérience sans pareil, liée à des processus de gestion inimitables.

C’est tellement le cas que M. Harrison a décidé de quitter un emploi très rémunérateur à CP pour accepter l’offre de 118 millions $ d’un Hedge Fund.

On compte sur sa solide expertise pour réorganiser et optimiser les opérations d’une autre entreprise dans le même domaine.

Cet article fait suite à un précédent billet qui portait sur le succès d’une démarche d’activisme (A “Successful” Case of Activism at the Canadian Pacific Railway: Lessons in Corporate Governance)

Cette situation montre clairement que les fonds activistes sont continuellement à la recherche de talents uniques et qu’ils sont prêts à miser des fortunes pour bénéficier de l’expertise incontestable d’un PDG.

Et vous, quelles leçons en retirez-vous ?

Bonne lecture !


Someone just hired Hunter Harrison for $100 million — and there’s an excellent reason why

In an unexpected turn of events, Canadian Pacific Railway announced the early departure of its CEO, Hunter Harrison, a few minutes before a conference call planned for analysts on Jan. 18. Instead of retiring as planned, Harrison leaves CP at age 72 for a new challenge, running another railway company (almost certainly CSX) on behalf of Mantle Ridge LP, a newly established hedge fund run by Paul Hilal. In his prior role at Pershing Square Capital, Hilal was instrumental in backing its investment in CP and installing Harrison’s management team.
CSX: Hunter Harrison Wants to Run His Fourth Railroad
Harrison thus forfeited all benefits and perquisites that he was entitled to receive from CP, including his pension, and he has agreed to surrender for cancellation almost all of his vested and unvested equity awards. Evidently the hedge fund will make him whole for the loss of this package, valued at approximately $118 million.

What makes Hunter Harrison so valuable? In the enchanted world of finance, there are of course no limits to what someone gets paid as long as it is a fraction of what the payer will gain. Still, one would think that a hedge fund manager looking for someone capable of turning around a poorly performing U.S. company would have an abundance of candidates to choose from. After all, the operating tricks that Harrison has come up with to make railroads more efficient have been described in minute detail in books he’s written. Dozens of seasoned railroad executives have worked with him and for him over the years. They must have learned quite a bit about Harrison’s recipe.

The answer to the $118-million question appears to reside in the fact that the successful transformation of these railroads (CN and CP) was the result, yes, of operational improvements, but more so of a fundamental cultural change. Harrison is a formidable change agent, a transformational leader in the truest meaning of that tired expression.

He claims to have invented a principle called “precision railroading,” which he implemented at three major railroads: Illinois Central, CN, and CP, the last with spectacular results, bringing the operating ratio (operating costs as a percentage of revenue, with a lower ratio being better) to 58.6 per cent for fiscal year 2016, down from 81.3 per cent in 2011, the last full year before Harrison’s took over.

Precision railroading, if it was easily learned from a book and replicated, would have been applied with success long ago at every North American railroad. Yet Harrison still seems to bring something that can make a difference over and above the techniques he developed and implemented. That something seems to be his skill at changing the culture of the railroad, a most difficult skill to imitate.

As a lifetime railroader himself, his decisions and actions display a deep understanding of the daily reality of the operators. He spends time meeting with the workers on the field and communicates profusely about the importance of asset optimization and the control of costs. At CP, he took many symbolic actions to instill in the whole organization the need to think and act like a railroader. For example, he relocated the corporate glass-towered headquarters to a rail yard, a move that was meant partly to cut costs but mostly to keep the employees’ focus on freight operations, and remind them daily of what the business is all about.

Managing a strategic turnaround is not an easy task. The softer, cultural element of it is often neglected, overlooked, and difficult to implement. That is where Harrison excels and why a hedge fund manager is prepared to pay big bucks to get that talent working for him.

But is money really the sole motivation for Harrison to start over at another railroad company at 72? In fact, at this stage of his career, he has more to lose reputation-wise if he fails than anything he can really earn in monetary terms.

The Memphis, Tenn. native, whose career began over five decades ago as an 18-year-old carman-oiler, may be driven by the determination to prove that the theory he has developed is replicable, no matter where. And determined to push his legacy to a new level — that of a railroad industry legend.


*Yvan Allaire est professeur émérite de stratégie à l’Université du Québec à Montréal (UQAM) et président exécutif de l’Institut de la gouvernance des organisations privées et publiques (IGOPP), François Dauphin est directeur de la recherche à l’IGOPP et chargé d’enseignement à l’UQAM.

Attentes réciproques | C.A. et direction

Vous trouverez ci-dessous les grandes lignes d’un article publié par Richard Leblanc* dans la revue mensuelle de Governance Centre of excellence à propos de ce que le conseil d’administration attend de la direction, et vice-versa.

Ce sont des questions qui me sont fréquemment posées.

L’auteur a su présenter les réponses à ces questions en des termes clairs. Je vous invite à télécharger ce court article.

Bonne lecture !

What Management Expects from the Board

Management, in turn, has expectations of the board. They are:

  1. Candor
  2. Integrity and Independence
  3. Direction
  4. React in a Measured Way
  5. Trust and Confidence
  6. Knowledge of the Business
  7. Meeting Preparation
  8. Asking Good Questions

Dix thèmes majeurs pour les administrateurs de sociétés en 2017

Aujourd’hui, je partage avec vous la liste des dix thèmes majeurs en gouvernance que les auteurs Kerry E. Berchem* et Rick L. Burdick* ont identifiés pour l’année 2017.

Vous êtes assurément au fait de la plupart de ces dimensions, mais il faut noter l’importance accrue à porter aux questions stratégiques, aux changements politiques, aux relations avec les actionnaires, à la cybersécurité, aux nouvelles réglementations de la SEC, à la composition du CA, à l’établissement de la rémunération et aux répercussions possibles des changements climatiques.


Afin de mieux connaître l’ampleur de ces priorités de gouvernance pour les administrateurs de sociétés, je vous invite à lire l’ensemble du rapport publié par Akin Gump.

Bonne lecture !

Dix thèmes majeurs pour les administrateurs de sociétés en 2017




1. Corporate strategy: Oversee the development of the corporate strategy in an increasingly uncertain and volatile world economy with new and more complex risks

Directors will need to continue to focus on strategic planning, especially in light of significant anticipated changes in U.S. government policies, continued international upheaval, the need for productive shareholder relations, potential changes in interest rates, uncertainty in commodity prices and cybersecurity risks, among other factors.

2. Political changes: Monitor the impact of major political changes, including the U.S. presidential and congressional elections and Brexit

Many uncertainties remain about how the incoming Trump administration will govern, but President-elect Trump has stated that he will pursue vast changes in diverse regulatory sectors, including international trade, health care, energy and the environment. These changes are likely to reshape the legal landscape in which companies conduct their business, both in the United States and abroad.

With respect to Brexit, although it is clear that the United Kingdom will, very probably, leave the European Union, there is no certainty as to when exactly this will happen or what the U.K.’s future relationship, if any, with the EU will be. Once the negotiations begin, boards will need to be quick to assess the likely shape of any deal between the U.K. and the EU and to consider how to adjust their business model to mitigate the threats and take advantage of the opportunities that may present themselves.

3. Shareholder relations: Foster shareholder relations and assess company vulnerabilities to prepare for activist involvement

The current environment demands that directors of public companies remain mindful of shareholder relations and company vulnerabilities by proactively engaging with shareholders, addressing shareholder concerns and performing a self-diagnostic analysis. Directors need to understand their company’s vulnerabilities, such as a de-staggered board or the lack of access to a poison pill, and be mindful of them in any engagement or negotiation process.

4. Cybersecurity: Understand and oversee cybersecurity risks to prepare for increasingly sophisticated and frequent attacks

As cybercriminals raise the stakes with escalating ransomware attacks and hacking of the Internet of Things, companies will need to be even more diligent in their defenses and employee training. In addition, cybersecurity regulation will likely increase in 2017. The New York State Department of Financial Services has enacted a robust cybersecurity regulation, with heightened encryption, log retention and certification requirements, and other regulators have issued significant guidance. Multinational companies will continue implementation of the EU General Data Protection Regulation requirements, which will be effective in May 2018. EU-U.S. Privacy Shield will face a significant legal challenge, particularly in light of concerns regarding President-elect Trump’s protection of privacy. Trump has stated that the government needs to be “very, very tough on cyber and cyberwarfare” and has indicated that he will form a “cyber review team” to evaluate cyber defenses and vulnerabilities.

5. SEC scrutiny: Monitor the SEC’s increased scrutiny and more frequent enforcement actions, including whistleblower developments, guidance on non-GAAP measures and tougher positions on insider trading

2016 saw the Securities and Exchange Commission (SEC) award tens of millions of dollars to whistleblowers and bring first-of-a-kind cases applying new rules flowing from the protections now afforded to whistleblowers of potential violations of the federal securities laws. The SEC was also active in its review of internal accounting controls and their ability to combat cyber intrusions and other modern-day threats to corporate infrastructure. The SEC similarly continued its comprehensive effort to police insider trading schemes and other market abuses, and increased its scrutiny of non-GAAP (generally accepted accounting principles) financial measure disclosures. 2017 is expected to bring the appointment of three new commissioners, including a new chairperson to replace outgoing chair Mary Jo White, which will retilt the scales at the commissioner level to a 3-2 majority of Republican appointees. 2017 may also bring significant changes to rules promulgated previously under Dodd-Frank.

6. CFIUS: Account for CFIUS risks in transactions involving non-U.S. investments in businesses with a U.S. presence

Over the past year, the interagency Committee on Foreign Investment in the United States (CFIUS) has been particularly active in reviewing—and, at times, intervening in—non-U.S. investments in U.S. businesses to address national security concerns. CFIUS has the authority to impose mitigation measures on a transaction before it can proceed, and may also recommend that the President block a pending transaction or order divestiture of a U.S. business in a completed transaction. Companies that have not sufficiently accounted for CFIUS risks may face significant hurdles in successfully closing a deal. With the incoming Trump administration, there is also the potential for an expanded role for CFIUS, particularly in light of campaign statements opposing certain foreign investments.

7. Board composition: Evaluate and refresh board composition to help achieve the company’s goals, increase diversity and manage turnover

In order to promote fresh, dynamic and engaged perspectives in the boardroom and help the company achieve its goals, a board should undertake focused reassessments of its underlying composition and skills, including a review and analysis of board tenure, continuity and diversity in terms of upbringing, educational background, career expertise, gender, age, race and political affiliation.

8. Executive compensation: Determine appropriate executive compensation against the background of an increased focus on CEO pay ratios

Executive compensation will continue to be a hot topic for directors in 2017, especially given that public companies will soon have to start complying with the CEO pay ratio disclosure rules. Recent developments suggest that such disclosure might not be as burdensome or harmful to relations with employees and the public as was initially feared.
The SEC’s final rules allow for greater flexibility and ease in making this calculation, and a survey of companies that have already estimated their ratios indicates that the ratio might not be as high, on average, as previously reported.

9. Antitrust scrutiny: Monitor the increased scrutiny of the antitrust authorities and the implications on various proposed combinations

Despite the promise of synergies and the potential to transform a company’s future, antitrust regulators have become increasingly hostile toward strategic transactions, with the Department of Justice and Federal Trade Commission suing to block 12 transactions since 2015. Although directors should brace for a longer antitrust review, to help navigate the regulatory climate, work upfront can dramatically improve prospects for success. Company directors should develop appropriate deal rationales and, with the benefit of upfront work, allocate antitrust risk in the merger agreement. Merger and acquisition activity may also benefit from the Trump administration, taking, at least for certain industries, a less-aggressive antitrust enforcement stance.

10. Environmental disasters and contagious diseases: Monitor the impact of increasingly volatile weather events and contagious disease outbreaks on risk management processes, employee needs and logistics planning

While the causes of climate change remain a political sticking point, it cannot be debated that volatile weather events, environmental damage and a rise in the diseases that tend to follow, are having increasingly adverse impacts on businesses and markets. Businesses will need to account for, or transfer the risk of, the increasing likelihood of these impacts. The SEC recently announced investigations into climate-risk disclosures within the oil and gas sector to ensure that they adequately allow investors to account for these effects on the bottom line. The growing number of shareholder resolutions and suits addressing climate change confirm that investors want this information, regardless of the position of the next administration.

The complete publication is available here.

*Kerry E. Berchem is partner and head of the corporate practice, and Rick L. Burdick is partner and chair of the Global Energy & Transactions group, at Akin Gump Strauss Hauer & Feld LLP.

Compte rendu hebdomadaire de la Harvard Law School Forum on Corporate Governance | 19 janvier 2017

Voici le compte rendu hebdomadaire du forum de la Harvard Law School sur la gouvernance corporative au 19 janvier 2017.

J’ai relevé les principaux billets.

Bonne lecture !




  1. Playing It Safe? Managerial Preferences, Risk, and Agency Conflicts
  2. Shareholder Challenges Pay Practice at Apple, Inc.
  3. Corporate Donations and Shareholder Value
  4. Delaware Supreme Court Rules on Director Independence
  5. Proxy Access Reaches the Tipping Point
  6. Acquisition Financing: the Year Behind and the Year Ahead
  7. Say on Pay Laws, Executive Compensation, CEO Pay Slice, and Firm Value around the World
  8. The Importance of the Business Judgment Rule
  9. 2016 Year-End FCPA Update
  10. Delaware Court of Chancery Dismissal of Complaint Based on Post-Closing Disclosure Claims

Pourquoi un haut dirigeant devrait-il faire appel à un coach professionnel ?

Voici un excellent article de Ray B. Williams, paru dans Psychology Today, sur les raisons qui devraient inciter les présidents et chefs de direction (PCD – CEO) à faire appel à un coach.

C’est un article de vulgarisation basé sur plusieurs recherches empiriques qui fait la démonstration de la quasi nécessitée, pour un haut dirigeant, d’avoir les conseils d’un professionnel du coaching.

Voici quelques références sur le coaching professionnel des dirigeants :

  1. Coaching exécutif de leaders et dirigeants
  2. Diriger un cabinet de coaching pour hauts dirigeants c’est avant tout… être coach
  3. Le coaching du dirigeant
  4. Coaching d’entreprise: Définition de coach de dirigeants, management, coaching d’entreprise
  5. L’accompagnement des managers et des dirigeants
  6. Coaching de gestion

Vous serez étonné d’apprendre que c’est probablement l’un des secrets les mieux gardés et que c’est l’une des raisons qui expliquent le succès de plusieurs grands gestionnaires. À lire.

Bonne lecture !

Why Every CEO Needs a Coach ?


« Paul Michelman, writing in the Harvard Business Review Working Knowledge, cites the fact that most major companies now make coaching a core part of their executive development programs. The belief is that one-on-one personal interaction with an objective third party can provide a focus that other forms of organizational support cannot. A 2004 study by Right Management Consultants found 86% of companies used coaches in their leadership development program.

Eric Schmidt, Chairman and CEO of Google, who said that his best advice to new CEOs was « have a coach. » Schmidt goes on to say « once I realized I could trust him [the coach] and that he could help me with perspective, I decided this was a great idea…


Douglas McKenna, writing in Forbes magazine, argues that the top athletes in the world, and even Barack Obama, have coaches. In his study of executive coaching, McKenna, who is CEO and Executive Director for the Center for Organizational Leadership at The Oceanside Institute, argues that executive coaches should be reserved for everyone at C-level, heads of major business units or functions, technical or functional wizards and high-potential young leaders.

Despite its popularity, many CEOs and senior executives are reluctant to report that they have a coach, says Jonathan Schwartz, one-time President and CEO of Sun Microsystems, who had an executive coach himself. Steve Bennett, former CEO of Intuit says, “At the end of the day, people who are high achievers—who want to continue to learn and grow and be effective—need coaching.”

John Kador, writing in CEO Magazine, argues that while board members can be helpful, most CEOs shy away from talking to the board about their deepest uncertainties. Other CEOs can lend a helping ear, but there are barriers to complete honesty and trust. Kador writes, “No one in the organization needs an honest, close and long term relationship with a trusted advisor more than a CEO.”

Kador reports conversations with several high profile CEOs: “Great CEOs, like great athletes, benefit from coaches that bring a perspective that comes from years of knowing [you], the company and what [you] need to do as a CEO to successfully drive the company forward,” argues William R. Johnson, CEO of the H.J. Heinz Co., “every CEO can benefit from strong, assertive and honest coaching.”

The cost of executive coaches, particularly a good one, is not cheap, but “compared to the decisions CEOs make, money is not the issue,” says Schwartz, “if you have a new perspective, if you feel better with your team, the board and the marketplace, then you have received real value.”

Compte rendu hebdomadaire de la Harvard Law School Forum on Corporate Governance | 12 janvier 2017

Voici le compte rendu hebdomadaire du forum de la Harvard Law School sur la gouvernance corporative au 12 janvier 2017.

J’ai relevé les principaux billets.

Bonne lecture !




  1. Global and Regional Trends in Corporate Governance for 2017
  2. Compensation Season 2017
  3. Sustainability Practices: 2016 Edition
  4. The Ivory Tower on Corporate Governance
  5. Constitutionality of SEC’s Administrative Law Judges Headed to Supreme Court?
  6. Moving Beyond Shareholder Primacy: Can Mammoth Corporations Like ExxonMobil Benefit Everyone?
  7. Mergers and Acquisitions—A Brief Look Back and a View Forward
  8. Top 250 Report on Long-Term Incentive Grant Practices for Executives
  9. Corporate Governance: The New Paradigm
  10. A Strategic Cyber-Roadmap for the Board
  11. 2016 Year-End Activism Update
  12. Short-Termism and Shareholder Payouts: Getting Corporate Capital Flows Right

Principales tendances en gouvernance à l’échelle internationale en 2017

Voici un excellent résumé des principales tendances en gouvernance à l’échelle internationale. L’article paru sur le site de la Harvard Law School Forum est le fruit des recherches effectuées par Rusty O’Kelley, membre de CEO and Board Services Practice, et Anthony Goodman, membre de Board Effectiveness Practice de Russell Reynolds Associates.

Les auteurs ont interviewé plusieurs investisseurs activistes et institutionnels ainsi que des administrateurs de sociétés publiques et des experts de la gouvernance afin d’appréhender les tendances qui se dessinent pour les entreprises cotées en 2017.

Parmi les conclusions de l’étude, notons :

  1. Le besoin de se coller plus étroitement à des normes de gouvernance universellement acceptées ;
  2. La nécessité de bien se préparer aux nouveaux risques et aux nouvelles opportunités amenées par la montée des gouvernements populistes de droite ;
  3. Une responsabilité accrue des administrateurs de sociétés pour la création de valeur à long terme ;
  4. L’importance d’une solide compréhension des changements globaux eu égard à l’exercice d’une bonne gouvernance, notamment dans les états suivants :

–  États-Unis

–  Union européenne

–  Japon

–  Inde

–  Brésil

Cette lecture nous donne une perspective globale des défis qui attendent les administrateurs et les CA de grandes sociétés publiques en 2017.

Bonne lecture !


Global and Regional Trends in Corporate Governance for 2017


Russell Reynolds Associates recently interviewed numerous institutional and activist investors, pension fund managers, public company directors and other governance professionals about the trends and challenges that public company boards will face in 2017. Our conversations yielded a wide array of perspectives about the forces that are driving change in the corporate governance landscape.





The changing pressures and dynamics that boards will face in the coming year are diverse and significant in their impact. Institutional investors will continue their push for more uniform standards of corporate governance globally, while also increasing their expectations of the role that boards should play in responsibly representing shareholders. Political uncertainty and the surprise results of the US Presidential and “Brexit” votes may require that boards take a more active role in scenario planning and helping management to navigate increasingly costly risks. The movement for companies and investors to adopt a more long-term orientation has gained momentum, with several large institutional investors now pressuring boards to demonstrate that they are actively involved in guiding a company’s strategy for long-term value creation.

Higher Expectations and Greater Alignment Around Corporate Governance Norms

Continuing the trend from last year, large institutional investors and pension funds are pushing for more aligned approaches to corporate governance across borders to support long-term value creation. Regulators are responding, particularly in emerging economies and those with nascent corporate governance regimes. Recent reforms in Japan, India and Brazil have borrowed heavily from the US or UK models. Where regulators have not yet caught up to or agreed with investor expectations, institutional investors are engaging companies directly to advocate for the governance reforms they want to see. These investors also expect more from their boards than ever before and are increasingly willing to intervene when they do not feel they are being responsibly represented in the boardroom.

Corporate Governance in an Era of Political Uncertainty

Populist political movements have gained broad support in several countries around the world, contributing to uncertainty about the future regulatory and political environments of two of the world’s five largest economies. In the UK, the Conservative government has signaled potential support for shareholder influence over executive pay and disclosure of the CEO-employee pay ratio. In the US, President-elect Trump has demonstrated a willingness to “name and shame” specific companies that he perceives to have benefited unfairly from trade deals or moved jobs overseas. Boards must be prepared to navigate these new reputational risks and intense media scrutiny, and review management’s assumptions about the political implications of certain decisions.

Increasing Board Accountability for Long-Term Value Creation

Efforts to encourage a more long-term market orientation have intensified in recent years, with several prominent business leaders and investors, most notably Larry Fink, Chairman and CEO of BlackRock, urging companies to focus on sustained value creation rather than maximizing short-term earnings. In his 2016 letter to chief executives of S&P 500 companies and large European corporations, Mr. Fink specifically called for increased board oversight of a company’s strategy for long-term value creation, noting that BlackRock’s corporate governance team would be looking for assurances of this oversight when engaging with companies.

Global and Regional Trends in Corporate Governance in 2017

Based on our global experience as a firm and our interviews with experts around the world, we believe that public companies will likely face the following trends in 2017:

  1. Increasing expectations around the oversight role of the board, to include greater oversight of strategy and scenario planning, investor engagement, and executive succession planning.
  2. Continued focus on board refreshment and composition, with particular attention being paid to directors’ skill profiles, the currency of directors’ knowledge, director overboarding, diversity, and robust mechanisms for board refreshment that go beyond box-ticking exercises.
  3. Greater scrutiny of company plans for sustained value creation, as concerns increase that activist settlements and other market forces are causing short-term priorities to compromise long-term interests.
  4. Greater focus on Environmental, Social and Governance (ESG) issues, and in particular those related to climate change and sustainability, as industries beyond the extractive sector begin to feel investor pressure in this area.

We explore these trends and their implications for five key regions and markets: the United States, the European Union, India, Japan and Brazil.

United States

The surprise election of Donald Trump has increased regulatory and legislative uncertainty. Certain industries, such as financial services, natural resources and healthcare, may face less pressure and government scrutiny. We expect nominees to the Securities and Exchange Commission (SEC) to be less supportive of the increased disclosure requirements around executive pay and diversity. However, public pension funds and institutional investors will continue to push governance issues through increased specific engagement with individual companies.

  1. Investors continue to push boards to demonstrate that they are taking a strategic and proactive approach to board refreshment. In particular, they are looking for indicators that boards are adding directors with the skill sets necessary to complement the company’s strategic direction, and ensuring a diversity of backgrounds and perspectives to guide that strategy. Some investors see tenure and age limits as too blunt an instrument, preferring internal or external board evaluations to ensure that every director is contributing effectively. Several large institutional investors will continue to push boards to conduct external board evaluations by third parties to increase the quality of feedback and improve governance.
  2. Ongoing fallout from the Wells Fargo scandal will increase pressure on boards to split the CEO/Chair role, particularly in the financial services sector. Given investor pressure, particularly from pension funds, we also anticipate increased demand for clawbacks, a trend that is likely to go beyond the banking sector.
  3. We expect that 2017 will be a significant year for ESG issues, and in particular those related to climate change and sustainability. Industries beyond the extractive sector will begin to feel investor pressure in this area. While this pressure is being exerted by a number of stakeholder groups, the degree to which the baton has been picked up by mainstream institutional investors is notable.
  4. Increased attention on climate risk is also changing the way many companies and investors think about materiality and disclosure, which will have significant implications for audit committees. Michael Bloomberg is currently leading the Financial Stability Board’s Task Force on Climate-related Financial Disclosures, which will seek to develop consistent, voluntary standards for companies to provide information about climate-related financial risk. The Task Force’s recommendations are expected in mid-2017.
  5. Boards will increasingly be expected to ensure sufficient succession planning not just at the CEO level but in other key C-suite roles as well, as investors want to know that boards are actively monitoring the pipeline of talent. Additionally, there is a relatively new trend of some boards conducting crisis management exercises as a supplement to the activism risk assessment we have seen over the past couple of years.
  6. In the event that all or parts of the Dodd-Frank regulations are repealed, investors will likely turn to private ordering—seeking to persuade companies to change their by-laws—to keep the elements that are most important to them (e.g. “say on pay”). Current SEC rules require that companies begin disclosing their CEO-employee pay ratio in 2018, but we believe this to be a likely target for repeal.

European Union

Across many countries in Europe, the push for board and management diversity will continue apace in 2017. Executive pay continues to be the focus of government, investor and media attention with various proposals for reining in compensation. Work being done in the UK on board oversight of corporate culture has the potential to spill across European borders and travel farther afield over the next few years.

  1. Many countries in Europe continue to push ahead with encouraging gender diversity at the board level, as national laws regulating the number of female directors proliferate. In the UK, the Hampton-Alexander Review recommended that the Corporate Governance Code be amended to require FTSE 350 companies to disclose the gender balance of their executive committees in their annual report.
  2. After ebbing slightly in 2014, activism has made a comeback in Europe: whereas 51 companies were targeted in 2014, 64 were targeted in the first half of 2016 alone. We anticipate that European activists will continue to apply less aggressive and more collaborative tactics than those seen in the US. Additionally, we expect to see US and European institutional investors to be supportive of European activist investors, particularly those who are self-described “constructive activists”, who take a less aggressive approach than their US counterparts.
  3. The EU is expected to amend its Shareholder Rights Directive in 2017 to include an EU-wide “say on pay” framework that would give shareholders the right to regular votes on prospective and retrospective remuneration. While these votes are not expected to be binding, the directive does require that pay be based on a shareholder-approved policy and that issuers must address failed votes. Germany saw a sharp increase in dissents on “say on pay” proposals this year, jumping from 8% to over 20%. In France, the government is currently debating whether to make “say on pay” votes binding, spurred by the public outcry about the Renault board’s decision to confirm the CEO’s 2015 compensation, despite a rejection by a majority of shareholders.
  4. The UK government is expected to continue its push for compensation practice reform in 2017, having recently published a series of proposed policies, including mandatory disclosure of the CEO pay ratio, employee representation in executive compensation decisions, and making shareholder votes on executive compensation binding. We also expect continued strong media coverage and related public opposition to large public company pay packages, which could put UK boards in the spotlight.
  5. In Germany, the ongoing fallout from the Volkswagen scandal is the likely impetus for proposed amendments to the corporate governance code that would underscore boards’ obligations to adhere to ethical business practices. The proposed amendments also acknowledge the increasingly common practice of investor engagement with the supervisory board, and recommend that the supervisory board chair be prepared to discuss relevant topics with investors.
  6. In the UK, boards will be focused on implementing the recommendations of the recent Financial Reporting Council (FRC) report on corporate culture and the role of boards, which makes the case that long-term value creation is directly linked to company culture and the role of business in society.


Indian boards continue to struggle with the implementation of many of the major changes to corporate governance practices required by the 2013 Companies Act, but reform is progressing. While the complete fallout from the recent Tata leadership imbroglio is not yet clear, it will almost certainly reverberate through the Indian corporate governance landscape for years to come.

  1. Recent regulatory changes have increased the scope of responsibilities for the Nomination and Remuneration Committee, requiring boards to ensure that directors have the right set of skills to deliver on these new responsibilities. Increased emphasis on CEO succession planning and board evaluations have necessitated that Committee members become more fluent in these governance processes and methodologies, particularly as the requirement to report on them annually has increased the spotlight on the board’s role in these processes.
  2. The introduction in 2013 of a mandatory minimum of at least one female director for most listed companies has increased India’s gender diversity at the board level to one of the highest rates in Asia, with 14% of all directorships currently held by women. However, concerns persist about the potential for “tokenism”, as a sizeable portion of the women appointed come from the controlling families of the company.
  3. India has also attempted to integrate ESG and Corporate Social Responsibility (CSR) issues at the board level, having mandated that every board establish a CSR committee and that the company spend 2% of net profits on CSR activities. However, companies will need to ensure that their approach to CSR amounts to more than a box-ticking exercise if they want to attract the support of the growing cadre of ESG-focused investors.
  4. Boards are increasingly expected to take a more active role in risk management, particularly cybersecurity risks. Boards should also ensure that their companies are adequately anticipating and responding to cybersecurity threats.
  5. Changes to the 2013 Companies Act have considerably enhanced the duties and liabilities of directors, along with strict penalties for any breach of these duties and the potential for class action lawsuits against individual directors. While potentially helpful in increasing director accountability, these changes also significantly increase the personal risk that a director assumes when joining a board.


Japan’s Corporate Governance Code was reformulated in 2015, as part of the “Abenomics” push for structural reforms. Japanese companies continue to implement the corporate governance principles resulting from the new regulations, with many hoping that the adoption of more Western norms will help prompt the return of foreign investors.

  1. The overhaul of Japan’s corporate governance model in 2015 has begun to yield significant results, as 96% of Japanese boards now have at least one outside director and 78% have at least two. However, Japan’s famously deferential corporate culture may make it difficult for boards to unlock the value of these independent perspectives, as seniority and family ownership often still take precedence.
  2. Increasing investor interest in the Japanese market is likely to increase pressure on boards to adopt more Western norms of corporate governance. CalPERS, the California public pension fund, recently began an explicit program of engagement in Japan, their second-largest equity market, in order to encourage the adoption of more Western norms, including increased board independence and diversity, defining narrower standards of independence, and increasing the disclosure of director qualifications.
  3. Gender diversity remains a challenge for Japanese boards, with only 3% of directorships held by women. However, women account for 22% of outside directors, suggesting that gender diversity on boards will likely continue to increase as the appointment of independent directors becomes more common. A new law, introduced in April 2016, now requires companies with more than 300 employees to publish data on the number of women they employ and how many hold management positions. We anticipate this increased scrutiny at all levels of the company to have a knock-on effect for boards.
  4. While other elements of the new Corporate Governance Code have seen near unanimous compliance, only 55% of listed companies have complied with the stipulation to conduct formal board evaluations. Moreover, the quality and format of the evaluations that are occurring vary significantly, with many adopting a self-evaluation process that amounts to little more than a box-ticking exercise.
  5. The common Japanese practice of former executives and chairs remaining in “advisor” roles beyond the end of their formal tenure is now coming under increasing scrutiny. ISS will now generally vote against amendments to create new advisory positions, unless the advisors will serve on the board and therefore be held accountable to shareholders.


Brazil’s corporate governance regime has evolved significantly in the last decade, as various regulatory entities have sought to apply greater protections for minority shareholders and better align standards with other Western models to attract greater foreign investment.

  1. As Brazil continues to navigate the fallout of the Petrobras scandal, many are questioning how the mechanisms for encouraging and enforcing investor stewardship and corporate governance can be strengthened.
  2. AMEC, Brazil’s association of institutional investors, recently released the country’s first Investor Stewardship Code, calling on investors to adhere to seven principles, including implementing mechanisms to manage conflicts of interest, taking ESG issues into account, and being active and diligent in the exercise of voting rights.
  3. In an effort to address the high levels of absenteeism among institutional investors at general meetings, Brazil’s Security and Exchange Commission (CVM) will, beginning in 2017, require that listed companies allow shareholders to vote by mail or email, rather than requiring that they (or their proxy) be physically present to cast their vote. Brazilian companies, and their boards, should be prepared for the increased requests for investor engagement that are likely to result from the more active participation of institutional investors in the voting process.
  4. New regulations for the country’s Novo Mercado segment of listed companies will be announced in 2017. Highlights of the proposed changes include the required establishment of audit, compensation and appointment committees, a minimum of two independent directors, and more stringent disclosure of directors’ relationships to related companies and other parties.

Compte rendu hebdomadaire de la Harvard Law School Forum on Corporate Governance | 5 janvier 2017

Voici le compte rendu hebdomadaire du forum de la Harvard Law School sur la gouvernance corporative au 5 janvier 2017.

Bonne lecture !




  1. Are Directors Really Irrelevant to Capital Structure Choice?
  2. 2017 Board Priorities Report
  3. The Life (and Death?) of Corporate Waste
  4. Progress in Understanding Proxy Access and the Shareholder Proposal Process
  5. Rethinking Compensation Philosophies: Top 5 Questions for Boards
  6. Controlling Stockholder M&A Does Not Automatically Trigger Entire Fairness Review
  7. Are Shareholder Votes Rigged?
  8. Jury Verdict in “Spread Bet” Insider Trading Case: A Reminder of U.S. Long-Arm Regulatory Risk
  9. REIT M&A, Governance and Activism—Themes for 2017
  10.  Activism, Strategic Trading, and Liquidity
  11. The Delaware General Corporation Law, Simplified
  12. Gender Parity on Boards Around the World

L’activisme de Bill Ackman a du succès dans le cas de CP Rail | Quelles leçons en retirer ?

Yvan Allaire*, président exécutif de l’Institut de la gouvernance des organisations privées et publiques (IGOPP), vient de me transmettre une synthèse de l’analyse de la saga CP-Ackman-Pershing Square, portant sur les leçons à tirer de cet épisode d’agression par un fonds « activiste ».

Cet article a été publié sur le site du Harvard Law School Forum on Corporate Governance and Financial Regulation le 23 décembre 2016.

Comme le disent les auteurs, l’une des leçons à retirer de cette saga est que les conseils d’administration de l’avenir doivent agir comme des activistes, en ce sens qu’ils doivent être continuellement à la recherche d’informations susceptibles de questionner leurs stratégies et leur modèle d’affaires. Sinon, certains fonds activistes seront bien tentés par l’aventure…

Le texte complet du cas est accessible en cliquant sur « here » en fin de texte.

Pershing Square Capital Management, an activist hedge fund owned and managed by Bill Ackman, began hostile maneuvers against the board of CP Rail in September 2011 and ended its association with CP in August 2016, having netted a profit of $2.6 billion for his fund. This Canadian saga, in many ways, an archetype of what hedge fund activism is all about, illustrates the dynamics of these campaigns and the reasons why this particular intervention turned out to be a spectacular success… thus far.

Et vous, quelles leçons en retirez-vous ?

Bonne lecture !


A “Successful” Case of Activism at the Canadian Pacific Railway: Lessons in Corporate Governance

In 2009, the Chairman of the board of the Canadian Pacific Railway (CP) asserted that the company had put in place the best practices of corporate governance; that year, CP was awarded the Governance Gavel Award for Director Disclosure by the Canadian Coalition for Good Governance. Then, in 2011, CP ranked 4th out of some 250 Canadian companies in the Globe & Mail Corporate Governance Ranking. [1] Yet, this stellar corporate governance was no insurance policy against shareholder discontent.

Pershing Square began purchasing shares of CP on September 23, 2011. They filed a 13D form on October 28th showing a stock holding of 12.2%; by December 12, 2011, their holding had reached 14.2% of CP voting shares, thus making Pershing Square the largest shareholder of the company.


On February 6, 2012, Ackman, with Hunter S. Harrison (retired CEO of CN—direct competitor of CP and leader in efficiency among Class 1 North American railways—and his candidate for CEO of CP) by his side, made a fact-based presentation about the shortcomings and failings of the CP board and management. Harrison and Ackman stated that their goal for CP was to achieve an operating ratio of 65 for 2015 (down from 81.3 in 2011—the lower the ratio, the better the performance).

The Board qualified Harrison’s (and Ackman’s) targets of “shot in the dark”, showing a lack of research and a profound misunderstanding of CP’s reality. Relying on an independent consultant report (Oliver Wyman Group), Green mentioned that Harrison’s target for CP’s operating ratio was not achievable since CP’s network was characterized by steeper grades and greater curvature thus adding close to 6.7% to the operating ratio compared to its competitors. [2]

On April 4th 2012, Bill Ackman came out swinging in a scathing letter to CP shareholders disparaging CP’s Board of directors in general, and its CEO, Fred Green, in particular. According to Mr. Ackman, “under the direction of the Board and Mr. Green, CP’s total return to shareholders from the inception of Mr. Green’s CEO tenure to the day prior to Pershing Square’s investment was negative 18% while the other Class I North American railways delivered strong positive total returns to shareholders of 22% to 93%.” [3] Thus, according to him, “Fred Green’s and the Board’s poor decisions, ineffective leadership and inadequate stewardship have destroyed shareholder value.” [4]

A few hours before the annual meeting, CP issued a press release in which it stated that Fred Green had resigned as CEO, and that five other directors, including the Chairman of the Board, John Cleghorn, would not stand for re-election at the company’s shareholder meeting.

Pershing Square had won the proxy fight; all the nominees proposed by Ackman were elected.

Almost exactly five years after first buying shares of CP, Ackman confirmed in August 2016 that Pershing Square would sell its remaining shares of CP, thus formally exiting the “target.” Over those five years, CP has generated a compounded annualized total shareholder return of 45.39% (between September 23, 2011 and August 31, 2016), a performance well above the CN and the S&P/TSX 60 index (CP is a constituent of that index). Pershing Square pocketed an estimated $2.6 billion in profits for its venture into CP.

With massive reductions in the workforce, a transformation of the operations and a radical change of the CP’s organizational culture, CP is undoubtedly a different company from what it was before the proxy fight. In early September 2016, Bill Ackman resigned from CP’s Board, officially concluding this episode.

Lessons in corporate governance

In this day and age, the CP case teaches us that no matter its size or the nature of its business, a company is always at risk of being challenged by dissident shareholders, and most particularly by those funds which make a business of these sorts of operations, the activist hedge funds. Of course, a number of critical features of this saga can be singled out to explain the particular success of this intervention, but this is not the focal point of this post. [5] After all, a widely held company with weak financial results and a stagnating stock price will inevitably attract the attention of these funds.

But the puzzling question and it is an unresolved dilemma of corporate governance remains: how come the board did not know earlier what became apparent very quickly after the Ackman/Harrison takeover? Why would the board not call on independent experts to assess management’s claim that structural differences made it impossible for CP to achieve a performance similar to that of other railroads? The gap in operating ratio between CP and CN had not always been as wide. In fact, as shown in Figure 1, CP had a lower operating ratio than CN during a period of time in the 1990s (Of course, CN was a Crown corporation at that time). The gap eventually widened, reaching unprecedented levels during Fred Green’s tenure (the last full year of operating ratios attributable to Green was in 2011).


Figure 1. Evolution of the operating ratio (%—left scale) for the CP and CN (1994-2015)

How could the board have known that performances far superior to those targeted by the CEO could be swiftly achieved?

Lurking behind these questions is the fundamental flaw of corporate governance: the asymmetry of information, of knowledge and time invested between the governors and the governed, between the board of directors and management. In CP’s case, the directors, as per the norms of “good” fiduciary governance, relied on the information provided by management, believed the plans submitted by management to be adequate and challenging, and based the executives’ lavish compensation on the achievement of these plans. The Chairman, on behalf of the Board, did “extend our appreciation to Fred Green and his management team for aggressively and successfully implementing our Multi-Year plan and creating superior value for our shareholders and customers.” [6] That form of governance is being challenged by activist investors of all stripes.

Their claim, a demonstrable one in the case of CP, is that with the massive amount of information now accessible about a publicly listed company and its competitors, it is possible for dedicated shareholders to spot poor strategies and call for drastic changes. If push comes to shove, these funds will make their case directly to other shareholders via a proxy contest for board membership.

Corporate boards of the future will have to act as “activists” in their quest for information and their ability to question strategies and performances.

The full paper is available for download here.


1The Board Games, The Globe & Mail’s annual review of corporate governance practices in Canada.(go back)

2Deveau, S. “CP Chief Fred Green Defends his Track Record.” Financial Post, March 27, 2012.(go back)

3Letter addressed by William Ackman to Canadian Pacific Railway shareholders, Proxy Circular from April 4th, 2012.(go back)

4Ibid.(go back)

5The case analysis identified four factors that are rarely present in other cases of activism, a fact which explains why few of these interventions achieve the level of success of the CP case.(go back)

6Cleghorn, John. Chairman’s letter to shareholders, CP’s Annual Information Form 2011.(go back)


*Yvan Allaire is Emeritus professor of strategy at Université du Québec à Montréal (UQAM) and Executive Chair of the Institute for Governance of Private and Public Organizations (IGOPP); François Dauphin is Director of Research of IGOPP and a lecturer at UQAM. This post is based on their recent paper.

Le rôle du conseil d’administration dans les procédures de conformité

Voici un cas de gouvernance, publié en décembre sur le site de Julie Garland McLellan* qui illustre comment la direction d’une société publique peut se retrouver en situation d’irrégularité malgré une culture du conseil d’administration axée sur la conformité.

L’investigation du vérificateur général (VG) a révélé plusieurs failles dans les procédures internes de la société. De ce fait, Kyle le président du comité d’audit, risque et conformité, est interpellé par le président du conseil afin d’aider la direction à trouver des solutions durables pour remédier à la situation.

Même si Kyle est conscient qu’il ne possède pas l’autorité requise pour régler les problèmes constatés par le VG, il comprend qu’il est impératif que son message passe.

Le cas présente la situation de manière assez succincte, mais explicite ; puis, trois experts en gouvernance se prononcent sur le dilemme qui se présente aux personnes qui vivent des situations similaires.

Bonne lecture ! Vos commentaires sont toujours les bienvenus.

Le rôle du conseil d’administration dans les procédures de conformité


Business audit concept . Flat design vector illustration

Kyle is chairman on the Audit, Risk and Compliance committee of a government authority board which is subject to a Public Access to Information Act. The auditor general has just completed an audit of several authorities bound by that Act and Kyle’s authority was found to have several breeches of the Act, in particular;

–  some contracts valued at $150,000 or more were not recorded in the contracts register

–  some contracts were not entered into the register within 45 working days of the contracts becoming effective

–  there were instances where inaccurate information was recorded in the register when compared with the contracts, and

–  additional information required for certain classes of contracts was not disclosed in some registers.

The Board Chairman is rightly concerned that this has happened in what all directors believed to be a well governed authority with a strong culture of compliance. The Board Chairman has asked Kyle to oversee management’s response to the Auditor General and the development of systems to ensure that these breeches do not reoccur. Kyle is mindful that he remains a non-executive and has no authority within the chain of management command. He is keen to help and knows that the CEO is struggling with the complexity of her role and will need assistance with any increase in workload.

How can Kyle help without getting embroiled in management affairs?

Raz’s Answer

The issue I spot here, is one which I’ve encountered myself – as a seasoned professional, you have the internal urge to roll your sleeves and get right into it, and solve the problem. From the details disclosed in this dilemma, there’s evidence that the authority’s internal culture is compliant, therefore it’s hard to believe there’s foul play which caused these discrepancies in the reports. I would have guessed that there are some legacy processes, or even old technology, which needs to be looked at and discover where the gap is.

The CEO is under immense pressure to fix this issue, being exposed to public scrutiny, but with the government’s limited resources at her disposal, the pressure is even higher. Making decisions under such pressure, especially when a board member, the chair of the Audit, Risk and Compliance Committee is looking over her shoulder, will likely to force her to make mistakes.

Kyle’s dilemma is simple to explain, but more delicate to handle: « How do I fix this, without sticking my nose into the operations? »

As a NED, what Kyle needs to be is a guide to the CEO, providing a calm and supportive environment for the CEO to operate in. Kyle needs to consult with the CEO, and get her on side, to ensure she’ll devote whichever resources she does have, to deal with this issue. This won’t be a Band-Aid solution, but a solution which will require collaboration of several parts of the organisations, orchestrated by the CEO herself.

Raz Chorev is Partner at Orange Sky and Managing Director at CXC Global. He is based in Sydney, Australia.

Julie’s Answer

The Auditor General has asked management to respond and board oversight of management should be done by and through the CEO.

Kyle cannot help without putting his fingers (or intellect) into the organisation. To do that without causing upset he will need to inform the CEO of the Chairman’s request, offer to help and make sure that he reports to her before he reports elsewhere. Handled sensitively the CEO, who appears to be struggling, should welcome any assistance with the task. Handled insensitively this could be a major issue because the statutory definitions of directors’ roles in public sector companies are less fluid than those in the private sector.

Kyle should also take this as a wake-up call – he assumes a culture of compliance and good governance but that is obviously not correct. The audit committee should regularly review the regulatory and legislative compliance framework and verify that all is as it should be; that has clearly not happened and Kyle should work with the company secretary or chief compliance/legal officer to review the entire framework and make sure nothing else is missing from the regular schedule of reviews. The committee must ask for what it needs to oversight effectively not just read what they are given.

The prevailing attitude should be one of thankfulness that the issue has been found and can be corrected. If Kyle detects a cultural rejection of the need to comply and cooperate with the AG in establishing good governance then Kyle must report to the whole board so remedial action can be planned.

Once management have responded to the AG with their proposed actions to remedy the matter. The audit committee should review to check that the actions have been implemented and that they effectively lead to compliance with the requirements. Likely remedies include amending the position descriptions of staff doing tendering or those setting up vendors in the payments system to include entry of details to the register, training in compliance, design of an internal audit system for routine review of registers and comparison to workloads to ensure that nothing has ‘dropped between the cracks’, and regular reporting of register completion and audit to the board audit committee.

Sean’s Answer

The Audit Risk and Compliance Committee (« Committee ») is to assist the Board in fulfilling its corporate governance and oversight responsibilities in relation to the bodies’ financial reporting, internal control structure, risk management systems, compliance and the external audit function.

The external auditors are responsible for auditing the bodies’ financial reports and for reviewing the unaudited interim financial reports. The Financial Management and Accountability Act 1997 calls for auditing financial statements and performance reviews by the Auditor General.

As Committee Chairman Kyle must be independent and must have leadership experience and a strong finance, accounting or business background. So too must the CEO and CFO have appropriate and sufficient qualifications, knowledge, competence, experience and integrity and other personal attributes to undertake their roles.

It should be the responsibility of the Committee to maintain free and open communication between the Committee, external auditors and management. The Committee’s function is principally oversight and review.

The appointment and ongoing assessment, mentoring and discipline of the CEO rests with the board but the delegation of this authority in relation to compliance often rests with the Committee and Board Chairs.

Kyle may invite members of management (CFO and maybe the CEO) or others to attend meetings  and the Committee should have  authority, within the scope of its responsibilities, to seek information it requires, and assistance  from any employee or external party. Inviting the CFO and or CEO to the Committee allows visibility and a holistic and independent forum where deficiencies may be isolated and functions (but not responsibility) delegated to others.

There is a disconnect or deficiency in one or more functions; Kyle should ensure that the Committee holistically review its own charter, discuss with management and the external auditors the adequacy and effectiveness of the internal controls and reporting functions (including the Bodies’s policies and procedures to assess, monitor and manage these controls), as well as a review of the internal quality control procedures (because these are also suspected to be deficient).

It will rapidly become apparent to management, the Committee, Kyle, the board and the Chairman where the deficiencies lie or did lie, and how they have been corrected. Underlying behavioural problems and or abilities to function will also become apparent and with these appropriately addressed similar deficiencies in other areas of the body may be contemporaneously corrected and all reported to the Auditor General.

Sean Rothsey is Chairman and Founder of the Merkin Group. He is based in Cooroy, Queensland, Australia.

*Julie Garland McLellan is a practising non-executive director and board consultant based in Sydney, Australia.

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