CCBE will be monitoring the impact of US Say on Pay closely in coming years.

According to Trust Across America,

“The Top 100 Thought Leaders represents the culmination of two years of research. Trust Across America sought the counsel of and requested nominations for this honor from over 150 professionals across the nation. The list was narrowed through an extensive vetting process.”

Congratulations, Chris!

(Make sure to check out Chris’s Business Ethics Blog.)

The way stock options are reported is a good example of the difference between regulatory change and effects of pressure from institutional shareholders, one that we at the Clarkson Centre have seen in our own research.

In 2008, there was a legal requirement, as part of the compensation disclosure rules, that each company disclose the value of option gains realized by each Named Executive Officer during the most recent fiscal year. But starting in 2009, the CSA reworked the compensation disclosure and removed the requirement to disclose Option Gains. As a result, since Option Gains disclosure is no longer required, only 16.6% of companies listed on the S&P/TSX Composite Index this year disclosed the value of option gains (and that number includes companies that had no options outstanding or no options exercised during the year so they were given credit by default as the options gains were obviously $0). So, where option gains disclosure was previously available for 100% of companies, it has fallen off dramatically with the removal of the regulatory requirement.

Conversely, the process for Director Elections in Canadian companies has been improving year-over-year despite the lack of a change in regulatory requirement. The current minimum requirement is that shareholders be allowed to vote “For” or “Withheld” for their board of directors. There are two problems with this. First is the fact that, since shareholders are not able to vote “Against”, then a director’s election is carried with even a single vote “For” (which hardly counts as a ringing endorsement). Secondly, many companies still use a ‘slate’ voting structure, under which shareholders can only vote “For” all or none of the directors. There is no option to vote “For” individual directors unless the company voluntarily chooses to hold elections in that way.

Since 2004, however, due in large part to the support of institutional investors such as the Ontario Teachers’ Pension Plan and the Canadian Coalition for Good Governance, more and more S&P/TSX Composite Index-listed companies are implementing a majority voting policy that not only allows shareholders to vote for individual directors but also counts votes “Withheld” as a vote against the director. In cases where a director receives less than 50% of votes cast “For”, that director must submit their resignation for the board’s consideration. In 2010, more than 50% of Index-listed companies in Canada have such a majority voting policy in place, and this is in large part due to institutional investors pushing for positive governance change, encouraging companies to do more than the bare minimum required.

The main point of the piece is that corporate governance is fundamentally a matter of ethics, and that, further, governance issues have implications far beyond their impact on the shareholders they are typically thought of as protecting.

…corporate governance isn’t just about laws and regulations, and it’s not a concern just for folks on Bay Street. It is also a matter of ethics, and it should be a matter of concern to the public generally.

Governance is fundamentally about who is responsible to whom, and for what, and under what conditions. At a well-governed company, the actions of employees, and especially those of senior executives, are driven by the values that ought to drive their actions. They are not driven by personal greed, or nepotism, or cronyism. Good governance practices are intended to make it more likely that those who carry out the company’s work will act upon their ethical obligations….

Chris’s bottom line:

And regardless of your perspective on corporate governance, it is impossible to deny that the way decisions get made, and the interests that corporate policies encourage decision-makers to serve, are ethically important matters.

You can find this year’s Index, along with past years’ results, here: Board Shareholder Confidence Index.

The BSCI is based on the kinds of factors that active shareholders use in assessing Boards of Directors in terms of their adherence to corporate governance best practices.

A couple of things are worth noting. First, our yearly Index isn’t a ranking. We assign each company a letter grade (from C to AAA+), based on a clear set of criteria, but we don’t rank-order them.

Second, as we often do, we’ve altered our methodology somewhat this year. We now reward firms that disclose the value of option gains. While boards are currently subject to a regulatory requirement to disclose a ‘grant date fair-value’ for options awarded to executives during the most recent fiscal year, the requirement to disclose the value of option gains for the year was removed a couple of years ago. We included disclosure of option gains in our scoring system because we feel that disclosure of actual gains will give a clearer impression to shareholders of how compensation has been affected over time.

Here’s the story Jane McFarland: Proxy advisory firms flexing some serious muscle.

The story focuses on North America’s biggest proxy advisory firm, Institutional Shareholder Services Inc., and the controversy over the quality and transparency of ISS’s advice, along with the amount of influence the company has.

The story quotes the Clarkson Centre‘s Chairman and Director, David Beatty:

“It’s deeply ironic to me that the whole motion toward shareholder responsibility has ended up in the hands basically of one firm whom people accept advice from,” says corporate director David Beatty, who chairs the board of Inmet Mining Corp. and also acts as an adviser to ISS competitor Glass Lewis & Co. LLC.

“By and large, the votes of $10-trillion of assets under management are determined in the first instance by one company. … It’s too much power in one place, and a total abrogation of power by everyone else.”

We’re proud to say that this year’s Board Games rankings are based on data gathered and analyzed by our research team here at the Clarkson Centre, as they have been for several years now.

The top end of the rankings is, once again, dominated by the financial industry. Though it’s hard to establish a direct causal connection, the fact that Canada’s financial institutions perform so well in terms of corporate governance may well have something to do with the fact that Canada has managed to ride out the recent financial storm that has battered so much of the rest of the developed world.

The story quotes the Clarkson Centre’s own Matt Fullbrook:

Matt Fullbrook, manager of the Clarkson Centre for Business Ethics and Board Effectiveness at the University of Toronto, said the potentially biggest amendment could be a new requirement for companies to disclose how the board of directors considered risks associated with the company’s compensation policies – for example, if a pay practice could potentially encourage an executive to take excessive risks.

Mr. Fullbrook said too few companies put meaningful information in their proxy circulars about the considerations that go into their compensation design.

“It’s a piece that is a glaring omission,” he said.

1. Credit union boards want to spend more time spent on strategy;
2. Credit union boards are characterized above all by a deep commitment to meeting the needs of members;
3. Credit union boards demonstrate commitment to continuing education.

Here’s the video:

(Thanks to the Centre for Credit Union Board Excellence for making this video possible.)

The Clarkson Centre has been collecting the data behind Board Games for the past 5 years. Last year, the top 3 companies were SNC-Lavalin Group Inc., Toronto-Dominion Bank and Bank of Montreal. Who will it be, this year? Watch for the answer, here: Board Games.

Note also that, shortly after the publication of Board Games, the Clarkson Centre will be publishing the results of its annual Board Shareholder Confidence Index, courtesy of the Canadian Coalition for Good Governance. (The last 7 years’ results can be found here: Board Shareholder Confidence Index.) So check back here!