CORPORATE GOVERNANCE – Board self- evaluations.
This week’s blogs will focus on board self-evaluations; their genesis, their usefulness and evolution, the proliferation of reviews now undertaken by other groups (such as Independent Review Committees) and the new standard being put forward by various regulators such as OSFI and the OSC’s notice 58-306, the 2010 Corporate Governance Disclosure Compliance Review. It is now the accepted view that boards ought to evaluate themselves by conducting an annual self-assessment – how did we get there?
While most people would point to the Sarbanes-Oxley legislation (2002) as the beginning of real corporate governance. In Canada, it began with the TSX report in 1994 entitled “Where were the Directors?” (the Dey Report) and was followed up five years later with a further report on corporate governance to review whether issuers were adhering to the principles put forward. While there was an adoption of the general principles, adherence and full adoption were mixed. The TSX and TSX-V established the Saucier Committee in 2001 to review current standards and to recommend the manner by which the rules could be brought up to international standards.
The Enron and Worldcom scandals in 2002 culminating with the new U.S. legislation, Sarbanes-Oxley, jump started most of the world’s regulators to review their processes and to develop and require their issuers to adopt and to adhere to best practices. In Ontario, Multilateral policy 58-201 was created and codified many of the standards that we would think of today as commonplace. (http://www.osc.gov.on.ca/en/SecuritiesLaw_pol_20040116_58-201_pro-multi-pol.jsp ). The instrument called for this level of self-assessment.
18. The board should regularly assess its own effectiveness, as well as the effectiveness and contribution of each board committee and each individual director. An assessment should consider
(a) the board’s written mandate,
(b) the charter of each board committee, and
It makes great reading as it deals with the history of these developments and makes the reader realize how engrained they are now. Apart from the regulatory requirements, the Standards may have become the accepted view due to articles like the Globe & Mail’s annual assessment of issuers (Board Games – http://www.theglobeandmail.com/report-on-business/careers/management/board-games-2011/detailed-survey-results-for-board-games-2011/article4181477/ ).
Companies began to conduct performance evaluations of their boards relative to mandates and objectives and to disclose that information to the shareholders. One of the difficult issue is that boards often do not set out objectives for themselves against which they can measure their performance. Accordingly, the initial forms were drafted at a very high level.
It was never doubted though that conducting a self-assessment evaluation can be very important to setting the “tone from the top” by indicating to the entire organization that the board values performance reviews and holds itself accountable. Naturally, the results of the evaluation need to be disseminated broadly so that all the stakeholders can review it.
Tomorrow – how to avoid a review that is merely ticking the box.
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