27
The governance Professionals TMAC 27 th Annual Conference Niagara Falls, Ontario Governance in the 21 st century: the changing role of the board of directors Gerard Buckley, BBA, FICB, ICD.D Partner, RSD Solutions Inc. & Janis A. Riven, LLB,BCL,MBA,FCIS, Acc.Dir. Lecturer, John Molson School of Business Concordia University, Montreal President, ICSA (Quebec)

Governance in The 21st Century

Embed Size (px)

DESCRIPTION

This presentation was given to The Treasury Management Association of Canada National Conference in Spet 2009

Citation preview

Page 1: Governance in The 21st Century

The governance Professionals

TMAC 27th Annual ConferenceNiagara Falls, Ontario

Governance in the 21st century: the changing role of the board of directors

Gerard Buckley, BBA, FICB, ICD.DPartner, RSD Solutions Inc.

&Janis A. Riven, LLB,BCL,MBA,FCIS, Acc.Dir.Lecturer, John Molson School of Business

Concordia University, MontrealPresident, ICSA (Quebec)

Page 2: Governance in The 21st Century

The governance Professionals

copyright 2009 ICSA 2copyright 2009 ICSA 2

Agenda

• The emerging vision of governance

• Changing board duties and responsibilities

• Changing skill sets and behaviours

• The audit committee: a very special group

• Breakout exercise

Page 3: Governance in The 21st Century

The governance Professionals

Clean sweep at lotto corp.

“Finance Minister Duncan announces sweeping

changes in wake of expense claims”

• The CEO of troubled Ontario Lottery and Gaming Corp., Kelly McDougald, has stepped down and OLG board chair Michael Gough and the rest of the board of directors have also resigned, Ontario Finance Minister Dwight Duncan announced this afternoon

• You are a member of a temporary board appointed by Minister Duncan on Aug 31 and today is your first meeting.

• Discuss the agenda items you would like to propose for your first meeting

copyright 2009 ICSA 3

Page 4: Governance in The 21st Century

The governance Professionals

copyright 2009 ICSA 4copyright 2008 ICSA 4

Corporate Governance- its not just complianceCompliance

– A way of managing legal, regulatory, reputational and certain operational risk by:

• Respecting rules and principles• Tone from the Top “the way we do things around

here”– Staying out of jail

Corporate Governance• The framework for the direction and oversight of the

enterprise• The process that ensures the direction, control, oversight

and evaluation of the enterprise, and its management. • The means to enhance the decision making process

Page 5: Governance in The 21st Century

The governance Professionals

copyright 2009 ICSA 5copyright 2009 ICSA 5

And why do we care?...

• Good governance is not merely being in compliance with laws

• Good governance enhances shareholder and stakeholder value by balancing demands of each

• Manages conflict of interest areas• Deals with ‘principal-agent’ problem• Good governance brings investor

confidence, economic stability, and increased flows of risk capital

Page 6: Governance in The 21st Century

The governance Professionals

copyright 2009 ICSA 6copyright 2009 ICSA 6

Directors’ Duties

• Corporate law sets out the following duties: – Fiduciary duty (duty of loyalty)

• Duty to act honestly, in good faith and with a view to the best interest of the corporation

– Avoid conflict of interest

– Duty of confidentiality

– Duty to disclose

• Imposed on each director

– Duty of Care• Duty to exercise the care, diligence and skill that a

reasonably prudent person would exercise in comparable circumstances

Page 7: Governance in The 21st Century

The governance Professionals

copyright 2009 ICSA 7copyright 2009 ICSA 7

Board Paradigm Shift

• Old Paradigm– Provides legal direction– Formal and routine– Passive board:

unquestioned personal loyalty to chairman

– Prestige, recognition, rewards

– Minimal contact and dialogue with other directors

• Engaged Board– Reviews and counsels

management– Open collegial dialogue– Active board: main

loyalty to company– Opportunity to make a

difference, meet challenges, build relationships

Page 8: Governance in The 21st Century

The governance Professionals

copyright 2009 ICSA 8copyright 2009 ICSA 8

Boards are now actively engaged in…

1. Strategy2. Investments and M&A3. Human resources / organization4. Financial management5. Risk management6. External relations7. CEO effectiveness8. Succession9. Corporate governance10. Other?

Page 9: Governance in The 21st Century

The governance Professionals

copyright 2009 ICSA 9copyright 2009 ICSA 9

eg: Green accounting

• Corporate accounting will get cleaner and greener—and perhaps even meaner.

• companies will be more eager than ever to offer up environmental indicators to show their good citizenship.

• green accounting is already starting to conform to one standard. – The Global Reporting Initiative

– 1,750 global companies expected to issue reports based on 2008 guidelines

Page 10: Governance in The 21st Century

The governance Professionals

copyright 2009 ICSA 10copyright 2009 ICSA 10

Eg: Sustainability reporting

• Global Reporting Initiative• Dow Jones Sustainability Index• FTSE4Good• UN Principles for Responsible

Investment• ISO 14001 (environment)• SA 8000 (human rights)• ISO 2600 (social responsibility)• UN Global Compact

Page 11: Governance in The 21st Century

The governance Professionals

copyright 2009 ICSA 1111

Eg: Risk Management

• Risk– Risk refers to the uncertainty that surrounds future

events and outcomes. It is the expression of the likelihood and impact of an event with the potential to influence the achievement of an organization's objectives.

• Risk Management– Systematic approach to risk taking

• Enterprise Risk Management (ERM)– ERM is the proactive execution of a senior

management sponsored entity-wide strategic process of assessing and responding to the collective risks that impact an organization’s ability to maximize stakeholder value.

Page 12: Governance in The 21st Century

The governance Professionals

Risk management

The board of directors has overall responsibility foridentifying and monitoring risks, and ensuringadequate control mechanisms are in place.

• Ask questions about emerging risks• Clear committee mandates to ensure all risks are reviewed

– Audit v. risk committee?• Provide visible support to RM process• Link RM to strategic planning• Promote culture –’everyone is a risk manager’

Page 13: Governance in The 21st Century

The governance Professionals

copyright 2009 ICSA 13copyright 2009 ICSA 13

The board’s role:risk prioritization

Low Priority Risks

• Significant monitoring not necessary unless change in classification

• Periodically reassess

Secondary Risks

• Lesser significance, but more likely to occur

• Consider cost/benefit trade-off

• Reassess often to ensure changing conditions (move tohigh significance)

• •

Secondary Risks

Lower likelihood, but could have significant adverse impact on organization objectives

Key Risks

Critical risks that potentially threaten the achievement of organization’s objectives

Likelihood

Imp

act

Low

Rare Almost Certain

High

Page 14: Governance in The 21st Century

The governance Professionals

copyright 2009 ICSA 14copyright 2009 ICSA 14

The effective board requires new skill sets…..

integrity prudence experiencediscretion diligence availabilityloyalty competence objectivity training leadership knowledge teamwork

_________________________________

Availability, Competency, Integrity+ ...

Page 15: Governance in The 21st Century

The governance Professionals

copyright 2009 ICSA 15copyright 2009 ICSA 15

Effective boards need independence• Independence in Fact :

– Not subject to control by others - neither fear nor favour– Independence from management– Independence from controlling shareholder– Based on definitions – structural

• Independence of Mind– Think, speak and act independently with confidence and

courage– Be critical and responsive to change and new thinking– Have confidence and the will to make tough decisions,

including the strength to challenge the majority view– Be willing to risk rapport with Chair and other Directors

and / or C.E.O. in taking a reasoned, independent position

Page 16: Governance in The 21st Century

The governance Professionals

copyright 2009 ICSA 16copyright 2009 ICSA 16

The role of governance professionals

• Key role is the implementation and oversight of effective governance processes– Culture shift from growth to sustainability– Focus on key tools

• Accountability• Transparency • independence

Page 17: Governance in The 21st Century

The governance Professionals

copyright 2009 ICSA 17copyright 2009 ICSA 17

The Audit Committee…

• Why, Why, Why? How many of you have said this?

• Why do these old guys require all this information?

• How many of you have said this or have those thoughts

• The world is changing!

• Board Education is improving: ICSA, ICD, Directors College, CICA and many of the accounting firms now have Board Governance Practices. This is giving the independent director knowledge and he/she is using it!

Jaguar Capital Inc.
The Stength of The Audit Committee is a characteristic of a High Performance Board
Page 18: Governance in The 21st Century

The governance Professionals

copyright 2009 ICSA 18copyright 2009 ICSA 18

The Audit Committee…

• Audit Committee Members are personally accountable for their negligence (Duty of Care)

• If an employee is negligent they lose their job; if a board/committee member is negligent they can be sued!

• In simple language “the buck stops here” with the Board of Directors - not with the CEO.

• D & O insurance does not cover a director for neglect of their Duty of Care

Page 19: Governance in The 21st Century

The governance Professionals

copyright 2009 ICSA 19

Audit Committee Structure

• Most boards required to have an AC• AC governed by OSC MI 52-110• Audit Committee Charter• External Audit reports directly to AC• Internal Audit either reports to or has direct line

to BOD• All members independent• Must meet financial literacy test• Whistleblower program• Audit Committee meetings planning document

copyright 2009 ICSA 19

Page 20: Governance in The 21st Century

The governance Professionals

copyright 2009 ICSA 20

The Audit Committee and Financial Risk Management

• Board risk assessment in many cases is managed by the AC

• How much strategic financial risk should or can the company accept. (Lemans, AIG, Barings etc.)?

• Who is responsible for the other risks in the organization’s ERM?

• There is a new book on ERM coming this fall on ERM that is worth reading:

Enterprise Risk Management: Today's Leading Research and Best Practices for Tomorrow's Executives John Fraser (Editor), Betty Simkins (Editor)

copyright 2009 ICSA 20

Page 21: Governance in The 21st Century

The governance Professionals

copyright 2009 ICSA 21

Roles and Responsibilities

• Risk Assessment• Assess process relating to control

environment• Oversee Financial Reporting including

MD&A and earnings press releases• Evaluate the internal audit process• Evaluate the external audit process

copyright 2009 ICSA 21

Page 22: Governance in The 21st Century

The governance Professionals

copyright 2009 ICSA 22

‘Better’ Practices’

• Chair of AC of should be an expert (CSA does not require this: USA does)

• Minimum three members of AC, but more depending on business complexity

• Meet minimum 5 times a year, once for each quarter and extra meetings as required

• CSA does not require AC Charter; however, NP 58-201 Corp Gov. Guidelines recommend a written mandate

copyright 2009 ICSA 22

Page 23: Governance in The 21st Century

The governance Professionals

copyright 2009 ICSA 23

Skills Required

• Ability to understand financial risks of the organization.

• Ability to understand financial complexities of the organization

• Ability to understand new accounting pronouncements for your organization’s industry

• Time !!!!!

copyright 2009 ICSA 23

Page 24: Governance in The 21st Century

The governance Professionals

copyright 2009 ICSA 24

Authority of the Audit Committee

• Engage independent counsel and other advisors

• Set and pay the compensation for any advisors employed

• Communicate directly with the internal and external auditors

copyright 2009 ICSA 24

Page 25: Governance in The 21st Century

The governance Professionals

copyright 2009 ICSA 25copyright 2009 ICSA 25

Ontario Lottery and Gaming

In your same groups

• What questions should the new directors be asking?

• What went wrong and how should it be fixed?

Page 26: Governance in The 21st Century

The governance Professionals

copyright 2009 ICSA 26copyright 2009 ICSA 26

Shaping the board of the future

• Accountability: – Individual directors who understand their

responsibility • Focus

– Boards composed of right mix of skills and competencies –

• Creative tension – Relationship between board and

management – • Vision

– A broad view and understanding of all stakeholder needs

Page 27: Governance in The 21st Century

The governance Professionals Questions or comments?

Gerard Buckley

Partner, RSD Solutions Inc.

Email: [email protected]

Tel: 416.884.9522

&

Janis Riven

President, ICSA-the institute of governance professionals (Quebec)

Email: [email protected]

Tel: 450.226.7100