why do people want to join boards 2013

Directors Education and Accreditation Program

Why do people (want to) Why do people (want to) join boards?join boards?

Delivered by:

Michael Park, P. Admin., ACIS, Acc. Dir.

1


ContentsContents

1. Goals2. Context3. Why do people seek (& accept) positions4. What to consider (before you join)5. Managing the interview process6. Protecting your integrity – the first 6 months7. Conclusion

2Copyright 2013 ICSA Canada


GoalsGoals

1. To review the social context for directors on private, publicly traded and not-for-profit corporations

2. To suggest why people join boards3. To provoke discussion about how director

recruits should prepare for the interview process



4. To consider factors when the offer to join is made

5. To propose mechanisms to evaluate your first six months on the board – and decide whether or not to stay



2. CONTEXT2. CONTEXT



The Director’s MandateThe Director’s Mandate

Promoting and helping to develop the long-term and SUSTAINABLE success of the corporation

Oversight of management Succession planning for CEO Overseeing risk management Ensure compliance Setting the tone at the top



While at the same time:While at the same time:

Addressing shareholders’ demands in a constructive manner

Maintaining a shareholder relations program Clearly communicating the corporation’s strategy

and building shareholder support for it Engaging institutional investors Considering (and enabling) the role of the lead

Independent Director



Independence is a leading theme of Independence is a leading theme of Corporate GovernanceCorporate Governance

Do any directors have a relationship with management?

Do any directors owe positions on the board to management, a controlling shareholder? How many?

Is there evidence that directors act in the best interests of the corporation?



Do you have time for this Do you have time for this commitment?commitment?

Typical board meeting 4 hrs/month

Preparation for board meeting 2:1 hrs

Typical Committee Membership (+ special projects)

2

Typical Committee Meeting 2hrs/month

Preparation for Committee Meeting 1:1 hr


Total time commitment / month as a director for one board is:

18 hrs/month = 29 days/yr


Recent Poor Governance (and their Recent Poor Governance (and their real impacts)real impacts)

20081. Financial crisis was avoidable.2. There were dramatic failures of corporate

governance and risk management.3. The financial crisis was caused by:

Excessive borrowing Risky investments Lack of transparency

4. At a governance level, there was a systemic breakdown in accountability and ethics.



ImpactImpact

14 m Americans out of work4 m families lost their homes to foreclosure4.5 m families slipped into the foreclosure

process$11t in household wealth vanished



By 2013By 2013

The key issues facing directors were:

A.Chronic short-termismB.Increasing shareholder activism

Retail & Hedge fund

C.Shareholder and stakeholder expectations that the board will balance management oversight with strategic direction and risk management.



D. (In-) effective succession planning CEO Directors

E. Lack of diversity of board membership emerging (& government interest in quotas)

F. Managing Say-on-Pay and Regulator “comply or explain” directives



G. Implementing “best practice” governance guidelines

Increased government intervention Shareholder expectations Stakeholder expectationsCan all of these be reasonably addressed?



Prefer Not-for-Profits?Prefer Not-for-Profits?

1:6 Charities (12000) spend more on administration than they do on the programs they offer

13% of Canadians (& Americans) have confidence in the way charities are governed

Governments across Canada have discharged (or merged) boards of all major government financed non-profits



Canadian Non-Profit frauds have included: Personal lifestyle enhancement Operating parallel enterprises Expanding programs not consistent with the

agency’s Mission Mis-management of resources Sexual misconduct



3. WHY DO PEOPLE JOIN 3. WHY DO PEOPLE JOIN BOARDS?BOARDS?



Typical reasons include:Typical reasons include:

Career progression Networking with a diversity of people Acknowledgement of expertise Enhanced learning opportunities Enhanced community/industry profile



Professional progression As a part of a desire to become a director Professional networking Acknowledgement of expertise in an industry



Challenge and interest remuneration



6 Factors Attracting Directors 6 Factors Attracting Directors (to a corporation)(to a corporation)

A. Reputation Corporation’s industry-wide reputation Quality of its leadership Depth of the management team Integrity and strength of its board



B. Quality of Strategic Plan A culture of performance excellence Board and management leadership Opportunity to enhance the value of a

corporation A match between corporation and director risk

appetite



C. Director / Board Congruence on Benefits of Risk Management



Benefits of Risk ManagementBenefits of Risk ManagementPercentage of respondents that agreed with the following statements:Percentage of respondents that agreed with the following statements:

• Risk management improves accountability, decision-making, transparency and visibility.

93%

• Risk management protects reputation and stakeholder confidence. 93%• Risk management reduces the likelihood of events that would have

a negative consequence.90%

• Risk management protects revenue and enhances value for money.

87%

• Risk management increases the likelihood of events that would have a positive consequence.

77%

• Risk management identifies opportunities where taken risks might benefit the organization.

66%



Who might you replace (and why)Who might you replace (and why)


• Aging has led to diminished performance 14.9%• Does not have expertise required 12.9%• (S)He is unprepared for meetings 11.4%• Oversteps boundaries of his/her oversight 10.1%• (S)He serves on too many boards 5.8%

PWC 2012


Describe the expertise sought in a Describe the expertise sought in a new directornew director

Very Important

Industry 44.8%

Financial 42.7%

International 38.3%

Operational 35.4%

Risk Management 31.7%

I.T. 30.4%

Marketing 18.2%

HR 6.3%

Legal 5.2%



What are the board’s emerging interests in What are the board’s emerging interests in time commitment? time commitment? (What might you expect?)(What might you expect?)

Strategic planning Succession planning Meeting managers from key parts of the

company



I.T. opportunities and issues Risk management Developing human capital



Exec. Compensation Crisis management/planning Regulatory compliance



Sustainability/climate change Corruption concerns



When considering these questions, it may be worthwhile to review:

Saucier 2001 (Canada)Tyson 2003 (U.K.)Higgs 2003 (U.K.)Davies 2010 (U.K.)



Saucier 2001Saucier 2001

The board membership should be a mix of qualified men and women.

(Importance of gender diversity 23%)



Tyson, Higgs, Davies recommend that recruitment sources should (also) consider:

unlisted companiesprivate equity firmsbusiness servicesconsultanciespublic sector leadershipacademia

(importance of diversity of background)



Are the right relationships in place to allow you to perform effectively?

Consider NACD on Director Characteristics and Competencies (2001)



Personal Characteristicsintegrity and accountabilityinformed judgmentfinancial literacymature confidencehigh performance standards



Other Considerations (from CICA) High public standing Enhanced professional profile Service on other boards Potential conflicts



What documents should you review?Board Code of ConductStrategic PlanBy-lawsRisk StrategyCorporate Social Responsibility Statement



What would you need to know about a company before agreeing to join the board?



Who should you consult? Chair and/or lead independent director Internal Auditor, Corporate Secretary Former directors Chair of Audit Committee CEO, COO, CFO Chairs: Audit Committee; Governance Committee



D. Accountability

An effective governance framework and practices: the right relationships in place including:

Integrity and mature confidence High performance standards Judicious use of advisors Informed judgment



E. Strong Board Leadership Regular leadership evaluation Director performance benchmarks Promotability calendar Emphasis on independence Attention given to the competitive landscape

NOT the shareholder list



F. Competitive Compensation Uniqueness of pay package Ability to rationalize compensation to

shareholders Short-term vs. long-term measures defined and

rationalized



4. WHAT TO CONSIDER 4. WHAT TO CONSIDER BEFORE YOU JOIN?BEFORE YOU JOIN?



PreparationPreparation

A. Understanding the sources of new board members

Other board members’ recommendations (90.7%) and/or

Search firm’s (67.2%) and/or Management recommendations (54.8%) and/or Investor recommendations (10.7%) and/or Other (e.g. shareholders proposals) (1.7%) and/or

- PWC’s Annual Corp.Directors Survey 2012



Consider their assumptions in recruitment Board turnover is good Fresh leadership and vision makes a dynamic

and vital organization The recruit fits within a potential promotability

calendar for the candidate It is part of an ongoing process of strategic

assessment by the board



How effective is the recruitment How effective is the recruitment process?process?

1. Early Planning

Is the recruit likely to provide the expertise required to assist the corporation in its short-term and long-term strategy?



What are the risks within the operating environment?



AON 2007 Global Risk SurveyAON 2007 Global Risk Survey


Most risks are operational!

65%

69%

77%

56%

55%

41%

35%

63%

75%

70%

48%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Failure of disaster recovery plan

Merger/acquisition/restructuring

Physical damage

Market risk

Failure to attract or retain staff

Regulatory/legislative changes

Market environment

Distribution or supply chain failure

Third party liability

Business interruption

Damage to Reputation


Where are new pools of candidates sought?

If:74% of Canadian candidates are

recommended by existing directors and48% are (also) proposed by management



Is the Board likely to promotediversityindependence

of the board membership?



Who is involved in the director search process? Nominating Committee Search consultants Other?:

Past Chairman? Current Chairman? Executive Committee?



Has a relationship been developed with the new recruit, over time?

evergreen list certain (sub) committees certain projects (e.g. special investigations) executive search firms



How does the board differentiate itself from other boards (to the recruit’s advantage)?

career networking time commitment compensation profile



Consider also, the status of the corporation – and how your skills and interests match:

Start-up Growth Consolidation Expansion (new markets, new products) Contraction Turnaround



RecruitmentRecruitment

What does the board need?

What does the candidate have?

Skills in governance (within a specific domain)

e.g. financial management, bus. Judgment, crisis planning, industry knowledge, markets, strategy

Background (age, ethnicity, gender, nationality)

e.g. contribution to diversity

Experience (time, energy and, longevity in career and, life stage)

e.g. contribution to maturity of the board

e.g. Is this a career milestone?

Industry/Market Networks (consistent with the strategic plan)

Knowledge of certain markets, competition

Interests Does this recruitment foster director independence?

Does this enhance the individual’s integrity?



RetentionRetention

What does the board need to do to keep the candidate?

What is expected of the candidate?

Development consistent with a promotability calendar within the board

Is the board looking for a governance leader?Is special expertise sought?

Will the candidate develop as a leader in the industry?Does the candidate have the statue required to be credible with investors?

Evaluation (assessment of performance)

e.g. stewardship, risk management, strategy, communication skills

Attendance

(Project) Leadership e.g. Compliance with Code of Conduct; Maintenance of qualifications and competencies



4. MANAGING THE INTERVIEW 4. MANAGING THE INTERVIEW PROCESSPROCESS



ProcessProcess


Interview by N/C (industry experience, strategic management background, financial management

expertise, (social media/IT competence, other directorships

Invitation to serve on a special investigation or special project

sub-committee

Pre-interview (an informal conversation with the Chairman Nominating Committee: role of the director; time required; review

of pertinent experience; your experience within the market

Pre-interview vetting process (reference checks, usually by the Nominating Committee)


ProcessProcess


Board votes

Candidate invited to speak with Corporate Secretary, President

and Chair.Induction organized.

Recommendation by Nominating Committee to the board


Vetting QuestionsVetting Questions

Why are you interested in the position? Are you familiar with the role of director? Do you have past experience? What are your thoughts about the services the

organization provides? What would you contribute to the board?



InterviewInterview

What motivates you to be a director of this corporation? What motivates you to be a director? What do you expect to gain from your experience with us? How much time are you expecting to spend on this position? What industry experience do you have? (e.g. strategic

management, I.T.) Of what importance to you is social interaction with other

board members? Do you support the concept of director evaluation and making

the results known to shareholders?



How might a prospective board assess your credentials?

-Director CompetencyMatrix CICA



Appendix 1 – Director Competency Appendix 1 – Director Competency MatrixMatrix

Area of Competency IncumbentDirectors

ProspectiveDirectors

1 2 3 4 5… 1 2 3

Core Board Knowledge, Skills and ExperiencesCEO / Enterprise Leadership

Industry / Sector

Governance / Board

Financial





1 2 3 4 5… 1 2 3

Desired Knowledge, Skills & Experience

Accounting / AuditAdvocacy / Communications

Development / Fundraising

Community Relations

Diversity (e.g., gender, culture balance)

Geography





1 2 3 4 5… 1 2 3


Government / Public Sector RelationsHR/ Performance Management, Compensation

IT / E-Commerce / Privacy Management

Legal / Regulatory

Marketing / Sales

Member Relations





1 2 3 4 5… 1 2 3


Risk and ControlsOperational / Organizational Activities

Resource / Project Management

Strategic Planning


This matrix in this Appendix uses numbers for incumbent and prospective directors, but names could be used if appropriate. The names and detailed resumes can be provided to selected individuals on a need-to-know basis.


Remember – Persistence pays off.“No” may only mean “Maybe”.Continue to attend corporate functions and continue to network within the industry of your choice.



What you should know –

Why is this corporation interested in you?



Did the board start early? Did they initiate the conversation? Have you been invited to be a part of their

Evergreen list? Have board members (or a board member) tested

your interest, informally?Has the corporation defined a clear mission for itself?



Why do they want to add great board members? And, are you on their top 10 list?



Are these people who you want to associate with – and who want to associate with you?



Have they leveraged existing connections with you? In other words, have opportunities been provided for you to be in the same room with these board members?



Was a relationship built with you first – or was the offer “out of the blue”?



6. PROTECTING YOUR 6. PROTECTING YOUR INTEGRITY INTEGRITY (IN THE FIRST 6 MONTHS)(IN THE FIRST 6 MONTHS)



Was there a mandatory orientation program for new directors organized before their first board meeting?



Did it include: Site visits Interviews with senior management Discussions with:

CRO Internal auditor External auditor Chairman Vice-Chairman Lead Independent Director



Is there a board briefing manual which includes: Description of major shareholders Financial statements By-laws Annual report (most recent) Compensation guidelines Director performance criteria Strategic objectives Risk benchmarks Committees and Terms of Reference



Do you have a job description?

for yourselffor governance leadershipfor Senior Management



Do you understand and support the corporation’s mission and vision?

- as these apply to:sustainabilityCorporate Social Responsibility



What actions demonstrate board accountability for:transparencyindependenceethicsCorporate Social Responsibility




FOR EXAMPLE: Which of the following has the recruiting FOR EXAMPLE: Which of the following has the recruiting board done in response to the whistleblower rules?board done in response to the whistleblower rules?


Is there a governance code of conduct and is it enforced?

Behaviours (Saucier)Conflict of InterestConfidentialityTransparencyCommunications and DisclosureAccess to InformationRespectful Conduct



Is there evidence that the directors act in the best interests of the corporation?

transparency in decision making Voting Clear approval process for material decisions Management of related party’s transactions Judicious us of external advisors



Does the board respect the shareholders by:consulting them on strategic matterscommunicating with them regularlyeducating them about trends and issuesconfronting business units



Does the board reference strategic objectives at each board meeting to assure themselves that board decisions are aligned with strategy?



You and LiabilityYou and Liability

1. Does the corporation have clear objectives?2. Have these been communicated in a way that provides

direction to employees on risk management?3. Are significant risks assessed on an ongoing basis:

market environmental Liquidity Technological Legal Health and safety Reputation Business probidity



You and LiabilityYou and Liability

4. Do management – and shareholders – have a clear understanding of what risks are acceptable to the board?



7. CONCLUSION7. CONCLUSION



A significant effort is being made to enhance board diversity.

Good websites to visit include: Canadian Board Diversity Council – to post a

profile



Also consider networking through continuous education opportunities such as

DEAP

Courses are offered through Canada and in the Caribbean



Range of participants Power Agriculture Law Hedge funds I.T. Insurance Voluntary Sector Consultancies Mining



Director Education & Accreditation Director Education & Accreditation ProgramProgram

Covers:GovernanceEnterprise Risk ManagementStrategyFinancial Management



Cost Effective Comparable Time efficient Tailored Case Study Method
