IT IS WELL KNOWN that corporate directors of publicly traded companies face sharper scrutiny and disclosure duties than ever before. Education is or should be a critical ingredient in the excellent performance that corporations, shareholders, the public and regulators expect. In recent years, large, flagship director education programs have helped put the spotlight on the importance of director training and education. In Canada, these programs include the Chartered Directors Program offered by the Conference Board of Canada and DeGroote Directors College, as well as the Directors Education program offered by the Institute of Corporate Directors (ICD) and Rotman School of Business. Laval University also offers Collège des administrateurs de sociétés for French speakers.
But while valuable for their attendees and important for bringing education’s importance to the fore, these large external programs are just one form of director training and development. According to a recent tally, only about 10% of current directors on Canadian boards have taken one of those courses—and even they need continuing education after graduation. The rest? Well, if they’re sharing a board with veteran director William Dimma, they’re being given eight-inch briefing books and going on 14-day study retreats to learn all they can about the ins and outs of their company’s industry.
That’s just one example of many in the story that follows. In compiling this special report on director education, Listed contacted a range of experts—from veteran directors like Dimma to leading corporate educators and board consultants. We found out how the field is changing and where directors are doing their best learning—whether it involves bedtime reading and online study, or international site tours and orientation meetings with management.
POST 2000/POST ENRON
“There is a huge additional scrutiny of board performance, more than ever before. That is central to the change in director education,” says William Dimma, a veteran board member who has been active on boards since joining his first one, Union Carbide, in 1963. “Enron was a classic example of directors failing in their responsibilities. They were bamboozled or overwhelmed or intimidated by senior managers.” Dimma calls the problem collective impotence, rather than individual incompetence.
Before Enron, which blew up in 2001, a board member might typically dedicate 75-100 hours a year to the company, including four two-hour meetings (always followed by a lavish lunch and exceptional wine) and reading approximately 50 pages of materials, he notes. “In those days the executives ran the show and boards nodded their heads.”
In 2012, on the other hand, there are typically six or eight meetings a year, leaving aside special circumstances such as acquisitions, says Dimma, who chairs an audit committee. He receives board materials of approximately 300 pages in advance of meetings. He estimates a typical board member now dedicates 300 hours to the company annually. “We are moving significantly towards boards having a great deal more power. There are more committees, and public expectations are higher. The direction is unambiguous. There is very little nodding of heads.”
The Canadian Securities Administrators (CSA) requires that education and orientation practices be completely disclosed to investors every year. “Comprehensive disclosure of a reporting issuer’s policies regarding director training and continuing education is central to the ability of shareholders to exercise their voting rights effectively,” says Leslie Byberg, director of corporate finance for the Ontario Securities Commission. National Policy 58-201 sets out corporate governance guidelines for issuers, with two sections referring to director education. Issuers are required under CSA National Instrument 58-101 to disclose whether they have adopted the guidelines.
In 2010, the CSA published Notice 58-306, providing further guidance on complying with requirements, including education.
“The world is looking at what you are doing, so you have to stay current,” says Thomas O’Neill, chair of the board of BCE and Bell Canada. “The CCGG would like every proxy to include what I did this year to make me better than last year.”
Internal director education includes reading director handouts, meeting with management, attending various committee meetings, studying online materials, and being present for strategy sessions. Most internal director education focuses on the enterprise and the industry in which it operates, as opposed to principles of good governance, says Dimma, who has sat on 57 corporate boards. “I don’t think companies feel it is their responsibility to educate directors in broad principles. They expect it to be there.”
He’s now on three boards, including a large Canadian corporate board with a head office in B.C. What internal educational commitments might be typical? “They’ve sent us two board books that are eight inches thick and we’ve gone on two 14-day retreats.” Though materials dealt with the specifics of the industry rather than corporate governance, Dimma put his vast experience to work, using the retreat to quietly analyze whether the company was involved in best practices.
Bringing directors up to snuff on a company and its context is a fairly involved process. David Masse is senior legal counsel and assistant corporate secretary at CGI Group Inc., in Montreal. Internal education at CGI includes presentations to directors on topics of interest during board and committee meetings. For instance, at meetings of the audit committee, members receive presentations concerning specific line items on financial statements with an explanation of the accounting policies that apply in determining the amounts. The CFO, the controller, the treasurer, the senior vice-president of taxation, as well as internal and external auditors typically make these presentations. “We also invite our directors to attend key company events like our vice-presidents’ conference, which is the kick-off for our strategic planning, as well as our leadership institute sessions,” says Masse.
The CGI Leadership Institute offers a week-long deep dive into how the principal business units operate, as well as presentations from all senior business unit executives. “It is an opportunity for our directors to learn all facets of our business from the ground up,” he says.
Business schools, institutes, accounting firms, societies, associations and consultants all provide valuable education on tools and skills that are widely needed by directors. They offer everything from intense, two-day courses on accounting practices, to webcasts, webinars, or breakfast speakers on topics such as corporate governance or future of the euro.
O’Neill, who has a bachelor of commerce and is a chartered accountant, relied on accounting firms for continuing education courses and seminars on transitioning to International Financial Reporting Standards (IFRS). Besides being chair of BCE Inc. and Bell Canada, he is chair of the audit committee at Nexen Inc. and a corporate director at Scotiabank and Loblaw Cos. Ltd. Each company had audit committee and board meetings led by finance and the external auditor. He estimates that his extra education amounted to between eight and 10 full days over a two- to three-year period.
“How are you going to learn that without courses?” he asks. “We had to do it. It wasn’t mandatory, but close to it. I had to learn that all over again or choose not to be a director.”
All the big accounting firms provide continuing education programs for directors and each has a portal, channel or division on the subject: the Centre for Corporate Governance (Deloitte); Audit Committee Publications (Ernst & Young); Audit Committee Institute (KPMG); DirectorConnect (PwC).
Business schools also provide ongoing education for directors. Rotman and DeGroote have their flagship programs noted above; they also offer shorter, more customized sessions, such as DeGroote’s Chairs Forum—a one-day, specialized program tailored to the needs of board and committee chairs.
New to the ICD, meanwhile, are highly focused one-day courses, taught by directors for directors. A course on boardroom financial essentials is being rolled out this year and next, says Stan Magidson, president and CEO. “This is for directors who bring skills and passion and enthusiasm to their job, but are not necessarily financially literate. It is intended to get these directors more comfortable with financial subject matter.”
The Canadian Institute of Chartered Accountants (CICA), which produces a popular “20 Questions Series” such as “20 questions directors should ask about CEO succession” and “20 questions directors should ask about executive compensation” has to be nimble in order to provide educational materials that directors need in the boardroom now, says Gigi Dawe, principal, risk oversight and governance. “When I first started here maybe 12 years ago, there were materials for directors but they weren’t that interested in reading them. There’s a big jump in education caused by the Enron debacle, asset-backed paper and the debt crisis,” she says. “Subjects that wouldn’t have interested directors a few years ago are now critically important, such as shareholder engagement and sustainability,” she says.
The CICA has recently released briefings on climate change, board diversity, long-term performance, and the European economy. “We’re trying to be ahead of the curve. It goes from a whispering to something you need to act on quickly.”
Directors may be also interested in seminars, conferences and lectures provided by places like the Hennick Centre for Business and Law and, looking outside of Canada, the Yale School of Management and the Millstein Center for Corporate Governance and Performance. Conferences by the International Corporate Governance Network, the National Association of Corporate Directors and the European Corporate Governance Institute are popular among Canadian directors.
Interestingly, Magidson sees a trend towards entire boards—including the CEO, CFO, general counsel and corporate secretary—signing up for courses as a group. “This brings the whole organization into the educational mindset.”
IS THERE A BUDGET?
Whether or not a board has a dedicated education budget by and large depends on the company’s size. Directors of very large companies are expected to already have a full toolkit, says Dimma. Medium-sized companies are thought to be the best market for educational courses, he adds. Small and start-up companies are perennially so busy trying to keep their heads above water that they don’t have the luxury of added education. “We as an organization think about that,” says Magidson from ICD. “What will work for them? You’re not going to get a start-up director to sit for 12 days. But it may well be possible to do a one-day.”
Refunding course fees for directors who feel they need education in a certain area doesn’t seem to be the norm. According to an informal survey of 42 corporate directors by consultant Alex Todd, 70% do not have access to a budget for development. Among the companies that do have a budget, the range is between $1,000 and $15,000 per director, Todd found. He is a Toronto-based consultant who helps governance committees develop policies and procedures to improve performance. While his survey is small, Todd believes it is a good indicator of the state of director resources.
“There’s a resistance to education,” says Todd. “They are saying, ‘I’m a senior director. I’m comfortable with my competence.’ That’s the general attitude.” He suggests board members tap into external consultants to make sure they are performing a value-added function and meeting their fiduciary duty to the corporation. Todd runs a Twitter-based publication called the Corporate Governance Daily. He and several others run LinkedIn groups dedicated to corporate governance. There are also more than 200 RSS feeds dedicated to the subject. “Education is an ongoing thing. It’s a state of mind, not a credential or designation,” he says.
The best education for directors, says O’Neill, is found on the job: “The best training I’ve got is in the boardroom itself. That is quite a classroom. Other stuff could be the icing on the cake or the foundation of the cake, like with IFRS courses. Nothing can prepare you for a battle with shareholder activists. It is one thing to be taught the theory and another to be taught what’s going on.”
The biggest issues facing directors today, he says, are unteachable. “What is tomorrow going to bring? What’s going to happen in Greece? What about the euro? You’ve got to look at leading indicators. The chances of the euro collapsing are low but what would we do if it did? Education can teach the framework through scenario analysis, but it can’t teach instinct and business smarts.”
Alex Todd agrees that the best directors have powers that can’t be taught. He likes a quote by Cicero that says, “The wise are instructed by reason, average minds by experience, the stupid by necessity and the brute by instinct.” On Canadian corporate boards in 2012, the wise must also be instructed by education, training and development. And declare it to be so.