If the oilsands have a face, it belongs to Richard “Rick” George, who stepped down as CEO of Suncor Energy Inc. in 2012, after 21 years in office. But that’s only one narrative line in George’s story. He’s enjoyed a multi-faceted career—both in management and around the director’s table—that has honed his views on important issues in management and governance to razor precision. Here, George shares insights with governance and leadership adviser David W. Anderson on what makes a board effective, both sides in the relationship between directors and their chief executive, and why good leadership sometimes means getting out of the way.
David W. Anderson Much has changed in corporate governance since you first became a CEO. What do today’s CEOs face that you didn’t?
Rick George Boards no longer give management free reign. Complacency in governance is gone. The majority of CEOs and boards are listening to their shareholders—and rightly so. As a result, the focus is on delivering shareholder value. Boards are holding management accountable by paying attention to how well management is executing. I think boards are more aware and better equipped to monitor a small number of issues that ultimately serve shareholders better.
David W. Anderson How do you think boards ought to judge management’s execution
Rick George Effective boards care about what shareholders care about—total shareholder return (TSR). They are not interested in ticking off boxes. TSR is the metric that most companies now report. Many boards use it to compensate their executives. True performance can only be judged by comparing management’s performance to com- petitors in the industry. Unlike 20 years ago, boards routinely get com- parative industry data, so they’re aware of comparative performance.
David W. Anderson What does a ‘checklist’ board look like?
Rick George It’s the kind of board that spends too much time on audits and ticking the box on what it thinks are “good governance” requirements. It takes its focus off the business strategy and puts it in- appropriately on details of execution and efforts to meet external governance standards. Typically, too few directors have an intuitive feel of the business. The danger is they may even think they understand the business and are able to hold management to account for what really matters. These boards too often get in the way by not respecting management’s prerogative to run the business.
David W. Anderson For a board to know enough to judge management’s performance, some say a board needs to dig deep. How do you get the balance right?
Rick George The board needs to make sure management executes on the long-range plan by tracking performance. Directors need to know enough about the business, but not get in the way. The best way for a board to add value is to have people who have been successful in the industry. They know the right questions and know the pitfalls.
David W. Anderson What should corporate governance look like?
Rick George Boards have seven things to do, which I think fall into three themes: (1) strategy, which is about understanding, shaping and supporting the business strategy and appreciating and managing the risks in the business; (2) leadership, which is about getting succession of the CEO right and making sure good people hold the senior executive roles; and (3) performance, which is about assessing the CEO, monitoring the corporation’s execution against strategy over time, which is where industry comparables are useful, and ensuring the cost structure of the business is appropriate.
David W. Anderson The divide between governance and management is clear to you. Why does it get confused by others?
Rick George The difference between being part of management or part of the board is not as complex or blurred as many people make it out to be. The board’s proper role is to make sure policies and practices are in place for management to execute well. It’s clear to me because these are different things. The board is not to interfere in day-to-day operations such as relations with staff or the market. People get these roles confused mostly because of personalities and politics. People like to exercise power. Sometimes it’s situational, as when a CEO retires and stays on the board. Some boards dive deep into the business, where it becomes easy to go beyond the board’s role. The temptation is to actually run things. It’s important that the chair and CEO have a regular dialogue on these roles.
David W. Anderson In your experience, how does this work in practice?
Rick George When I was CEO and felt uncomfortable about the roles, I’d call it. We would listen to get the board’s input and thank them, and then I’d remind the board that execution is management’s job. What I didn’t do was cut off conversation and have directors feel they weren’t listened to. Now as chair at Penn West, I have a constructive conversation with the CEO every few weeks around how the board can support the changes going on, and what he needs from the board to get his job done. As CEO, he’s got to be the front guy for the company. If you hire the right leader, the board can stay above the fray.
David W. Anderson You put a lot of emphasis on leadership—getting the right CEO, in particular. What do you look for in a CEO?
Rick George Integrity, first and foremost. Natural leadership traits are key as well. By that I mean the ability to relate to people and to be brave in making tough calls, knowing that you can’t make everyone happy. Strategic thinking, good decision-making, and the ability to execute—getting things done quickly—are also important. And, of course, a knowledge of the industry and commitment to work hard for the shareholders.
David W. Anderson What do you expect of yourself in terms of providing value?
Rick George After sitting in the CEO chair for two decades, I bring experience to bear through mentoring, which I think is a cool thing. I know what the CEO is going through. I explain what has and hasn’t worked for me in similar circumstances. I also spend time with the board working for the shareholder.
David W. Anderson What are some of the lessons you share with your CEO?
Rick George I’ve had an undying belief that success comes when an organization has a clear strategy, defined goals, good values and basic principles that the whole organization understands. This clarity reduces politics and you see who really wants to be involved. Give those people the tools and cut them loose. It’s amazing how hard people work to achieve the strategy when leadership gets these basics right. It’s fun to watch an organization turn its performance around and see the pride people take in what they’re doing and where they’re going—both in the community and the industry. This is as good as business gets. Shareholder value then comes as a consequence. You have to build the company from the foundation up—principles and values, strategy and tools—before you see longer-term value. Disasters happen when the foundation isn’t there. It frustrates people when they don’t know the strategy and don’t have the tools to execute.
David W. Anderson How does a board know when it doesn’t have the right management team in place?
Rick George The challenge is it can take a long time for a company to implode and shareholder value to be lost—and there are reasons other than poor management why value can suffer. The best course of action for a board is to get to know management and ask the right questions. Look at employee feedback and figure out if the right atmosphere or culture is being set. Does management have integrity and live up to the company’s values and principles?
I look for selfless management—leaders who put the needs of others and the organization before their own. Many people are only focused on what their boss wants, but if you take care of the people under you, eliminate politics, give people tools and get peers working together, then your boss has little choice but to support you. Most people get this reversed, working to please the boss, keep peers in the dark and hammer their people. Boards have to make sure management helps people feel empowered, understand the strategy and know their role in it.
David W. Anderson What does a CEO have to do to create and sustain the right foundation?
Rick George You get your senior leadership team together and agree on values and principles—the ethics that define what’s most important and how you will behave. That senior leadership team is your top leaders in the company who have influence and whom you can hold accountable—be it 10 people or 100 people.
Once this team buys in, you and your team have to communicate regularly to employees, new and old, and live these values. Leadership by example is the most important leadership trait you can have. People will trust and follow you if they believe what you do and say is aligned. People sense the hypocrisy and are first confused, and then disillusioned, when you talk one way but act differently.
David W. Anderson Does the board bear responsibility for this foundation being solid?
Rick George Yes, firstly, the board has to hire the right CEO. When you don’t have the right team, the organization gets politicized and people don’t take responsibility. Secondly, through mentorship, the board can influence the atmosphere and help management land on the right values and principles for the organization. Thirdly, through oversight, the board must verify the organization’s ethics are evident in manage- ment’s performance by looking to those behaviours and decisions that see the leadership team in action. Ask your management, “Are you sure this proposal fits our values and principles?” Simple questions of this nature generate great discussions. Good boards have these regularly, though it’s not framed as a discussion of business ethics.
David W. Anderson Business leaders seem embarrassed to talk about ethics among themselves. What do you say to directors and CEOs who are squeamish?
Rick George I’d say to them, “This is your role; you get paid to do this.” Lots of people think these conversations need to be confrontational. I don’t see it that way. It’s a discussion that can be helpful to board and management alike. If you want to do it well, find the right tone. Ask how courses of action or decisions relate to your values and principles. I think about this everyday because it’s about doing the right thing for shareholders. How could this constructive dialogue not be helpful?
David W. Anderson The pursuit of business has ethical implications beyond the corporation and its shareholders. How do you see the interplay of free enterprise, society and government?
Rick George Business has a responsibility to be transparent with shareholders and above board in its dealings with others. I disagree when people say there’s too much government and regulation. Without rules and enforcement there is an element among us that goes for the quick answer or the fraudulent win. Regulation is a necessary result of these people who abuse the system. We need it to protect small investors from abuses by controlling shareholders, to counter insider trading and to level the playing field so investors can make rational decisions. You can’t legislate morality, but we need the protection and we all pay a price for it. There are consequences for unethical behaviour. Without morality, all our costs go up.
David W. Anderson What’s the positive case for business morality?
Rick George There are huge benefits to living by sound principles. An ethical, moral company is the kind of company employees want to work for. It’s easy to lead and manage, as people know the rules. Investors ought to prefer ethical companies, given the heavy price they’ve paid in lost value when ethics were absent. Beyond being the right thing to do, if you want to build a sustainable enterprise, to be in business for decades, the only foundation is an ethical one.
David W. Anderson How do long-term sustainability and values intersect with the energy business?
Rick George We all consume energy everyday. We all can agree we ought to produce energy that is least impactful on the environment. But no form of energy—nuclear, hydro, solar—is without consequences. That doesn’t mean we sit back and accept where we are. We need to pursue technological innovation to do better. This applies to non-energy companies as well.
David W. Anderson Given the real and potential environmental impacts, local and global, of our energy sector, what’s your mental calculus to make both the ethics and business make sense?
Rick George Let’s look at it this way. A lot of these fuels are produced in places without strong regulation, among other issues. So I look at the whole picture, not just carbon emissions. If we don’t produce it, we have to import it. That means negative implications for tax receipts and jobs. Our best outcome is to run companies at the highest standard of service to shareholders and communities while respecting the environment.
David W. Anderson Should climate change be factored into our regulatory or business decisions?
Rick George The climate change issue seems to be too emotional for rationale debate. Our job is to make sure we do the best we can to minimize our footprint. I believe the UN reports are politically motivated. The data are not definitive. Statements you hear along the lines “the science is settled” is in itself a violation of scientific principles.
David W. Anderson, MBA, PhD, ICD.D is president of The Anderson Governance Group in Toronto, an independent advisory firm dedicated to assisting boards and management teams enhance leadership performance. He advises directors, executives, investors and regulators based on his international research and practice. E-mail: firstname.lastname@example.org. Web: www.taggra.com.
Richard “Rick” George — Biography
Primary role Partner, Novo Investment Group
Additional roles Chair, Penn West Petroleum Ltd.; Chair, Osum Oil Sands Corp.
Director Royal Bank of Canada; Anadarko Petroleum Corp.
Former role President and CEO, Suncor Energy Inc.
Former director Dofasco, Inc.; Transocean Ltd./GlobalSantaFe Corp.; Canadian Pacific Railway Ltd.; Enbridge Inc.
Author Sun Rise: Suncor, The Oil Sands and the Future of Energy (2012)
Education BSE (Engineering), Colorado State University; JD, University of Houston Law Center; Program for Management Development, Harvard Business School
Honours > Outstanding CEO of the Year, 1999 > Canadian Business Leader Award, 2000 > Officer of the Order of Canada, 2007 > Inducted into the Canadian Petroleum Hall of Fame, 2008 > Ivey School of Business, Ivey Business Leader Award, 2012 > Alberta Oil’s Canada’s Greatest Oilman of the Last 30 Years, 2013
Current age 64
Years of board service 20
Photography by Jeff Kirk