Mike Wilson: Out of the fray, still in the fire

In The Director’s Chair with David W. Anderson: He had a long executive career, culminating in a decade as president and CEO of Agrium. Now Mike Wilson is bringing it as a non-executive director on four boards

If you need any testimony to Mike Wilson’s knowledge, experience, boardroom savvy and the high esteem in which he’s held by his peers, consider that within a year of retiring as president and CEO of Agrium Inc. at the end of 2013, Wilson was appointed to three blue-chip boards to go with a fourth, Celestica, where he’s sat since 2011. To no one’s surprise, he’s made the transition seamlessly. Here, in conversation with governance and leadership adviser David Anderson, Wilson provides some penetrating glimpses into his thinking. Their dialogue touches on key strategic issues, the most important lessons Wilson’s learned in dealing with shareholder activists, and how he views his role at the table. Among the revelations: as much as activists were one of his biggest challenges as a CEO, their approach served to “crystallize” his thinking around the necessity of directors to ask foundational questions about strategy and risk.

Mike Wilson, director, former Agrium CEO: "Part of board diversity is having other industry experience and outsider views represented. I’m conscious of my role in this regard"

David Anderson After decades of executive leadership, most recently as CEO of Agrium, you now serve on the board of four large public companies: Air Canada, Celestica, Finning International and Suncor. How have you found the transition?

Mike Wilson I thought I would miss wrestling the alligators, but I don’t. Being a CEO was rewarding, but it’s a tough and lonely job. As a director, I get to focus on what I like most: thinking strategically about the challenges facing companies. I like contributing my views on strategy and risk at the board level to secure long-term success. It’s not easy juggling my commitments to these boards and the two other priorities in my life—my family and my land preservation initiatives—but I want to spend my time doing these things that are meaningful to me.

David Anderson Given the time demands and performance pressures on directors today, is serving on four large corporate boards too many?

Mike Wilson Four corporate boards is pushing the limit; I think three boards is the sweet spot for most people, if you plan for 35-40 days a year per board, assuming the business isn’t struggling. But for me, I’ve made the choice to spend the time required because I like being a director. I like the intellectual stimulation. In fact, the boards I choose to serve on are ones that oversee businesses that I haven’t worked in before. I’ve chosen to be a director of these four specific companies because I genuinely enjoy the challenge and am able to contribute my business judgment.

David Anderson Boards often want directors with experience in their industry. How do you bring value to businesses in which you’ve not had direct experience?

Mike Wilson I bring an understanding of business models and the fundamental questions of strategy and risk that keep the focus on the longer-term viability of the corporation. It’s essential that a good proportion of the directors have direct industry experience, but part of board diversity is having other industry experience and outsider views represented. I’m conscious of my role in this regard.

David Anderson You have a disciplined way of thinking about business by asking some fundamental questions about strategy and risk. How did that come about?

Mike Wilson I won a proxy battle at Agrium with shareholder activists who wanted to strip our working capital by 50% and return that “excess” capital to shareholders. This approach would not have been right for the long-term value of the business, and I made that case successfully to our shareholders. That experience crystallized my thinking. I learned that while activists don’t always have their facts right, they do think about business at a foundational level. Shareholder activists are asking the questions that any executive team and board ought to already have asked and answered for themselves.

David Anderson Did that experience give you an insight that helps you as a director provide better governance?

Mike Wilson Yes, the insight I had was that our disagreement over business strategy arose from having different basic business objectives and interests at the heart of what we were trying to accomplish. As a director, I now participate in the governance-level discussion on business strategy and make sure we understand and make appropriate choices for our own business before any activist forces the questions on us. And if an activist does come with questions and a particular interest in mind, we have a coherent, tested strategy that’s right for our business’s long-term success.

David Anderson What are the fundamental business questions you examine to gauge the long-term viability of a business?

Mike Wilson There are three questions that a board should be able to answer if it is doing its job to ensure the medium- to long-term viability of the corporation, regardless of whether a shareholder activist is at your door: (1) Is the CEO and the executive team delivering results? (2) Is the strategy per use of cash appropriate? and, (3) Is the company well structured, in terms of value-chain integration, to deliver value over the business cycle?

Having thought through these questions—and having good answers to them—allowed us to convince Agrium’s shareholders that stripping out working capital, cutting our budget for maintenance and stopping our investments in growth would have left us in a weaker position over the long run, even if it would have freed up capital to return to shareholders in the short term. The reality is you can make poor business decisions by making certain numbers look good to short-term shareholders. Activists might be on to something when they come calling, but if they have different answers than you to these questions, it may be because they have a different investment time horizon, are using different performance metrics, or have chosen a different comparator group of companies.

David Anderson Let’s explore these three core business questions you use to evaluate a corporation. What do you look for to determine if the CEO and the executive team are delivering results?

Mike Wilson Foremost, I think about tone and culture: is the CEO providing the leadership to get this right—and can I see evidence of that in how people behave? Next I look at the key performance indicators (KPIs) relevant to the business: does the executive team have the right KPIs, aligned with strategy, to measure themselves? Lastly, I want to see relative industry performance data: how is management doing versus their industry peers? It may be that management has increased corporate value by 10% but their peers have done so by 20%. If so, what are we missing? It’s these relative industry measures and KPIs that are tracked by shareholder activists; they usually don’t touch on tone and culture.

David Anderson Your second question addresses the appropriateness of the use of cash. How do you think of cash as a director?

Mike Wilson I want to know what the CEO is doing with the cash the business is generating. I hold the view that cash should be used first and foremost to sustain the company’s assets, its brand in the market and its business—and then reward shareholders with a dividend. Once a company has sufficient cash to take care of these basics, cash ought to be used to grow the company, accretively. Only after available cash has been used serving these priorities should the board return excess cash through increased dividends and share buybacks. Activists favour this last priority for cash, the return of capital, and often seek to lower working capital and stop growth initiatives to fund it. The board’s role here is to ensure the company isn’t jeopardized in the medium- to long-term by undermining maintenance or by over-leveraging, ensuring the appropriate use of cash across these three options. In some situations, when KPIs are not keeping pace with the industry, it’s possible the executive team is not using cash appropriately. The board needs to understand this and manage it, not wait for someone to call it out.

David Anderson Your third question for boards to test their business has to do with company structure. How should a company structure itself to deliver value?

Mike Wilson The question gets at the concept of business diversification and integration across the value chain. Should the company be diversified? If the company has a diversified portfolio of businesses, is it the right portfolio and should it be split up? The important point is for the board to look through the business cycle and form a view as to whether the company has the right structure to deliver value over the medium to long term. To illustrate this, at one point in my tenure at Agrium, almost everyone urged us to break up the company because one section was hot and we’d get a higher valuation. Two years later, they were happy we had a diversified business, as it gave us a better cash position and strength relative to peers at the low end of the business cycle to take advantage of opportunities. If you can’t find significant advantage over the business cycle from value-chain integration, then the company should not be diversified. A board has to take that longer view and respond appropriately. There will always be a temptation to go for the short-term bump. But if the shareholders have confidence in the board and management, they will support your long-term strategy. The key lies in being able to provide good answers to these questions and not being caught flat-footed.

David Anderson Are there warning signs for boards when they might be caught flat-footed?

Mike Wilson The biggest sign is a lack of open dialogue between the CEO and the board on these issues. The CEO should be very open in sharing concerns on performance and risk and in reporting performance relative to peers. You know in a board meeting if there’s an open dialogue or not. It’s important that the board not be surprised. This goes both ways: the board needs to know what the CEO is thinking and the CEO needs to know the board’s thinking on strategy, structure, quality of the executive team and of course on the adequacy of results.

David Anderson Shareholders want greater transparency, too. What do you think of the trend toward greater involvement on the part of shareholders in the mandate of the board to govern? Mike Wilson In the same way that a board shouldn’t cross the line into management’s role, shareholders shouldn’t cross the line into the board’s role. If a board feels it needs to manage the company, then it should get a new CEO. I think it’s the same for shareholders and a board. If shareholders feel they need to govern by telling the board what it should do, then they need a new board. For some reason, there’s a reluctance to draw this conclusion. Instead, well-meaning governance institutions like the Institute of Corporate Directors and the Canadian Coalition for Good Governance propose ever more intrusive mechanisms for shareholders to run pieces of the board’s mandate. I’m concerned that we’re on a trajectory that started by taking away the board’s mandate in executive compensation and more recently in director nomination and could lead to shareholder votes on strategy and the management of the executive team. These are all roles of the board. Where does it end?

David Anderson Like boards, shareholders would say they’re taking their responsibilities more seriously and asserting their legitimate power to influence and in some cases control corporations. Can this be done in a way that respects a robust board mandate?

Mike Wilson Shareholders do have power and a legitimate role and it should be exercised collectively as the full set of owners and in jurisdictions of ownership. Directors are in charge of nominations for the reason that they are able to nominate based on a clear understanding of skills and experience gaps on the board. It should not be the case that a subset of owners with 5% of the company can have an outsized influence in appointing 25% of the directors when they disagree with the board’s direction.

I think we need a global solution to this. Let’s have a vote of the shareholders on their overall confidence in the board to carry out its mandate and do away with all the other piecemeal interventions. The convention should be that if a majority of shareholders don’t have confidence in the board, then the board chair sits down with top shareholders and comes up with a board-driven plan for change. If a second vote of confidence is lost, then a new board is required. At that point, form a committee of the top 10 or 20 shareholders to nominate a full set of directors and start again.

This is preferable to the current path we’re on in which shareholders are taking on more of the board’s mandate and still expect the board to function. I don’t want to serve on boards when that’s the case. Tell me you don’t like my performance and give me a chance to fix it, or tell me to leave. Just don’t ask me to stay and then take away my responsibility to do part of my job. I’m convinced our current path is a net negative to the enterprise. It’s certainly not the best way to govern corporations.

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: david.anderson@taggra.com. Web: www.taggra.com.

Mike Wilson — Biography

Current corporate directorships Air Canada, Celestica Inc., Finning International Inc., Suncor Energy Inc.

Former leadership roles President and CEO, Agrium Inc.; Chair, Canpotex Ltd.; President, Methanex Corp.

Community leadership Chair, Calgary Prostate Cancer Centre

Education P.Eng (Chemical), University of Waterloo

Current age 64

Years of board service 15

Photography: Colin Way

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