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Governance Frameworks Can Be Just Window Dressing – Until They Aren’t
Corporate directors are typically charged by law, convention and societal expectations to bring effective supervision and management to the affairs of the enterprise. The ultimate goal is for management to be able to focus on running the business and getting things done, with all required Board decisions, guidance and directives in hand.
Productive director time is invariably at a premium for the myriad of required standing and special board and committee agenda items: strategy, financial performance, operational and capital management, talent management and compensation, regulatory compliance, risk management, etc. Board and committee meetings are also perfect times for management to showcase the enterprise’s strengths, weaknesses, opportunities and threats. An industry has developed around the effective use directors’ time.
In this context, the stuff of Director or Governance Handbooks or process seems less of a priority, designed only to appease regulators, lawyers, academics and others or to give a nod to notions of “transparency”. In reality, when directors and management are clear on how meetings are conducted (e.g. standing, short in camerasessions) and decisions reached, what is expected of each of them and when roles, responsibilities and timing are delineated, governance frameworks and processes more comfortably allow the focus to shift to other, perhaps, more pressing priorities. Clarity creates efficiency and trust. It helps the Board and management avoid the unnecessary uncertainty and discomfort that invariably raises questions, causes delay, may create work and require additional directives and resolutions (and sometimes, expenses associated with hiring external advisors to provide input).
In addition, carefully crafted charter documents, policies, terms of reference, codes and director appointment terms and conditions, can avoid ad hoc difficult decisions with non-performing directors and otherwise, which can be quite useful. They can assist in effecting board renewal, encourage more representational appointments and diversity of perspectives, attract like-minded talent to the Board table and avoid stakeholder or shareholder criticism. When a Governance Framework and processes are robust and respected, board defences to liability claims may be enhanced and the courts in Canada have shown greater deference to director business judgements.
The foregoing advocates for the voluntary adoption of best practice governance frameworks and processes, without public markets or regulatory requirement, but regulatory change is close at hand. For example, as of June 21, 2017, the Government of Canada’s Bill C-25, to amend the Canada Business Corporations Act, the Canada Cooperatives Act and the Canada Not-for-profit Corporations Act that I have previously addressed, has received third reading and is before the Senate (first reading) for final approval.