Going for gold

Leading by example, or tone at the top as it is often referred to in governance circles, is an idea that is certainly gaining traction at many companies across North America. It is a principle that the Canadian Coalition for Good Governance (CCGG) is committed to and celebrates in an annual awards ceremony. At the second Golden Gavel Award for Disclosure, the CCGG highlighted four companies that stand out for director disclosure in their most recent annual shareholder proxy circulars. The hope is that other Canadian companies will learn some new tricks, says Paul Schneider, CCGG's director of research.

On September 10, Enbridge won CCGG’s golden gavel for having done a whole host of things right. The coalition praised the energy transportation company’s disclosure of director biographies, director independence and director reinvestment programs. And yet, it was 'the package deal' at Enbridge that ultimately secured the prize, says Schneider. 'They just hit more of the requirements than anybody else.'

CCGG awarded honorable mentions to SNC-Lavalin Group, Manulife Financial and TransCanada. 'Picking the winner and the three honorable mentions was a lot more difficult this year than last year,' says Schneider, noting there was a larger pool of standouts from which to choose. He continues, 'There's still a way to go, but in general I see the proxies getting clearer and better.'

To a considerable degree, CCGG has taken the guesswork out of what it considers good director disclosure. Schneider notes that the organization publishes a document listing best practices, which is updated annually. Before selecting the 2006 winners, CCGG examined approximately 150-200 companies' proxy circulars, comparing the documents against CCGG's guidelines.

The coalition is made up of 50 of Canada's leading institutional investors with approximately $975 billion in combined assets under management. CCGG evaluates the disclosure practices of the companies in which its members invest.

CCGG prizes clarity in the proxy circulars, and tries to make its criteria clear, too. 'A lot of people want to do the right thing,' notes Schneider. 'It's just a matter of knowing what the right thing is.' He says that CCGG's best practices document lets corporate secretaries 'see exactly what the innovative disclosure practices were.' The coalition believes truly effective disclosure is easy to find, easy to understand, accurate and complete, and is given in context so the information has meaning.

Details, details

Often the difference between good and stellar governance lies in the attention to detail. Schneider, for instance, praises the fact that SNC-Lavalin includes an area of expertise in its director biographies. It also singles out Agrium for publishing directors' equity at risk in both dollar terms and as a multiple of directors' annual retainers.

Finally, CCGG believes tables are an excellent way to condense information, making it more user-friendly. It applauds CIBC for presenting its committee reports in a table, thereby making the information 'readable and understandable', according to Schneider.

This year, CCGG showcased several ‘innovations’ with an eye toward promoting these creative ideas. 'The thinking is that this year they'll be innovations - because they're pushing the boundaries - but next year they'll become best practices,' Schneider explains.

In 2007, CCGG is considering adding compensation to the criteria it evaluates. Schneider notes that best practices for this 'hot button issue' aren't necessarily easy to codify. 'You have to find a happy balance,' he says. 'You want companies to disclose pay for performance, but you don't expect them to give away the farm.' Judging companies on compensation disclosure is 'tough, but not impossible,' he adds.

Schneider emphasizes that CCGG's message is being heard. 'A lot of the disclosures in the 2005 document turned up in the 2006 proxies,' he says. 'And Enbridge, the winner for 2006, was an honorable mention for 2005.' 

And the winner is…

Enbridge took an eclectic approach to director disclosure, considering a variety of companies' proxy circulars from both Canada and the US before deciding upon its own path, explains Alison Love, vice president and corporate secretary. She read and considered proxy circulars from around 25 companies, borrowing techniques and considering how to improve upon today's practices.

The result? Enbridge used more tables this year than it had in previous years. Love finds, for instance, that pay policies which are 'cumbersome to describe in a paragraph' are 'very easy to read' when presented as a column within a larger table.

Love also increased the disclosure about individual directors. She added more relationships in the director interlock section as well as better-rounded personal information. 'I tried to think of things that investors want to know. Where does the director live? How old is he or she? What was their past experience? And how many meetings did they attend?' she says. Enbridge also began describing the work of the board committees more extensively, including a report from each.

Although some of the additional disclosures add length, the tables helped rein in the overall number of pages, says Love. She points out the total count held fairly steady at around 40 pages, including everything from the table of contents to front and back covers.

Enbridge publicizes its governance distinctions, naming its various awards in its annual report. In its 2005 annual, the company noted it was included in the Dow Jones Sustainability Index and had been named one of Canada's Top 100 Employers. According to Love, the directors were very keen on the CCGG award, which will be mentioned in the upcoming annual.

Love is already considering improvements for next year. She hopes to strengthen executive compensation disclosure, voluntarily meeting the rules for US companies.

Finally, she is embracing plain English, trying to banish 'legalese' from Enbridge's proxy circular. As a first step, the company included a user-friendly question-and-answer section on voting this year. Next year, Love would like to see the entire proxy circular get a plain-English makeover. She plans to hire a writer to point out 'areas where the writing is too convoluted' so she can simplify the language and make information easier to understand.

SNC-Lavalin

'For management, corporate governance is very important,' says Yves Laverdiere, corporate secretary at SNC-Lavalin, a 95-year-old engineering/construction firm based in Montreal. 'It's like a religion.'

SNC-Lavalin's internal focus on director independence and implementing the guidelines from CCGG and the Ontario Securities Commission (OSC) is reflected in its proxy circular, according to Laverdiere. And yet, creating and maintaining such a focus isn’t easy. To illustrate, he notes that when SNC-Lavalin went public in 1986, the first management proxy circular was six-and-a-half pages long. Contrast that with SNC-Lavalin's most recent proxy circular - 68 pages in a single language - and 'you see the amount of effort and work involved' in improving director disclosure, he comments.

Laverdiere is convinced the most important factor for his company's governance success is the independence of its directors. Directors meet for 15-20 minutes at both the beginning and end of each board meeting without management present. That same model is replicated for SNC-Lavalin's four board committees: audit, governance, human resources, and health, safety and the environment. Allowing directors to meet without management interference ensures they can express themselves freely and act without constraint.

The CCGG honor was welcome but no surprise for the company, which has often been recognized for its governance efforts. Last year, Laverdiere notes, the Globe & Mail named SNC-Lavalin number one in its list of the ten best-governed Canadian companies.

TransCanada

Looking to best practices at other companies in Canada and the US helps TransCanada improve its own proxy disclosure, according to corporate secretary Don DeGrandis.

Specifically, in the past year, TransCanada expanded its disclosure on director attendance and beefed up compensation disclosure on named executive officers. 'The numbers were all there before, but they were a little less detailed,' DeGrandis says.

Improving disclosure has meant providing greater clarity. DeGrandis notes that TransCanada is now using more tables and furnishing better definitions of what its numbers represent. In the case of compensation, TransCanada strives to ensure its shareholders understand the actual cash value of the pay executives receive.

Although TransCanada is listed on the NYSE, as a foreign private issuer it's not obligated to meet all disclosures mandated by the SEC. Going forward, however, DeGrandis expects to provide some additional compensation disclosure to bring TransCanada's practices in line with new executive compensation rules in the US.

'We tend to make sure we have the best of both worlds,' says DeGrandis. 'To the extent we can, we meet the requirements of both sides of the border, even though foreign private issuers aren't required to do so.' 

Manulife Financial

Improving the organization of the proxy circular topped the list of governance goals at Manulife Financial this past year, according to Angela Shaffer, vice president and corporate secretary. One of the biggest changes, she says, was placing all director information within a single chart.

'We didn't want shareholders to have to go to two or three different spots in the circular to find out about the directors because they're nominees for election for the following year,' she says. Shaffer notes much of the same information was presented in prior years, but it was spread across several different charts or embedded within the general narrative. She emphasizes that by consolidating director information, this diversified financial services company made the information easier to understand and facilitated meaningful comparisons.

Shaffer points out that good corporate governance is manifest in ways beyond the proxy circular. She says that Manulife has, for instance, separated the roles of chair and CEO, and has a robust evaluation process in place ‘to ensure the committees, the chairs, and the directors are performing in accordance with their charters and mandates.’

In addition, Manulife has also enacted a policy to give shareholders greater control of the outcome of board elections. Any director who does not receive a majority of votes must tender his or her resignation to the governance committee; the governance committee can consider extenuating circumstances but will, when appropriate, accept the resignation.

'Manulife has been a forerunner in corporate governance,' says Shaffer. 'Having strong governance practices is consistent with everything we do and our aspiration to be the most professional insurance company in the world.'