Dey cites need for activist directors at CSCS conference
Members of corporate boards need to act more like business owners, which demands a bigger time commitment and more willingness to engage with management about critical business matters, Paradigm Capital chairman Peter Dey said in his opening keynote remarks at the Canadian Society of Corporate Secretaries’ annual conference in Halifax, Nova Scotia on August 19.
On the eve of the 20th anniversary of the Dey Report, Dey told convention attendees that the idea of director independence (one of 14 guidelines for good governance outlined in the report) has tended to be considered by the governance community in terms of functionality rather than mindset.
‘The reforms of the last 20 years have been mostly structural, and now that we have the structure in place, it’s important to start focusing on the mindset of directors,’ he said to about 300 corporate secretaries, general counsel and other governance professionals.
He conceded it isn’t easy for directors to act like owners given the imbalance of information available to management versus the board.
Amid rising shareholder activism, which equates weakness in companies with management deficiencies and often targets these in proxy fights, Dey sees a need to develop activist directors, who are more engaged in key business matters with top management and willing to challenge them when necessary.
Initiatives that can help enhance the independent mindset of directors include having a strategic planning committee that can address issues concerning the company’s long-term sustainability and increasing directors’ compensation, Dey said.
‘If we want directors to be more engaged, they need to work harder, like owners,’ he said.
This requires more constant attention to business than what is done only during regularly scheduled board meetings. It’s a huge mistake, he warned, to put matters that arise between board meetings on hold until the next gathering. In addition, board chairmen must be more pro-active in motivating fellow directors to engage more consistently with top management.
Corporate secretaries are a key component in the mindset makeover Dey is advocating for boards.
‘The corporate secretary can help by organizing the time of boards so that they have more time to focus on other matters besides the governance system. That’s why the corporate secretary is so critical,’ he said.
Dey identified four aspects of the corporate secretary’s role that are critical for boards to be able to fulfill their duties.
First, continuity: someone in the organization needs to know the answers to questions that boards are regularly asking for and to be the repositories of institutional memory.
Second, boards spend too much time on risk and compliance matters. By mastering the company’s compliance obligations and keeping current with compliance changes, a corporate secretary ensures the board has more time and headspace to focus on business strategies and other important matters.
Third, corporate secretaries need to serve as a sounding board for the CEO and other senior executives. They generally have ’a good feel for the various sensibilities within the board and can offer valuable guidance about ideas before management takes them to the board for approval,’ Dey said.
Lastly, logistics: being comfortable with the technology on which boards are increasingly dependent and having a constructive relationship with the information technology managers should be a priority for the corporate secretary, he said.
He or she also needs to earn the full confidence of management and the board in order to have access to the most confidential information in the company that is key to providing guidance when required.
‘Maybe corporate secretaries should be paid more, too,’ said Dey, drawing enthusiastic applause from the room.