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Trends in Corporate Governance
Best Practices
CSCS Annual Conference - August 2014
Christopher A. Chen
Mathé Grenier
2© 2014 Hay Group. All rights reserved
The approach we took:
The 2013 CSCS – Hay
Group Corporate
Governance Practices
Survey
What we found:
Reflecting the key trends of corporate governance in Canada
Insights into two top
Board matters:
Mitigating risk in
succession planning
and executive
compensation
What we will cover in 60 minutes
Three areas of focus:
01 02 03
3© 2014 Hay Group. All rights reserved
About Hay Group
Established in
1943 in
Philadelphia
International
presence with
87 offices 49countries
Approximately
3,000employees
worldwide
Top 50 Global
consulting firm
Over
10,000 clients
worldwide
#1 in Leadership
Development
Areas of
expertiseinclude: Reward Services
Leadership & Talent
Building Effective
Organizations
Employee Surveys
Productized Services
2013 survey approach
1
5© 2009 Hay Group. All rights reserved
Survey methodology
What is it?
CSCS and Hay Group 2nd annual Corporate Governance practices
Survey
Online surveyConducted with over 100
companies across
Canada
Detailed
interviews With Corporate
Secretaries of 19
companies
CSCS Excellence
in Governance
awardsResults used to assess
entries into nomination
6© 2014 Hay Group. All rights reserved
Participant background
0% 5% 10% 15% 20% 25% 30%
Pharmaceutical, Medical & Health
Utilities
Professional Services
Mining & Extraction, Petrochemical
Financial Services & Insurance
Top 5 industries
30%
19%30%
7%
14%
Respondents by ownership structure
Publicly traded
Privately held
Not-for-profit
Crown Corporation
Other
60%12%
13%
8%
7%
Respondents by number of employees
0-500
501-1,000
1,001 - 5,000
5,001-10,000
10,001-100,000
The role of the corporate secretary
“At regular Board and Committee meetings, the corporate secretary is knowledgeable of all discussions…this minimizes gaps in information and insight into both internal and external situations.”
“The corporate secretary is crucial to ensuring the Board is fully prepared and informed.”
2Corporate governance trends
9© 2014 Hay Group. All rights reserved
Gaining perspective
Focus of our research
Diversity policy
Director recruitment
Boardroom Diversity
CEO succession & evaluation
Regulatory compliance
Risk Management and
Executive Pay
Corporate Social
Responsibility Sustainability
Environmental Governance
Ethics
Technology and Board
Operations Governance maximization processes
Advancements in technology
Stakeholder engagement
Assessing corporate
governance trends
10© 2014 Hay Group. All rights reserved
What are your most significant
corporate governance issues?
Risk management and oversight continues to be top of mind for
Canadian Boards
0% 10% 20% 30% 40% 50% 60%
Independent board leadership
CEO succession planning
Executive compensation
Amount of disclosure
Board diversity
Dynamic regulation compliance
Risk Management and oversight
% of responses
Most significant corporate governance issue
11© 2014 Hay Group. All rights reserved
What are the top board matters?
0%
5%
10%
15%
20%
25%
30%
% o
f re
sp
on
se
s
What are the top 3 board issues for the corporate secretary? (1 being most important)
1
2
3
12© 2014 Hay Group. All rights reserved
What are the top concerns for CEO’s?
Globally, Human Capital
is decisively the most
important challenge
for CEOs .
There is a clear recognition among
CEO’s that Human Capital is
the engine of the
enterprise.
2.1Governance Trends in Corporate Social Responsibility
14© 2014 Hay Group. All rights reserved
Trends in Corporate Social
Responsibility
What we explored
1 2 3CSR policies and
practices
Environmental
governance
Ethics oversight
15© 2014 Hay Group. All rights reserved
Key trends in CSR
Formal CSR
policies are not
yet common
practice42% have no formal CSR policy
19% indicate having a “fully
implemented” CSR policy
Senior management
typically responsible
for formulating CSR
strategy
What we found
19%
15%
24%
42%
Formal CSR policy
Yes, fullyimplemented
Yes, beingimplemented
No, but underconsideration
No
16© 2014 Hay Group. All rights reserved
Key trends in CSR
Formal environmental
policies are more
common51% indicate having a formal
environmental policy
Sustainability initiatives
include:
Improving energy efficiency
Improving environment around
facilities
Enhancing impact on local
communities
Cutting emissions or pollutants
What we found
51%
49%
Formal environmental policy
Yes
No
17© 2014 Hay Group. All rights reserved
Key trends in CSR
Ethical oversight is shared amongst the Audit
committee, entire Board, or
Corporate Governance
committee
70% indicate
having a
Whistleblower
policy80% of respondents engage in
employee training and
sensitization to ethical
requirements
What we found
70%
30%
Whistleblower policy
Yes
No
41%
39%
20%
Ethical training
Yes, they are trainedand monitored
Yes, they are trainedbut not monitored
No training isconducted
18© 2014 Hay Group. All rights reserved
CSR initiatives
Many of your peers are investing in CSR initiatives and
incorporating into overall business strategy
Trends include:
Sustainability committee
Charitable wellness programs
IT related operations
Generating awareness
Fostering culture for CSR
2.2Governance Trends in Technology & Board Operations
20© 2014 Hay Group. All rights reserved
Trends in Technology & Board
Operations
What we explored
1 2 3Advancements in
technology
Board operations &
governance
maximization
processes
Stakeholder
engagement
21© 2014 Hay Group. All rights reserved
Key trends in Technology & Board Ops
Technology is
increasingly more
common for
communication Distribution of Board material
Documentation management
Communication with
institutional shareholders
Communication with retail
shareholders
What we found
0% 10% 20% 30% 40% 50% 60% 70%
In-person at board meetings
Through mailing of hardcopies
Using tablets or other wirelessdevices
Through secured email
Through a Board portal
% of responses
Distribution of Board materials
22© 2014 Hay Group. All rights reserved
Advantages of Technology in the Boardroom
Secure email and portals
Streamlines information
Efficiency of meetings
Tracking and monitoring of shareholder communications
Remote Board meeting participation
Key benefits of advances in technology include reduced
environmental impact, protection of sensitive information and
more effective communication
23© 2014 Hay Group. All rights reserved
Key trends in Technology & Board Ops
Most boards recognize the value
of formal board
evaluations &
director educationto enhance the overall board
operations
What we found
201050
New director orientation recognized to
enhance overall board effectiveness
76%
Respondents that
have a formal
policy on board
evaluation 65%Director education
policies are less
common and
participation varies
Program
attendance
+ 75% -25%
Yearly most
typical
24© 2014 Hay Group. All rights reserved
Board Meetings
16%
78%
6%
Provision of Board materials to Board members
Less than 5 days
5-10 days
10 - 15 days
2%
49%
30%
19%
Number of board meetings
0-2 times
3-6 times
7-10 times
>10 times
Out of our survey respondents, the majority conduct board meetings
between 3 and 6 times annually, closely followed by organizations who
conduct them between 7 and 10 times annually.
25© 2014 Hay Group. All rights reserved
Key trends in Technology & Board Ops
Stakeholder
Engagement
Increasingly common for
Board members to
communicate with
stakeholders
Strong internal coordination
between investor
relations and the
corporate secretaryenable effective communication
with stakeholder groups
What we found
0%
10%
20%
30%
40%
50%
60%
70%
0-2 times 3-6 times 7-10 times >10 times
% o
f re
sp
on
ses
Number of times per year
Board communications with stakeholders
2014
2013
26© 2014 Hay Group. All rights reserved
Stakeholder Engagement
The Problems
Stakeholder communications require
time and attention
Different messages and issues from
opposing stakeholder groups, conflicts
can arise from helping either group
Directors need to be conscious of the
legal issues when engaging with
stakeholders, and should be coached
beforehand
Stakeholders may not always want to
engage with directors if there isn’t a
problem
The Benefits
Better understanding of what
stakeholders are looking for
Staying involved with stakeholders helps
to promote economic development and
achievement of developmental goals
Forming partnerships with stakeholders
can build credibility
Engaging with stakeholders and
creating open dialogue allows
organizations to maintain transparent
relationships
2.3Governance Trends in Boardroom Diversity
28© 2014 Hay Group. All rights reserved
Trends in Boardroom Diversity
What we explored
1 2Diversity policies Director recruitment
Diversity in the boardroom
“In our hiring program, if all things equal, we will often give the position to the candidate who has diversity characteristics.”
“Diversity isn’t necessarily about ethnicity or gender…diversity is about creating the right Board, full of the right people with qualifications, skills, experience and background that can add value to executive management.”
30© 2014 Hay Group. All rights reserved
Key trends in Boardroom diversity
Proportion of boards with
Policies on
boardroom
diversityare increasing.
What we found
201050
76%
Respondents that
have a formal
policy on board
diversity 40%Year over year, the
proportional
increase is
encouraging
- 50% +75%
2013 2014
31© 2014 Hay Group. All rights reserved
Facts & figures within Canadian
Boardrooms
Boards with female representation 80%
Boards with visible minority representation 41%
Common age of the youngest director Over 40 years old
Common age of the oldest director 70-75 years old
Simple average age of the Board directors 56-60 years
Boards including non-residents of Canada 32%
1% 4%
41%54%
Percentage of women serving on Board
Above 75%
51% to 75%
25% to 50%
Below 25%
0% 2%
13%
85%
Percentage of people of a visible minority serving on boards
51% to 75%
25% to 50%
Below 25%
32© 2014 Hay Group. All rights reserved
Key trends in Board recruitment
The factors having the
most influence on
being considered for a board
role are by far industry
experience &
being known for
industry-related
expertise
What we found
201050
76%
65%Program
attendance
Yearly most
typical
0%
10%
20%
30%
40%
50%
60%
70%
% o
f re
sp
on
ses
Most important Board recruitment criteria (1 being most critical)
1
2
3
Diversity in the boardroom
“We are supportive of the recent Ontario Securities Commission initiative, because it strikes the balance with their ‘comply or explain’ approach.”
“We are hopeful that quotas will not be required, even though some commentators express concerns of plateau in terms of Boardroom diversity.”
“Quotas are a terrible way to increase diversity. We applaud those interested in agencies like Catalyst Canada who go out to encourage people to adopt these best practices.”
2.4Governance Trends in Risk Management & Executive Pay
35© 2014 Hay Group. All rights reserved
Trends in Risk Management &
Executive Pay
What we explored
1 2 3Regulatory compliance
and the impact of
legislation
Executive pay CEO performance
evaluation and
succession
Risk management and oversight is by far the most significant issue companies face
37© 2014 Hay Group. All rights reserved
Key trends in risk management
Best practice
measures
dealing with risk
management Risk registry
Reporting of risk
Corporate risk profiles
What we found
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
Environmental risk
Personnel risk
Technological risk
Compliance-related risk
Strategic risk
Reputational risk
Financial risk
Operational risk
% of responses
Most critical risk
38© 2014 Hay Group. All rights reserved
Risk Management across Canada
65%
We have a well-articulated Risk committee at the Board level that is dedicated
to looking at the organizational risk and ensuring that systems, policies,
tolerances and limits are in place to control and manage risk
47%
15%
17%
21%
Formal risk policy
Yes, fully implemented
Yes, being implemented
No, but underconsideration
No
38%
18%
17%
27%
Enterprise Risk Management program
Yes, fully implemented
Yes, being implemented
No, but underconsideration
No
”“
39© 2014 Hay Group. All rights reserved
Impact of legislation
The Negatives
Regulations can be very limiting for
smaller organizations that lack the
adequate/appropriate resources
Directors now have to understand
multiple pieces of legislation and
regulation
Timely and costly for management
to comply
There is no global standard
Difficult to achieve balance between
easy to understand language and
maintaining legal compliance
The Positives
Increased transparency strengthens
accountability and shareholder
understanding
Transparency provides better
guideline in overall corporate
governance
Legislation brings standardization
across industries on corporate
disclosures
Adds clarity on expectations and
standards of corporate governance
40© 2014 Hay Group. All rights reserved
Impact of Legislation2013 – 2014 opinion comparison
The percentage of respondents with positive votes has increased from
43% to 55%
0%
10%
20%
30%
40%
50%
60%
Positive Neutral Negative/ Room forimprovement
% o
f re
sp
on
ses
Impact of corporate governance legislation on Board operations
2014
2013
The voice of the corporate secretary on the impact of legislation.
“I don’t think it’s the legislation that’s driving the changes, but rather the “quasi-legislative” third parties, such as the ISS, Globe and Mail’s Board Games, and the CCGG. Their thoughts on leadership and setting of expectations is the most effective force in enhancing corporate governance in Canada.”
42© 2014 Hay Group. All rights reserved
Key trends in regulatory compliance
Regulatory
compliance rates
second in importance, yet
only 42%Have a formal regulatory
compliance policy
What we found
42%
58%48%
Formal policy to ensure regulatory compliance
Yes
No
03Managing risk – protecting and enabling performance
44© 2014 Hay Group. All rights reserved
Key trends in executive pay
Over 50% review
executive
compensation on
a regular basis
External compensation
consultants, the CEO, and
proxy advisory firms
Most heavily
influence
executive pay
What we found
0% 10% 20% 30% 40% 50% 60% 70% 80%
Other
Media/public opinion
Government legislation
Investor views
Corporate governance codes
Market practice
Performance
% of responses
Factors affecting executive pay design
45© 2014 Hay Group. All rights reserved
Key trends in performance metrics
Executive
compensation
linked to
organization
performance for both short and long term goals
occurs in some organizations
Pay at risk increases in
proportion to an executive’s
accountability to deliver on their
goals
What we found
0%
10%
20%
30%
40%
50%
60%
70%
80%
Financialgoals (e.g.
Profit,revenue)
Individualcontribution
Operationalgoals
Customerfeedback
% o
f re
sp
on
se
s
Performance measures linkage to incentives
Large impact
Some impact
No impact
46© 2014 Hay Group. All rights reserved
Roadmap to simpler executive pay
So how do we get there?
Drivers of complexity: What causes
complexity in executive reward?
Pointing the way: Creating the right
conditions
Routes to simplification: What steps can
organizations implement?
On the right road: What is the right simplicity
for your organization?
Simplicity matrix
Many stakeholders involved in executive reward are calling for pay to be
made simpler, including compensation committees, investors/funders/
members, and executives themselves
47© 2014 Hay Group. All rights reserved
Guidelines to achieving simplification
Be clear about what simplification means to the organization
Accept trade-offs between simplicity and effectiveness
Set clear, specific aims and principles about how pay should operate
Focus on the business
Don’t cascade complexity
Be honest with stakeholders
1
2
3
4
5
66
48© 2014 Hay Group. All rights reserved
Key trends in CEO performance
evaluation and succession
Expanding the
board’s focus from traditional remuneration
and nominating committees
to a human
capital committee continues to be a key
challenge
What we foundRespondents that
have a CEO
performance
evaluation policy 78%Respondents that
have a CEO
succession policy
49%Respondents that
review
succession plans
annually 49%
CEO & executive succession is not about ‘replacement’, but rather risk mitigation in assuring business continuity – and therefore a business (and Board) imperative.
50© 2014 Hay Group. All rights reserved
The 7 steps to ensuring a robust
Succession Plan
Identify mission critical roles
Define future role requirements
Identify succession candidates/high potentials
Objectively assess internal candidates
Actively develop talent bench strength
Identify and manage succession risks: commitment and retention
Sustain momentum over the long term
1
2
3
4
5
6
7
51© 2014 Hay Group. All rights reserved
CEO & executive leadership
succession framework
Develop future CEO/ executive role requirements
Assess internal candidates against CEO/executive role profile
Develop CEO/executive talent
Develop CEO transition
plan/executive on-boarding
strategies
Develop plans forinternal
candidates
Assess internal vs.
external candidates
StrategyBusiness
model
Corporate culture
Primary objective: to build the leadership bench strength to execute on future strategy
52© 2014 Hay Group. All rights reserved
Mission Critical Staffing for
Leadership Continuity
56%24%
11%
9%
Estimated executive turnover
Less than 10%
10% to 20%
20% to 30%
More than 30%
2%
33%
65%
Ability to fill mission critical roles
Little extent
Moderate extent
Great extent
Over the years, there has been more interaction between the Board and non-
executives, where they are able to present issues to the Board…if we see
potential in a candidate we make sure they have the opportunities to build
rapport with the Board.
“”
Succession planning fits hand in glove with business strategy
If you don’t have a strong leadership bench, your organization is at risk of not executing on your strategy.
54© 2014 Hay Group. All rights reserved
The 7 derailers to a robust
succession plan?
Succession is an HR issue
Succession planning as a yearly event
The black box of succession planning
The quest for the “heir apparent”
The 9-box crystal ball
Potential is not a state
Cloning of “mini-me’s”
1
2
3
4
5
6
7
55© 2014 Hay Group. All rights reserved
Looking forward
Top 5 most voted corporate governance trends for 2015:
Boardroom
diversity Focus on
risk
management
(including
Human
Capital risk)
Increased
reporting
and
regulation
Executive
and
director
pay
Director
training
and
education
Questions?
?
57© 2014 Hay Group. All rights reserved
Who to contact
Christopher A. ChenChristopher is National Director for Executive Compensation, based in Toronto ON,
and sits on Hay Group’s Executive Reward Global Leadership Team and the
Canadian Management Committee. He advises clients on supporting stakeholder
value through effectively aligning organizational strategy to executive compensation
Email: christopher.chen@haygroup.com
Tel: +1 416 815 6385
Mathé Grenier
Mathé Grenier is a Hay Group Director based in Vancouver, BC, supporting clients
across Western Canada. With a focus on Board of Directors and executive level
solutions, Mathé specializes in leadership and organizational transformation,
succession planning, leadership development, board effectiveness, executive
coaching and strategy facilitation. She works to create alignment, resilience and
motivation at all levels to facilitate strategy execution.
Email: mathe.grenier@haygroup.com
Tel: +1 778 945 29175
58© 2014 Hay Group. All rights reserved
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