CoolBrands International Inc., for example, ranked lowest in the survey for the second year in a row, scoring 28 out of 100 in 2004, down from 30 in 2003. The company's shareholder proxy circular for 2004 discloses no changes to its board or its key governance practices.
Michael Wilson, chairman of the Canadian Coalition for Good Governance, which represents major institutional investors that collectively have $550-billion of assets under management, says his group has approached many companies with concerns about weak governance, and has found a small number that remain unyielding.
"We've gone to them, we've said: 'Would you like to sit down and talk to us?' And they say: 'Don't bug us,' " he said in an interview.
"We've said: 'Do you want to get our assessment of where the opportunities for improvement are?' And they say: 'Don't waste your time. We don't believe in this stuff; we think our job is to generate financial performance.' "
Investors say companies unwilling to make needed governance changes can pay a significant price. Companies perceived to have weak oversight or risky practices -- such as including members of management on the audit committee -- increasingly face a risk discount in their share price.
"I wouldn't touch a company like that," says Peter Dey, a corporate director who led a committee that drafted the corporate governance guidelines adopted by the Toronto Stock Exchange in 1995.
"I think good governance gives a real competitive edge. It's easier to raise capital. It's easier to recruit good people. If your system has these flaws, you pay a price."
CoolBrands, a Markham, Ont.-based frozen-treat manufacturer, has faced public criticism for its governance, and saw its shares tumble this summer when it surprised investors with news that it had lost a major contract from Weight Watchers International Inc. to market ice cream.
But the troubles have so far not prompted CoolBrands to announce any board or governance changes. The company did not return phone calls for comment. In an interview last year, co-chief executive officer David Stein explained CoolBrands' governance practices by saying it is focused on financial growth.
"We are a very entrepreneurial company that's been in the building phase of our business, and we have put the highest priority in the way in which we've governed the company to ensure that we were aggressively pursuing our growth," Mr. Stein said last year.
CoolBrands continues to have a six-person board that includes five members of management and one independent director.
The company has members of management on all its board committees, including the audit committee, and has multiple voting shares that give insiders a majority of votes although they have only 10 per cent of the equity.
Aastra Technologies Ltd., a Concord, Ont.-based telecommunications firm, has also made few changes to its governance practices in recent years. Aastra received a score of 40 in the ROB review this year, up from 39 last year.
Among the reasons for its low marks, a majority of directors on Aastra's board are management, and chief executive officer Francis Shen sits on the company's audit committee. Aastra does not have a compensation or nominating committee, and does not divide the roles of chairman and CEO.
Mr. Shen said in an interview he hopes to add new independent directors to Aastra's board, possibly by the time of the company's next annual meeting in the spring. He said he also expects to step down from the audit committee.
"When we look at all the corporate governance that's been going on all over the place, we take a very different view of it," Mr. Shen says. "I think it's been a little bit overblown. Corporate directors are not hired on the board to be police officers, but it's gotten to that point."
He said he will look for new directors himself, but said it isn't easy to find financial experts who can add heft to an audit committee.
"I keep my eyes out on a lot of social events and try to identify people who are good in that area," he said. "But in the end, to me what is more important is to find a director that would allow us to grow strategically in tackling the ever-changing market."
Meanwhile, some companies with low marks in the ROB review say they are planning sweeping governance changes.
Mississauga-based Sino-Forest Corp., which operates tree farms in China, added two new independent directors to its six-member board in September to bolster its governance practices.
Sino-Forest -- with a score of 38 out of 100, based on its most recent shareholder proxy circular -- tied for second-last position in the ROB review. (The company, which was added to the S&P/TSX index in March, was not marked in previous years.) Among the reasons for its low score was that the company had three executives on its six-member board, and its CEO was on its audit and compensation committees.
Chief financial officer Kee Wong says both of the company's new directors will join the board's key audit, compensation and governance committees. Company executives will step down from all three committees, he said, ensuring the committees are entirely independent.
"We are committed to good corporate governance, and we are going to do a lot of these things," he said.
Last year, he noted, the company also gave up its dual-class shares, adopting a single class of shares with one vote each. "We felt that having a single class of shares and treating everybody equal was the right thing to do."
Mr. Wong said all the recent governance changes are part of the company's evolution into a larger player from a small-capitalization stock to a company included in the benchmark S&P/TSX index.
Sino-Forest has also seen the price paid by companies that displease shareholders in the current climate of greater activism. The company saw its share price battered earlier this year when it proposed a lucrative plan to award shares to executives in exchange for giving up rights to purchase stakes in two subsidiaries. It had to revise the deal twice to win shareholder approval.
Bill Mackenzie, president of shareholder activist Fairvest Corp., says there are always companies that grow quickly and end up in the large-cap ranks of the S&P/TSX index before they have put in place governance practices common for larger companies.
The bigger worry, he says, are the companies that have an "in-your-face denial" of the value of governance controls. He said CoolBrands, for example, appears to have resisted all pressures to change its board, which has had an impact on its share price.
"Of course, look what the stock does the minute the news gets bad. Suddenly it's [sliding] on Teflon," he said.
While some companies may not make change voluntarily, some may be forced to adjust their boards because of a new rule introduced this year by most of Canada's securities commissions.
It requires public companies -- with the exception of tiny so-called "venture" issuers -- to have fully independent audit committees by the date of their next annual meeting, or by July 1, 2005, at the latest.
The ROB review found that 39 companies in the S&P/TSX index had related directors or members of management on their audit committees at the time of their most recent proxy circulars.
"When we see companies that don't meet those minimum requirements we are going to make sure that the regulators are aware of this," Mr. Wilson said. "My guess is that one way or another . . . they are going to be forced to moved to higher standards."
'We have put the highest priority in the way in which we've governed the company to ensure that we were aggressively pursuing our growth'
DAVID STEIN COOLBRANDS INTERNATIONAL INC. CO-CHIEF EXECUTIVE OFFICER
'When we look at all the corporate governance that's been going on all over the place...I think it's been a little bit overblown'
FRANCIS SHEN AASTRA TECHNOLOGIES LTD. CHAIRMAN AND CHIEF EXECUTIVE OFFICER
'We are commited to good corporate governance...I think it ties in to being a company that is evolving from a smaller cap to a bigger company'
KEE WONG SINO-FOREST CORP. CHIEF FINANCIAL OFFICER