Continued from Page 2…
At Air Canada, where Mr. O'Brien was a director until he resigned last November, the board had to confront a series of setbacks between 2001 and 2003, including a steep drop in air travel after Sept. 11, 2001, followed by another setback when the SARS virus hit Canada.
"I would say the board came to the conclusion before management did that we had to go into [bankruptcy protection] and try to restructure this whole thing," Mr. O'Brien says.
Although external events had battered the company, he says Air Canada's management and board concluded that the company's structure was also uncompetitive because of its high overhead costs, including higher labour costs than non-unionized competitors.
"It was just a business model that wasn't going to work any more. The board was caught in the middle between management, the unions and the government," he says.
Mr. McLean from CN says there are obvious situations where boards must really "get involved in a major way," such as when there is evidence of misconduct. But he says another such case happens when companies decide on major acquisitions.
During one huge acquisition for CN, he says the board was called together to meet just days before Christmas, with all directors in attendance, as well as a full assortment of financial advisers and lawyers.
"I said, 'Leave the experts outside. The board has to talk about this.' We went around the table and talked for two hours and then brought in the experts," he says. In the end, the board decided to proceed, but Mr. McLean says it was a "gut-wrenching" decision.
"That's what I mean when I say they have to be there in a crisis. You don't get a second chance."
While acute crises must clearly be dealt with by a board, Mr. Beatty at the CCGG says boards don't appear to be moving any more quickly to deal with slowly emerging problems, like the need to replace a CEO after a period of underperformance.
He says CEO succession is a board's key responsibility, and needs to be constantly planned and reviewed because changing a CEO is "hugely disruptive and has to be undertaken with extraordinary care."
He says the best boards always have a succession plan ready, including a "bus strikes the CEO" envelope, which contains instructions in the event a catastrophe befalls the company's top executive. And it should be reviewed every six months to make sure it is still appropriate.
Mr. Dey, meanwhile, argues for more tolerance from shareholders when a company hits a crisis.
He says the pendulum has swung so far that directors are held responsible for every misstep, even though not all of a company's problems signal a governance failure by the board.
"There are examples where a failure I think is so remote from the board of directors that it's unfair to hold the board accountable for that failure," he says.
"On the other hand, if something happens right under their nose -- if they waive a conflict-of-interest policy, for example, and the result is that the company incurs huge losses -- then it is directly attributable to the governance system."
CANADA'S DEFINITE CORPORATE GOVERNANCE RANKING
At the top: Manulife
Chairman Arthur Sawchuk says it is time for corporate boards to focus on value creation, rather that protecting the reputations of management and directors.
At the bottom
Some of Canada's biggest companies don't heed investor concerns and regulators' guidelines about buffing up the governance record.
Canada's definitive ranking of corporate governance and board composition, and a peek inside the Report on Business marking system.
The new directors on board
It helps if you have a blue-chip background, but the clubby world of directors is getting larger and more diverse.
Winds of change
In an era of increased accountability, investors are making public demands for change. And directors undergo performance reviews.
Boards have handled a range of crises this year, from bankruptcy protection to allegations of management impropriety.
A full explanation of the Report on Business's governance standards, plus the results for each company at globeandmail.com/business