Protecting the Shareholder - Public Policy Forum

PUBLIC POLICY FORUM PROTECTING THE SHAREHOLDER 25 PUBLIC POLICY FORUM PROTECTING THE SHAREHOLDER 26V. Analysis Of KeyGovernance IssuesIn the winter of 1997, after intensive discussions with themanagement of one major crown agency, the Public Policy Forumbecame concerned that the governance structure of our major Crowncorporations was due for review. We felt that a review of theirapproach to governance was appropriate, particularly in light ofrecent work undertaken in the private sector by the Toronto StockExchange and others.As a result, we interviewed a wide range of responsible officials -ministers, the chairs and chief executives of Crowns, and boardmembers as well as senior officials from various central agencies.Among other things we asked them: Who is the "shareholder"? Howdo you define "shareholder value"? How do the shareholderstransmit their objectives to the Crown corporation? Areaccountabilities and responsibilities aligned optimally? Do we havethe right people on Crown boards? How effective are Crown boards?Their answers form the basis of the analytical section below.Crowns - Closely-held CorporationsIn the jargon of private corporation governance, Crown corporationsare "closely-held" institutions. Governments are the dominant,indeed usually the sole shareholder, and, as such, they exerciseconsiderable control over the direction and even the operation oftheir Crown corporations.Through legislation, governments - and legislatures - providecorporations with their basic mandates and structures. ThroughCabinet or ministerial orders they often provide specific policydirection. By Order-in-Council they appoint the boards of directors,including their chairs, as well as the presidents or chief executiveofficers whose compensation are set by Cabinet as well. Crowncorporation budgets are subject to the overall fiscal policy of thegovernment and annual corporate plans are submitted for reviewby the responsible ministers and/or Treasury Board.Given that shareholder governments retain so much power andinfluence over their Crowns, it is worth asking how independentCrown corporation directors really are (even if they are largely"unrelated" by TSE guideline standards) and how much genuineauthority they exert over the corporation. Or are they, in fact, morein the nature of advisory committees similar to those which havereplaced supposed independent boards of directors in many privateCanadian corporations which have a dominant or controllingshareholder, often a nonCanadian one? This move to the advisorycommittee model appears to acknowledge the hard fact thatcontrolling shareholders call the shots in most matters of importance- as well as respond to concerns of directors about liability. (Thisconcern does not exist in the case of Crowns. Directors are notpersonally liable for actions undertaken by the Crown agency ofwhich they are a director.)One option, then, might be to apply this private sector model tocrown corporations, that is to formally redesignate their boards ofdirectors as advisory committees. It would then be clear that theirrole is not to make decisions, but simply to advise management,and perhaps the shareholder, on relevant issues based on thedirectors "once removed" assessments and experience, includingtheir geographic and demographic perspectives.The problem with this approach is that it would virtually destroyany notion that these corporations are, in fact, arms length fromtheir governments and independent of them in day-to-dayoperations and content. One would end up with an even moredirect-line relationship between Crown management and thegovernment with no one effectively in between to provide somecheck on both sides. It would be better, we suggest, for Crown boardsto be real boards, and for any impediments to that reality to beopenly examined and corrected.Most of the boards examined for this study do perform some of the