law: disclosure & practice trends

on december 7, governance advisors and corporate directors met virtually to discuss disclosure and practice trends for canadian boards in 2023.

following are seminar highlights.
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• csa (canadian standards association) is driving dei & board composition requirements.  

 

• defining what it means to be qualified. candidates may have in-demand skills (cybersecurity, ai, diversity) but don’t have governance experience. asking if the board is willing to take on training. most are willing to pay for icd designation, if a candidate has other skill sets. asking: who is going to mentor, who is going to sponsor, what is the board education plan?  

 

• a ceo serving on other boards. in a new role, boards want the ceo focused on the board and company. this is being written into executive contracts with the option of joining later.

 

• boards are paying more attention to director attendance & evaluation. looking for outside support to measure performance and engagement.  

 

• strategy is driving executive appointments & board recruitment. some boards are increasing director numbers on a temporary basis to make room for additional skills as needed, and/or, asking absent directors to step off to create space for in-demand expertise or to achieve diversity.

—elaine roper, partner at executive recruitment firm odgers berndtson, head of board + chro practices.

• there is a sentiment that shareholder activism has decreased, but the truth is that boards are more aware of what to do now.  

 

• balancing act of esg expenses & shareholder returns can start by 1) reviewing expectations of the stakeholder community at large and 2) figuring out how to communicate esg costs to shareholders (vs: does that matter?).  

 

• may not want to be an ESG practice & policy leader because it continues to grow. have short-term (2/3-year) plans in place because we don’t know what will be required longer-term.

—dexter john, chief executive of shareholder-advising firm morrow sodali

• boards feel bombarded by increased expectations in the marketplace around enhanced disclosure & esg.   

 

• there is codification occurring. which framework to use? which one is appropriate for the company? what are shareholders expecting?  

 

• companies typically have senior management dedicated to these issues to support increased and evolving disclosure requirements.

—michael melanson, partner at corporate law firm bennet jones, focused on mining and capital markets.

• of the largest companies on the tsx, 75% have incorporated esg metrics into executive compensation. globally the number is 60% with europe leading. why are 25% not incorporating eg metrics into executive comp? Wwhat are the challenges? what is the message being sent to stakeholders by doing it or not doing it?   

• the “we don’t have consistent regulations” excuse is becoming outdated because there is a convergence across the globe. activist investors are becoming increasingly successful at challenging executive compensation when esg is not included.

• esg measurement risks: 1) cherry-picking metrics (ie. payouts are happening but might not be tied directly to change and progress), 2) reliable and measurable data, and 3) greenwashing accusations (ie. what are we saying and can we really support what we’re saying with real evidence)  

• esg measurement practices: 1) look at rating scores (how do we compare in terms of our peer group/industry? how quickly are we changing?), 2) start with soft targets (ie. include a few metrics in executive pay, focus on hard targets later), 3) silence is not golden (be prepared now or address it via shareholder issue later)

—emma purdy, senior partner at human-capital management firm global governance advisors, focused on risk, tax, and sustainability.

david milstead, a business journalist focused on institutional investing, accounting, compensation, governance, and head of the globe & mail's board games annual report on evaluating the performance of canadian boards, provided an update on changes to this year's evaluation metrics:

• the value of term limits has increased, as has non-gendered diversity.  

 

• climate is still not a metric. the rationale was lack of standardization. they expect to see climate metrics "within the next few years" to determine which questions are "reasonable and fair" to ask. 

 

• the value of equal voting rights has increased, which was "a direct result of analyzing the rogers situation last year," says milstead.

 

• the annual report was published on dec. 19: https://www.theglobeandmail.com/business/article-board-games-2022-how-we-ranked-canadas-corporate-boards/

reference:
https://www.youtube.com/watch?v=phmiW3a645o