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The Director’s Chair


Listed //Mining & Energy PDAC 2013


The Director’s Chair

The   bottom  line   on  oversight

In The Director’s Chair with David W. Anderson: Hugh Bolton, former top accountant, now top chair and director, says directors on resource sector boards must dig for answers to really know the business they’re in

Photography by Jeff Kirk

Hugh Bolton had a sterling career as a chartered accountant, culminating in his role as head of Coopers & Lybrand Canada in the 1990s. The insights gained in that arena have also served him exceedingly well in his second career as a corporate director. Bolton currently holds board positions in a number of sectors, with energy and mining front and centre. Here, in conversation with Listed con- tributing editor and governance and leadership adviser David W.Anderson, Bolton reveals how successful boards in those sectors operate and what he’s learned along the way.

those sectors operate and what he’s learned along the way. Hugh Bolton Primary role Chair, Epcor

Hugh Bolton

Primary role Chair, Epcor Utilities Inc.

Additional roles Director: Capital Power Corp., Capital Power LP, Teck Resources Ltd. (chair, Audit Committee), TD Bank Financial Group, The Canadian National Railway Co., WestJet Airlines Ltd. (chair, Audit Committee)

Former chair and chief executive partner Coopers & Lybrand Canada

Former chair Matrikon Inc., Abacus Insurance Ltd.

Former director Research Technology Management, Inc., Junior Achievement Canada, Canadian Diabetes Association, Canadian Comprehensive Auditing Foundation, Canadian Tax Foundation

Former commissions and councils Alberta Business Tax Review Committee, Business Council on National Issues, Ontario Financial Review Commission

Education University of Alberta, BA (Economics), Harvard Business School, Executive Education Program (Corporate Governance–Audit)

Professional accreditation Chartered Accountant, Alberta (1963)

Honours kFellow, Alberta Institute of Chartered Accountants (1996) kDistinguished Service Award, Alberta Institute of Chartered Accountants (2001) kLife Membership, Alberta Institute of Chartered Accountants (2003) kFellow, Institute of Corporate Directors (2006) kLifetime Achievement Award, Alberta Institute of Chartered Accountants (2010)

Current age


Age when first became a director


Years of board service 15 years


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David W. Anderson What defines a great CEO in the mining industry? Hugh Bolton To be an outstanding CEO in this industry, a leader needs

expertise in three areas: scholastic knowledge of engineering or earth sciences, mining operations and capital-raising side of finance. Three additional attributes, complementary to these areas of expertise, that

I look for are IQ for raw intelligence, EQ for the empathy to relate to

people, and SQ for the social savvy to read the small “p” politics of organizational life. It’s very difficult to find someone with all these things. Getting a smart person is table stakes. It’s the other intangibles that make a great leader. Consider what it takes to develop a successful mine —from a prospector’s discovery to a successful assay to profitable production takes at least 10 years. It requires finding financial resources to prove up the mine and withstand commodity price swings, servicing monumental environmental obligations, and having a range of manage- ment skills integrated at an executive level. Given these demands and the stakeholder challenges facing the mining industry, EQ and SQ are the things that will be more important in distinguishing a great CEO.

Businesses in the oilsands sector find themselves in the same position as the lumber industry once did. They need to learnthesamelessonsandwouldbenefit from using the same model

learnthesamelessonsandwouldbenefit from using the same model David W. Anderson With such a tall order for an

David W. Anderson With such a tall order for an effective CEO, how do you think about succession? Hugh Bolton Whether a succession issue arises through retirement or other circumstances, it’s the board’s responsibility to make sure there are internal successors. The board agenda must not just address CEO succession, but also succession for the management team. The board must insist that executives mind their responsibility to recruit, evaluate and develop top people. On my boards, we get an update on people down three levels below the CEO. I think succession is the No. 1 issue, as we’re all human and we all move on to different phases in life and business. The average tenure of a CEO goes by fast.

David W. Anderson Do CFOs make natural CEO candidates? Hugh Bolton Perhaps, but one needs more than just financial acumen to be a good CFO, let alone an effective CEO. A strong CFO is an individual who not only understands the accounting rules, but more importantly, understands the strategic role a CFO can play. In fact, to be a successful CFO, you don’t even need to have an accounting designation. To illustrate, Claude Mongeau did an outstanding job as CFO at CN Rail, under Hunter Harrison. Claude demonstrated he could operate strategi- cally as the CFO and is now CN’s CEO. Taking a different route, Colleen Johnston, TD’s CFO, has an accounting background that she combines with other skills, including an extraordinary strategic understanding of

what the company and board face. So, if you have a CFO with good financial and strategic ability, then you have a natural candidate for CEO, but I would also say a knowledge of the operating side of the business

is just as important.

David W. Anderson The federal government has said it wants to stream- line regulation to boost resource development and job creation. How is the evolving regulatory landscape affecting corporate performance? Hugh Bolton The jurisdictions with which I’m most familiar—Australia,


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Canada, Chile and the U.S.—all have stringent regulations to which we ensure management is complying. Environmental permits, which have provincial and federal components, are hardest to attain. While we haven’t seen any easing of regulation by the federal government that would reduce the environmental assessment done by companies, it is trying to dramatically increase the speed of the bureaucratic processes. This is particularly noticeable in the oilsands, where manage- ment is optimistic the approval timeframes will be closer to one year than the current three. But it’s too early to tell if this will actually happen. While we pay close attention to regulation and expectations to be more responsible regarding the environment, the mining sector faces different regulations compared to, for instance, the financial services sector. I’m very proud of the fact we at Teck are cognizant of our social license to operate—and that we’ve been recognized as one of the top 100 corporations in the world for corporate sustainability.

David W. Anderson Stakeholder demand for openness on the part of business leaders continues to rise—as do the consequences for firms appearing to tightly control information and ignore input. What’s your view of stakeholder relations in resource industries? Hugh Bolton The oilsands in particular have come in for some criticism in this regard. They are now dealing with the reality that they can and must do better. As Jeffrey Simpson [of The Globe and Mail] has pointed out, businesses in the sector find themselves in the same position as the lumber industry once did. They need to learn the same lessons and would benefit from using the same model. I am hopeful that they are beginning to do so. They are taking their critics seriously and listening as opposed to shutting out their views. As a result of meaningful dialogue—and there’s much more they need to have—I think the industry is making changes that will improve its reputation, production and environ- mental impact. It’s remarkable to think that Suncor in the 1990s, under Rick George’s leadership, understood the importance of engagement, yet the industry as a whole did not appreciate his wisdom. As directors we have to remember that our responsibility is to the company—and to all its stakeholders.

David W. Anderson Mining companies scour the globe for viable oppor- tunities and often find themselves having to operate in politically unstable environments, facing both lower standards of disclosure and higher incidence of corruption. How do you deal with this reality? Hugh Bolton Very carefully! The U.S. Foreign Corrupt Practices Act makes directors personally liable and open to felony prosecution for any corrupt practices carried on by the company or its employees. Canadian regulators have been slower to act, but are now upping their game in this regard. As directors, our job is oversight—we are entitled to rely on management—but that doesn’t mean we can just ask a question and hear management say,“Yes, we’re fine,” and think that’s sufficient. We have to ensure effective controls are in place to justify that assurance. These include a relevant Code of Ethics and Code of Conduct, which try to ensure people are aware of their obligations and that appropriate procedures are in place for management to deal with incidents if they occur. We must assure ourselves that if problems happen, they are reported immediately and effective measures are instituted to ensure immediate compliance. This obligation terrifies me.

David W. Anderson Given these risks, what advice do you have for prospective directors? Hugh Bolton Be careful in considering board service, even in Canada. Just because a company is listed here doesn’t mean you can be comfort- able. As we saw with Sino-Forest, a Canadian listing was used by foreign

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investors to raise money in our capital markets for operations in other country. It’s not easy to know what’s really going on. Extra caution is warranted when considering board service for companies operating in foreign countries. Take time to realize the possible extent of your liability by doing your own due diligence, including going to the country or countries in which the company operates to see firsthand the properties and to understand their culture and regulatory environment.

David W. Anderson Are there specific acts of due diligence that you have found particularly useful? Hugh Bolton Yes, I get written permission from the company to go beyond the standard checklists and talk to the auditors and external counsel. I ask the auditor about the internal controls, looking for things like proper recognition of revenue, and get them to take me through the reporting. Getting a clean bill of health from the engagement partners of both the audit firm and external counsel I think gives one a due diligence defence if anything is in fact out of order. When being recruited to serve on small-cap company boards, investigate the promoters and check them out as fully as possible. When it comes to board composi- tion, I want to see industry experience and expertise in the mineral the company is focused on.

David W. Anderson Foreign investors have spent billions of dollars buying Canadian firms in the mining and energy sectors, and see enough potential to spend billions more. Should foreigners be treated differ- ently than Canadians when it comes to such investments? Hugh Bolton It’s not a good idea to say to entrepreneurs and owners that you can’t sell your company to others. Our economy would be much poorer if that were the general rule. There’s nothing wrong with foreign ownership of assets in the ground. We don’t have the capital in our country for development, so we need foreign investment. However, I do lament the loss of Canadian control of some of our major mining firms. It’s hard to articulate why, but it’s a philosophical judgment I would make for industries that are at the foundation of our national security and economy. As a country, we apply this type of thinking within airline and rail industries that are similarly considered foundational. In this industry, I’m in favour of foreign ownership so long as there are reasonable rules around decision-making that affects operations within Canada. As with the approval of Nexen’s takeover, there has to be a compromise on control of Canadian firms, in terms of who can run the company and what they can and can’t do with the assets.

David W. Anderson Canada is a haven for junior mining companies seeking capital and larger firms looking to acquire the best prospects. As a director, how do you bring value to the decision-making pro- cess when facing an M&A deal? Hugh Bolton M&A deals are gut-wrenching ordeals for boards. It’s my job as a director to bring oversight, insight and foresight to the table. Oversight ensures accountability of management to the purpose and plan we’ve set. Insight generates an understanding of the business and industry milieu in which it operates. Foresight is an ability to peek around the corner, metaphorically—it’s impossible to know the future with certainty, but with disciplined thought, we can narrow the possibilities. Applying these three “sights” generates the specific questions you need to ask management in doing deals.

David W. Anderson Are there general questions you like to ask of manage- ment to decide whether to support a deal? Hugh Bolton The first question is,“Are we on strategy with the proposed M&A deal?” All boards have a plan and strategy to accomplish it—does


The Director’s Chair

this fit? The second question is,“Have we got the financial resources?” In other words, I want to be sure we are not betting the company to do this deal. The third question is, “Do we have the human resources to integrate the companies?” It is the human side of integration where most companies fail in M&A transactions. I want to know what great people we are acquiring, because mines don’t run themselves. The best companies at M&A have thought through the question of people integration thoroughly, as it’s the most important. The fourth question is,“Is there anyone on the senior management team who isn’t 100% behind this deal?” I want to know if the CEO is overriding objections on the management team or underplaying the risks, because if management says there’s little to no risk, I’d vote against it. I probe management to see if there has been solid debate to bring out the risks and advantages of doing the deal. Understanding risk is the key to mitigating it.

I’m not a mineralogical expert, but like all effective directors, I speak up and say,“I don’t understand—and I need to”before giving my approval. One needs courage to ask ‘dumb’ questions

my approval. One needs courage to ask ‘dumb’ questions David W. Anderson Management will always know

David W. Anderson Management will always know more about the business or a potential deal than the board. What helps directors to understand risk in context and contribute fully to board discussions? Hugh Bolton Directors in any industry must really understand the business they’re in. In the mining industry, it’s not as simple as buying an asset and then going in and taking the minerals out of the ground. There are a lot of problems with the chemistry that can arise. You have to make sure you have the people who can understand these things. I’m not a mineralogical expert, but like all effective directors, I speak up and say,“I don’t understand—and I need to” before giving my approval. So one needs courage to ask ‘dumb’ questions to fill gaps in understanding. In a similar vein, I like to see a contrarian mind on a board to stimulate discussion and make sure we really see the full picture.

David W. Anderson The idea that directors must be intimately familiar with the nature of the business is a strong theme in your thinking. In practice, how do you accomplish this? Hugh Bolton On the Teck Resources board, we go and spend days at mine sites to understand what we’re dealing with. You can’t believe how it opens your mind in terms of what’s actually happening and how essential this is to understanding the business. This understanding is second nature to management, so it’s vital for the board to also have this full appreciation. In the case of a proposed acquisition, it’s good to see their assets, but it is often not possible for a board to do so beforehand. We ensure that management has seen firsthand any proposed new assets and reviews with us in detail the documented due diligence. It’s a thought- ful, logical process that may allow you to avoid serious surprises.

process that may allow you to avoid serious surprises. David W. Anderson , MBA , PhD,
process that may allow you to avoid serious surprises. David W. Anderson , MBA , PhD,

David W. Anderson, MBA, PhD, ICD.D is president of The Anderson Governance Group in Toronto, an independent advisory firm dedicated to assisting boards and management teams enhance leadership performance. He advises directors, executives, investors and regulators based on his international research and practice. E-mail:

david.anderson@taggra.com. Web: www.taggra.com.

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