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The Directors Chair

John Manley

The new multi-stakeholder reality

In The Directors Chair with David W. Anderson: As a former inner-circle federal cabinet minister, John Manley
knows how government makes decisions. Similar thinking, he says, is needed in the corporate world
Photography by Dave Chan

John Manley, deputy prime minister under Jean Chrtien, says hes learned a
lot in the 10 years hes been working on corporate boards since leaving politics
particularly in his time as a director at Canadian Pacific Railway prior to the
2012 dissident takeover by Pershing Square Capital. But in the process, and
in his primary role as president and CEO of the Canadian Council of Chief
Executives, hes also discovered that boards and management increasingly
need to learn to make decisions more like government, embracing a multistakeholder approach. According to Manley, linear, top-down problem solving,
informed only by the views of shareholders, is not an effective strategy in a world
where anyone affected by your decisions has a voice and a say. Here, in
conversation with governance and leadership adviser David W. Anderson,
Manley elaborates on those views, as well as on the subject of board-CEO
relations, a topic he is uniquely positioned to address.

John Manley
Primary role
President and CEO, Canadian Council of Chief Executives (CCCE)
Additional roles
Director: public companies (CIBC, CAE, Telus); not-for-profit boards (NAC, CARE Canada, MaRS Discovery District)
Former roles
Member of Parliament, Deputy Prime Minister and Cabinet Minister (Finance, Foreign Affairs, Industry);
Chair, Cabinet Committee on Public Security and Anti-terrorism
Education
Carleton University: BA Math and Political Science
Honours
kOfficer of the Order of Canada

kHonourary doctorates from the University of Ottawa, Carleton University, University of Toronto, Western University

kMember of the Privy Council

kTime Canada 2001 Newsmaker of the Year

Current age
63
Years of board service
10

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The Directors Chair

John Manley

David W. Anderson Deputy Prime Minister, Minister of Finance,

Industry and Foreign Affairs. For a decade, you led several of
the most significant posts in government. And in the decade
since, youve served some of Canadas largest and most prestigious listed companies as a corporate director. Why has big
business, often seen as critical of government and distrustful of
politicians, sought you out?
John Manley Business exists in a world where government makes
the rules on behalf of its citizens. To stay in businessprofitably,
and on the right side of the rulesits helpful for business leaders
to understand government. This is particularly true in regulated
industries and those with frequent dealings with government.
In truth, business people dont have a good idea of how government functions or how decisions are made in the public context.
Former politicians like myself can bring experience and perspective to our boards.

David W. Anderson Government has a tendency to respond with

regulation when business gets into trouble. In some industries,
the regulatory burden has increased substantially. How does
government look at regulation?
John Manley Everyone is under political pressure to do something
when harm is evident or likely, or social inequities become pronounced. Some regulation is necessary but some is duplicative or
misguidedand thats what creates problems for the private sector.
Seldom do regulations get rescinded or deleted, so the cumulative
effect becomes a further problem. When the federal government
seeks to enact regulation, a regulatory impact statement is required
to show someone is thinking about how the proposed regulation will
impact people on whom it creates a compliance burden. There is an
overall bias in favour of ensuring regulation seeks to solve problems
with an analytical basis and with adequate consultation. In truth, we
rarely go back and ask if the existing suite of regulation is appropriate and necessary.

David W. Anderson Why do you think business people are chal-

lenged to understand the workings of government?

John Manley CEOs, especially those who are engineers or whose

thinking has been shaped by technical backgrounds and formal business education, tend to be linear in their approach to problem solving. In government, we face the challenges of society as a whole, and
deal on a daily basis with complex stakeholder issues, conflicting
objectives and time horizons, different ideas of what constitutes success and power that rests on the publics perception of our legitimacy.
When trying to solve multiple, intricate problems simultaneously, linearity isnt the rule for decision-making. In the public sector, decisionmaking is long and intense and the number of stakeholders engaged is
bigger. The cycle is slow and its not always clear how its working, so
business people get frustrated.
David W. Anderson Whats the consequence of making business
decisions without insight about government?
John Manley You can get it wrong. It can be costly to misread the
direction of a government or regulators. A lot of time, energy and
dollars can be wasted when a business plan or strategy is premised
on a faulty assumption or conclusion about government policy. No
shareholder will thank you for losing their capital. If the government is your customer, the buying cycle is very protractedthink
of defence procurement. If you want your project approved, its
easy to underestimate the number and variety of stakeholders who
can throw a wrench in your works. If you face a regulatory burden,
the regulator may or may not be independent of the political interests involved. In each of these cases, you need to understand all
stakeholder interests and how they play on the process and in the
minds of officials responsible for the decision.
David W. Anderson What specific value do you bring to your

boards?
John Manley In a boards decision-making, and in counsel to a

CEO, having a voice of experience in wrestling with these issues

can be useful. Any directors value is often in the questions posed
and, as a result, the relevant facts raised, the key perspective
illuminated and the critical insight revealed. I make sure, as best I
can, to ask the right questions to ensure management has thought
through the key considerations, processes and time horizons.

It can be costly to misread a government

or regulators. A lot of time, energy and
dollars can be wasted when a business
plan or strategy is premised on a faulty
assumption or conclusion. No shareholder
will thank you for losing their capital.
David W. Anderson Business leaders are often critical of regulation. What can business leaders do to be constructive?
John Manley The business community cant just say, Trust me. That
deference is gone. In the post-Enron and Lehman world, the main
thing business leaders can do is respond to proposed regulation before
implementation. Its not as useful to voice objections once the government has committed to a course of action. Its better for business leaders to see themselves as one of the stakeholders and use that vantage
point to influence the objectives and design of policy.
David W. Anderson Can you make the case in favour of regula-

tion?
John Manley We require regulation in fields as wide-ranging
as finance, food and agriculture, health and safety, and building
standards. We dont want to live in an unregulated environment.
Regulation is not inherently bad. We need standards that allow all
of us to benefit. Business welcomes standards. The more legitimate
your enterprise, the more you like standards so you dont lose business to those cutting corners. Regulatory compliance is not cost-free,
so therefore you want to optimize performance by making sure the
regulations are necessary and reasonable, that they are not internally
contradictory, and that the burden of compliance doesnt exceed the
benefit of regulation.
David W. Anderson Society doesnt assume the integrity of business or give its leaders the benefit of the doubt any more. Is this
because business leaders are less ethical now, bringing regulation on themselves?

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actions to ideas at the board table. Without a business background

to put the pieces together, you just end up with noise. While its
certainly useful for boards to be comprised of directors bringing
different perspectives, ultimately what you want in a board member is good judgement. You dont get that in a focus group. Each
director has to have a strong business orientation because the work
of a board is to make business decisions.

John Manley No, but the world is more complex. There have always

been bad actors, but I dont think people are less ethical. Society is
certainly more aware, has higher expectations and is watching more
closelyand our far greater interconnectedness brings failures into
stark relief. Its the interconnectedness that creates the need for tighter regulation. Regulation is based in these needs, not ethics.

When you have a number of years of

disappointing performance, it doesnt
matter what your reasons are, someone
may call you to account for it. As a board,
you need to be proactive in ensuring youre
taking the steps necessary.

David W. Anderson Five years ago, directors and most of their advisers were dismissive of board-shareholder engagement. You
experienced a very public form of shareholder engagement on
the Canadian Pacific Railway board. Whats your view now on
boards engaging shareholders?
John Manley The evolution is toward directors thinking as owners
and appreciating where different groups of owners are coming from.
Significant investors and institutional owners warrant particular care.
While actual dialogue with shareholders is mostly done by the chair,
the full board must be supportive of being responsive and aware of the
concerns raised and issues discussed.

David W. Anderson Regulation and compliance are a part of

governance, but the core of governance is the application of

business judgement, overseeing a business and guiding it to sustainable commercial success. What if regulation puts the composition of the board itself in its sights?
John Manley I think its a mistake to recruit board members solely
because they represent a stakeholder perspective or bring a life experience that is of interest to the markets in which the company is
involved. A board is not a focus group. We need more than just re-

David W. Anderson Is there a particular lesson for boards you

take from the Canadian Pacific Railway example?
John Manley Yes, theres a clear lesson, I think. When you have a number of years of disappointing performance, it doesnt matter what your
reasons are, someone may call you to account for it. You need to be proactive in ensuring youre taking the steps necessary. Pershing Square

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The Directors Chair

John Manley

and others like them are looking for under-performing companies to

make a difference for their own profit. We would have saved a lot of
agony if we had acted prior to Pershings intervention to build a greater
urgency in improving relative performance. We should not have been
the least-well-performing railroad for that period of time.
David W. Anderson Is this part of a larger shift in governancetoward greater responsiveness and accountability to ownersto
which directors must adapt?
John Manley Yes, its how capital markets are now functioning. This
type of shareholder activism hasnt often happened in Canada, but
youre going to see more of it. Vast amounts of institutional money
are not permanently quiet; if someone is prepared to be an activist,
taking initiative to shake up the status quo in the name of higher
standards of performance, then institutions are willing to go along.
So you really need to be on top of relative performance and ensure
youre not overlooking anything that could become a bumper sticker in a proxy war. The standard now is to be regularly engaged with
major shareholders to understand what theyre thinking and listen
carefully to what theyre saying to detect signs of discontent. This
entails a new form of communication, but also a new vigilance in
watching the performance of your stock relative to others. Its not
rocket science to figure out if the market is unenthusiastic. It behooves the board to find out the issues. Its important knowledge
youre gaining from that engagement.
David W. Anderson How can boards rise to this challenge, over-

come their habitual passivity and create value for businesses?

John Manley First, boards need to get better at their core functions:

the approval of overall corporate strategy, CEO selection and operational oversight. The key value differentiator for a board, though, is in the
depth and quality of discussion with the CEO and executive team. Its
in that dialogue that a board brings to bear its collective skill, perspective and discipline to ensure the leaders of the enterprise understand the
competitive pressures, the broad environment and underlying factors
affecting the businessand how these are changing in a highly dynamic
global economy. The board must ensure that the leadership studies the
business diligently, in part by testing their assumptions, analysis and
conclusions through the stakeholder lens. I think boards must challenge
management to be in a leadership position on product quality, customer
satisfaction, corporate social responsibility, ethical standards and governance. Boards need to look at quarterly results in these areas. Over the
long term, the reputation of the firm depends on these factors. Boards
have their best impact by keeping management sharp.
David W. Anderson In your role as CEO of the Canadian Council

of Chief Executives, you spend time listening to CEOs and assessing the state of our business landscape. What should directors know about whats on the minds of their CEOs?
John Manley The concerns CEOs have are the very things boards
ought to be helping them think through. There are five things
CEOs are most concerned about now. First is the macroeconomic
environment. Fiscal and monetary policies are exhausted. A prolonged period of low growth is forcing change in business strategies. How should you respond? Second is the shift in economic
and political clout to Asia. Asia is the growth region. Seven-and-a
half percent growth this year in China is considered slow. It takes

time and money to build a business in Asia. Should you make the
investment? The third is talent. Theres a pressing need to get the
right talent and skills in the door and applied productively. How
will you manage your talent pool? The fourth is change in the
energy paradigm. Theres been a massive shift in last half decade
from worrying about peak oil to anticipating U.S. energy selfsufficiency and exports. For Canada, its incredibly important
to find new markets for our energy. For individual companies,
energy competitiveness has become more important to business
success, as the energy component of costs becomes relatively
larger. How will you become energy-competitive? The fifth is
technological change. Keeping up with the tech curve is harder,
as the pace quickens. Business must stay tuned to rapid evolution
in communications, artificial intelligence and robotics, given the
impact on business processes and structures. How will you adapt
to, if not lead, this change?

Business decisions arent made in a vacuum;

the people those decisions affect now
have a say in deciding if your business is
legitimate. Industries not known historically for good community relations, like
mining, are now deeply engaged.
David W. Anderson These are weighty questions best answered
by strong boards and their management teams. How would you
translate your experience in government to offer business leaders an insight that might help them get it right?
John Manley The experience of government in taking a multistakeholder approach to resolving issues is important to learn from.
Business is already moving quickly in this direction because its become necessary. Whether its pressure from shareholders or communities, business leaders are finding out that doing business today
requires a new approach to decision-makingone that is increasingly
similar to government. This is because business decisions arent made
in a vacuum; the people those decisions affect now have a say in deciding if your business is legitimate. Industries not known historically
for good community relations, like mining, are deeply engaged now in
corporate social responsibility initiatives and many industries are doing ventures that increasingly delve into social enterprise. So business
is learning the value of the multi-stakeholder approach. Its still early
days, but business leaders understand this new reality: youre not going to succeed if your only lens is that of your shareholders. You must
engage employees, customers and the communities you operate in to
get the best outcome for your shareholdersand for you to succeed in
the ethical and effective use of corporate power.

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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