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20 questions

20 Questions
Directors Should Ask about
Governance Committees
How to use this
publication
Each “20 Questions” briefing is designed to be
a concise, easy-to-read introduction to an issue
of importance to directors. The question format
reflects the oversight role of directors which
includes asking management — and themselves — 
tough questions.

The questions are not intended to be a precise


checklist, but rather a way to provide insight and
stimulate discussion on important topics. The
comments that accompany the questions provide
directors with a basis for critically assessing
the answers they get and digging deeper as
necessary.

The comments summarize current thinking


on the issues and the practices of leading
organizations. Although the questions apply to
most medium to large organizations, the answers
will vary according to the size, complexity and
sophistication of each individual organization.

Written by
David Anderson, MBA, PhD, ICD.D
The Anderson Governance Group

Project direction
Gigi Dawe
Principal, Risk Management and Governance
CICA

The CICA has granted permission


to the ICD to use these materials
in its Director Education Program.
20 Questions
Directors Should Ask about
Governance Committees

Written by
David Anderson, MBA, PhD, ICD.D
Copyright © 2010
The Canadian Institute of Chartered Accountants
277 Wellington Street West
Toronto, ON M5V 3H2

All rights reserved. This publication is protected by copyright and written


permission is required to reproduce, store in a retrieval system or transmit in
any form or by any means (electronic, mechanical, photocopying, recording,
or otherwise).

For information regarding permission, please contact permissions@cica.ca

Printed in Canada
Disponible en français

Library and Archives Canada Cataloguing in Publication

Anderson, David Wayne

20 questions directors should ask about governance committees /


David Anderson.

(20 questions)
Issued also in French.
ISBN 978-1-55385-498-2

1. Corporate governance—Miscellanea.  2. Committees—Miscellanea.


3. Boards of directors—Miscellanea.  I. Canadian Institute of Chartered
Accountants  II. Title.  III. Title: Twenty questions directors should ask about
governance committees.  IV. Series: 20 questions (Canadian Institute of
Chartered Accountants)

HD2745.A54 2010      658.4’22      C2010-902887-2


20 Questions Directors Should Ask about Governance Committees

Table of Contents

Preface
Part D: Enhancing the board’s
performance effectiveness
Introduction
11. How can the governance committee assist in
director development?
Part A: Understanding 12. How can the governance committee help the
the role and value of the board chair sharpen the board’s performance
governance committee focus?
13. What is the governance committee’s role in
1. What are the governance committee’s board evaluation and feedback?
responsibilities and what value does it bring to
the board? 14. What should the governance committee do if
a director is not performing or not interacting
2. How can the governance committee help effectively with other directors?
the board enhance its relationship with
management? 15. Should the governance committee have a role
in chair succession?
3. What is the role of our governance
committee? 16. How can the governance committee help
the board keep its mandates, policies and
practices up-to-date?
Part B: Building an effective
governance committee Part E: Emerging roles of
4. What skill sets does the governance governance committees
committee require?
17. How can the governance committee enhance
5. Who should sit on the governance committee? the board’s relationship with institutional
6. Who should chair the governance committee? shareholders and other stakeholders?
18. What is the governance committee’s role in
Part C: Composing the Board CEO succession?
19. What role can the governance committee play
7. What is the governance committee’s role in in preparing for a crisis?
building an effective board?
20. How can the governance committee help the
8. How can the governance committee assess board in deciding directors’ pay?
potential directors?
9. How long should directors serve on the board
or a committee?
Conclusion
10. How can the governance committee assist
directors in retiring from the board? Where to find more
information

1
Preface
In recent years, a range of regulatory and private
sector initiatives has significantly expanded the
governance responsibilities and practices of
boards of directors. Today, investors, regulators
and other stakeholders are increasingly scrutiniz-
ing the effectiveness of boards of directors in
discharging these governance responsibilities,
and their expectations for boards continue to
increase.

Many governance committees now focus atten-


tion on ensuring compliance by the board and
Risk oversight and the organization with applicable rules and regula-
tions. Some governance committees, however,
Governance Board have broader mandates and play an increasingly
Brian Ferguson, FCA, Chair important role in helping boards to optimize their
Bryan Held, FCA, ICD.D governance effectiveness.
Andrew J. MacDougall, LL.B. To assist boards of directors in understanding the
Michael B. Meagher, FCA role of the governance committee and thinking
Anne Marie O’Donovan, FCA broadly about a possible mandate and responsibil-
Sue Payne, FCA, C.Dir ities for such a committee, the Risk Oversight and
Governance Board (the Board) of the Canadian
Peter W. Roberts, FCA, CPA (Illinois), ICD.D
Institute of Chartered Accountants (CICA) com-
Debi Rosati, FCA, ICD.D missioned this publication. It is provided to help
Catherine Smith, ICD.D boards of small and large public companies,
both venture and non-venture issuers, private
companies, not-for-profit organizations and
Directors Advisory Group public sector entities. It is intended to be used
by individual directors and boards as a whole.
Giles Meikle, FCA, Chair
John Caldwell, CA The Board acknowledges and thanks the mem-
William Dimma, F.ICD, ICD.D bers of the Directors Advisory Group for their
invaluable advice, David W. Anderson, MBA, PhD,
John Ferguson, FCA ICD.D, for authoring, Peter Stephenson, PhD,
Gordon Hall, FSA, ICD.D ICD.D for special editorial assistance, the CICA
Carol Hansell, LL.B. staff who provided support to the project and
Ronald Osborne, FCA Hugh Miller who carried out the editing.
Tom Peddie, FCA
Brian Ferguson, FCA
Guylaine Saucier, CM, FCA, F.ICD Chair, Risk Oversight and Governance Board
Hap Stephen, CA
Peter Stephenson, PhD, ICD.D

CICA Staff
Dave Pollard, CA
Vice President, Knowledge Development
Gigi Dawe
Principal, Risk Oversight and Governance
Beth Deazeley, LL.B.
Principal, Risk Oversight and Governance

2
20 Questions Directors Should Ask about Governance Committees

Introduction philosophy and related practices to help ensure


a governance committee’s effectiveness — and to
assist directors in deciding how their governance
As a board, do we have the right directors, with committees can best aid their boards in preparing
the right experience, knowledge and motivation for and responding to new challenges.
to help us deliver value to the organization? Are
To help directors better appreciate the gover-
we able to effectively set strategic direction with
nance committee’s role, the questions in this
management and oversee and evaluate manage-
publication are grouped and presented in a
ment’s execution of strategic plans? Are we
sequence:
confident that we have delegated responsibilities
effectively across committees? Are we effective • Understanding the role and potential value
in overseeing risk mitigation and staying on top of the governance committee
of emerging risks? Do we receive useful feedback • Building an effective governance committee
through regular evaluations that help us enhance
the value we provide? Are we developing candi- • Composing the board and creating conditions
dates to take leadership positions on our board? for its success
Do we have an effective and productive relation- • Enhancing the board’s performance
ship with management? How well do we under- effectiveness
stand stakeholder expectations and is our board
• Emerging roles to help boards create long
proactively engaging with stakeholders in a way
term value
that is both productive and mutually beneficial?
Readers should consider the governance prac-
These are just some of the challenging issues that
tices and concepts discussed in this publication
today’s governance committees are helping their
in the context of their own board and organiza-
boards to address.
tion. No set of practices will be appropriate for
Governance committees have evolved consider- all boards; each must decide for itself how best
ably over the past two decades. Initially, as to address the circumstances facing it, keeping
nominating committees, their role was to ensure in mind its organization’s purpose, objectives and
that the board nominated directors with the current strategies as well as the role set out for
appropriate skills and abilities to enable the board the board in the organization.
to carry out its responsibilities. In the early 2000s
Directors should decide the most appropriate
when legislators and regulators introduced a
place for those responsibilities — with the gov-
series of new regulations, the committee, often
ernance committee, another committee of the
renamed the governance and nominating commit-
board, or with the full board. In some instances,
tee, was given an expanded role that also included
additional discussion is provided in recognition
overseeing the board’s and company’s compliance
of the unique circumstances of certain organiza-
with the many new and changing rules.
tions, such as crown corporations or entities with
Today, many governance committees, as they are a controlling shareholder.
now known, are taking on additional responsibili-
While this publication discusses governance
ties for anticipating critical emerging issues and
concepts and practices in the context of the
challenges affecting their boards and organiza-
governance committee, the most important
tions. A growing number of boards also delegate
consideration for readers should be determining
to their governance committee the tasks of fine-
ways their board can bring the greatest value to
tuning the board’s own make-up, structures and
its governance role. The ideas presented in this
operations — functions that affect the board’s
publication are not prescriptive. Instead, they are
ability to deliver value to the enterprise.
intended to inspire governance committees and
This publication discusses a variety of concepts their boards to consider a full spectrum of value-
and practices relevant to governance commit- enhancing roles, adopt those that are appropri-
tees. Some have been widely adopted, while ate, and build on them when possible.
others are examples of the way that a few boards
have chosen to respond to the opportunities
and challenges facing them. On the whole, the
publication focuses less on how governance
committees operate, and instead lays out a

3
Part A: Understanding • helping ensure the board’s and organization’s
compliance with all applicable listing require-

the role and value of the ments, government legislation and other
regulations;

governance committee • reviewing and recommending approval of the


disclosure of corporate governance practices;
• considering ways to address increasing
The governance committee is unique among the
stakeholder interest in the affairs of the
board’s committees. While most committees
organization; and
address a single aspect of the board’s mandate,
the governance committee focuses holistically • helping to establish parameters for director
on the entire board. On many boards, the compensation.
governance committee functions as a centre
for self-reflection to build and enhance the While the mandates of governance committees
board’s effectiveness. now include oversight of the board’s governance
practices, these committees still retain their origi-
nal responsibility for identifying and recommend-
1. What are the governance committee’s ing nominees to the board. In recent years, this
responsibilities and what value does it role has also expanded. Now, many governance
bring to the board? committees act as a performance catalyst to
their boards — recommending practices that will
When legislators and regulators began introduc- improve the board’s effectiveness, which include:
ing a range of new rules in the early 2000s, the • considering and making recommendations to
role of the traditional nominating committee was the board concerning its competencies and
expanded. Often renamed the governance com- skills and the structure and mandate of the
mittee, this committee also became responsible board and its committees;
for overseeing the board’s and organization’s
compliance with the many new and changing laws • reviewing the aggregate skills and competen-
and regulations. Today, this range of responsibili- cies of the board and identifying and recom-
ties may include: mending nominees to the board who will fill
skill gaps and enhance those competencies;
• developing and recommending to the board
the organization’s approach to governance • overseeing an orientation program for new
issues, including a set of corporate gover- members of the board and a continuing
nance principles and policies with respect education program for all members of the
to board membership, operations and board; and
processes; • establishing procedures to evaluate the
• recommending policies and procedures to performance of the board, its committees
promote a culture of integrity throughout the and each of its members and overseeing
organization, including reviewing compliance the evaluation process.
with the codes of conduct of the board and
the organization (or ensuring that the respon-
2. How can the governance committee help
sibility for such a review is delegated to and
the board enhance its relationship with
carried out effectively by another committee
or the board as a whole); management?
• overseeing the board’s relationship with Boards of directors and senior management have
management, including recommending complementary leadership roles in the organiza-
procedures to allow the board to function tion and both are more effective and successful
independently of management; when there is a collegial and productive working
• reviewing policies regarding director indemni- relationship between them. The governance
fication and protection, including director and committee’s role in helping the board and board
officer insurance; chair build and maintain such a relationship with
management includes helping to ensure that

4
20 Questions Directors Should Ask about Governance Committees

effective processes and tools are put in place


(and if necessary, delegated to the appropriate
committee) for:
• setting objectives with the CEO and evaluat-
ing the CEO’s performance against those
objectives;
• developing oversight guidelines to clarify
the delegation of powers to the CEO and
clearly prescribe the scope of management’s
responsibilities;
• supporting the board chair in developing and
maintaining a strong working relationship
with the CEO;
• ensuring that management provides the recommend that the board select, the direc-
board with the information it needs, at the tor nominees for the next annual meeting of
appropriate level of detail, in the format the shareholders;
board requires and in a timely fashion;
• develop and recommend to the board a set of
• encouraging an alignment of purpose, vision corporate governance guidelines applicable
and strategy among shareholders, directors to the corporation; and
and management; and
• oversee the evaluation of the board and
• establishing an ethical tone at the top, management.
including ensuring that a code of conduct
is developed and embraced by the board, The Canadian Securities Administrators recom-
management and the organization. mend board governance practices outlined in
National Policy 58-201, Corporate Governance
Governance committees also have the responsi- Guidelines (some of which are included in
bility for helping the board to operate indepen- Question 1). These guidelines, however, do not set
dently of management, in part through: out a specific role for the governance committee
• establishing policy consistent with regulation (apart from a description of the role and responsi-
regarding the membership of independent bilities of a nominating committee).
directors on various committees;
A fundamental decision for each board to make,
• ensuring the board has access to appropriate therefore, concerns the role it wants its gover-
outside advisors; nance committee to take. Is it the traditional role
• implementing meetings of the independent of a nominating committee, to focus on ensuring
directors without management present (i.e., compliance with listing regulations and other
in camera meetings); and rules, to act proactively on activities to build the
board’s effectiveness and maximize its value,
• managing the director nomination process. to help the board build an effective working
relationship with management and stakeholders,
or a combination of these responsibilities? If the
3. What is the role of our governance
board decides not to allocate any of the above
committee? responsibilities to its governance committee, it
must determine how those tasks will be handled,
Some jurisdictions outline specific responsibilities
whether by other committees or by the board as
for the governance committee. The New York
a whole.
Stock Exchange, for example, requires listed
companies to have a nominating/corporate gover- The choices the board makes should reflect its
nance committee composed entirely of indepen- own objectives and circumstances, and those
dent directors. The tasks the NYSE mandates for of the organization. Many of the responsibilities
this committee are ones that enable it to enhance outlined above are discussed in greater detail
the board’s effectiveness. They are to: in this publication. Those discussions may be of
• identify individuals qualified to become assistance to boards in determining how they will
board members, consistent with the criteria allocate these tasks.
approved by the board, and to select, or to

5
Part B: Building an • A respect for external perspectives. An
appreciation and understanding of sharehold-

effective governance ers’ and other stakeholders’ interests and


their implications for the organization (see

committee •
Question 17).
Tactful, persuasive communication. The
ability to discuss board service and perfor-
Governance committees today are under increas- mance issues in a respectful way with other
ing scrutiny amid growing expectations for the directors, which may include counselling
committee’s performance. colleagues on and off the board.

As with the board and its other committees,


one of the most important determinants of the For more information, see the
governance committee’s success is the quality CICA publication 20 Questions
of its members.
Directors Should Ask about
Building a Board
4. What skill sets does the governance
committee require?

Members of the governance committee require all 5. Who should sit on the governance
of the skills and attributes of every good director: committee?
high professional integrity and ethical standards,
a well grounded understanding of the business, a There are different strategies for staffing the
motivation to serve the interests of the organiza- governance committee. Some boards, for
tion, independence of mind and a willingness to example, ask their newest members to sit on
devote the time and energy required of the role. the governance committee since that gives them
a good perspective for learning about the board
Governance committee members should also and the way it operates, and about the organiza-
strive to maintain a collective, up-to-date tion and its needs.
understanding of the governance expectations
of the market, regulators and other stakehold- An important consideration when selecting mem-
ers; an awareness of key governance issues and bers of the governance committee is the commit-
trends, particularly in the organization’s industry; tee’s mandate. For example, some boards give
and experience in working with boards and their governance committee the responsibility for
management. coordinating the board’s agenda and activities
so the board manages its affairs efficiently and
In addition, important attributes for individual productively. Given this mandate, having the
members of the committee include: chairs of the board’s other standing committees
sit on the governance committee provides them a
• A governance mindset and an ability to make forum for considering the full governance picture
governance relevant to the business. An and planning the board’s workload and delibera-
interest in the concepts of governance and tions. Governance committees with this mandate,
the ability to translate an understanding of however, must take care that their coordinating
the board’s role vis-à-vis owners and manage- activities do not render them de facto executive
ment into practical measures that assist the committees.
board in executing its mandate and changing
possible perceptions that good governance Since one of the governance committee’s key
processes come at the expense of business. responsibilities is the nomination of new directors,
• A passion to shape the board’s philosophy many governance committees are composed
and behaviour. The conviction to combine solely of independent directors. A notable
sound judgement with the courage and exception is in controlled companies where the
willingness to shape the board’s philosophy controlling shareholder often sits on, or names a
and behaviour. designate to sit on, the governance committee.
In all types of organizations, there are benefits
to inviting the CEO or another related director to

6
20 Questions Directors Should Ask about Governance Committees

attend portions of the governance committee’s Because of the significant workloads of the
meetings to enhance the committee’s under- governance committee and the board, and some
standing of the organization and its needs. boards’ desire to have the governance committee
serve as a “check and balance” on the power
A key consideration when selecting members of of the board chair, an increasingly common
the governance committee is the skills, interests practice is for the governance committee to be
and expertise of each director. Committee chaired by someone other than the board chair.
members should have a keen interest in the Separating the roles of the board and governance
committee’s mandate and be able to work col- committee chairs allows the board to appoint a
laboratively with the committee chair to help director whose passion is to focus specifically on
improve the board’s effectiveness. (See Question 4 the committee’s mandate, particularly given the
for a further discussion of the attributes of a good increasingly specialized expertise required of the
governance committee member.) committee and its members. For this arrange-
ment to be effective, however, the roles of the
board and governance committee chairs must be
6. Who should chair the governance clearly differentiated in order to reduce potential
committee? conflicts. As well, the two chairs must be able to
work cooperatively and manage their relationship
Identifying the right person to chair the gover- to the board’s advantage. (See the discussion in
nance committee is an important determinant of Question 12 regarding the relationship between
the committee’s success. the board chair and governance committee chair.)
Just as different boards follow different strategies In some instances, however, it may be preferable
for staffing their governance committees, differ- to have the same individual chair both the board
ent strategies and practices are pursued when and the governance committee. This is often the
choosing the governance committee chair. There case with crown corporations, many of which
are, however, some emerging practices for select- do not control their own director nomination
ing the governance committee chair that are process. Having the same individual in both
consistent with the committee’s expanding role. roles helps focus the board’s relationship with
the Minister and avoids confusion that may arise
One of these practices is to require that an
when two individuals advocate to the government
independent director chair the governance
on the board’s behalf.
committee. This is particularly important if related
directors sit on the committee; an independent
chair helps the committee maintain an appropri-
ate level of independence, particularly with
respect to the nomination of new directors.

7
Part C: Composing • the skills, competencies, expertise and
relationships required of individual directors,

the board and the board’s priorities regarding those


skills and the trade-offs among them;
• the frequency for reviewing board composi-
The responsibility for recommending new direc- tion, and
tors to the board remains one of the governance
• the frequency of director turnover as
committee’s primary roles. It is also one of the
an opportunity to adjust the board’s
most significant ways the committee has to
composition.
enhance the board’s effectiveness in providing
strategic value to management and oversight The board composition strategy should reflect
of risks to the organization. the board’s role within the context of:
• the organization’s purpose and goals,
Without the right people on the board,
• the organization’s business strategies, and
even the best structures and processes
won’t guarantee the right decisions. • management’s capabilities and relationships.

A board composition strategy provides the gover-


nance committee with a framework for translating
7. What is the governance committee’s role the organization’s needs into the board’s require-
in building an effective board? ments, and then into director attributes. With this
framework, the committee can guide action in
The governance committee plays a central role in four key areas that build a better board:
building and managing the board’s effectiveness a. Director recruitment/selection
through its responsibility for attracting, evaluat- (Question 8)
ing, developing and retiring directors.
b. Director succession/retirement
Organizations and their needs change over time. (Questions 9, 10)
The governance committee should develop a c. Director education/development
strategy to anticipate these changes and manage (Questions 11, 12)
and adjust the board’s composition as necessary
so the board continues to have the collective d. Board evaluation/director feedback
expertise and chemistry it requires to carry out (Question 13)
its responsibilities effectively.
Although the creation of a board composition
To build its board composition strategy, the strategy may at first appear challenging, most
governance committee needs to confirm: boards have many of its components already in
place. The purpose of the strategy is to integrate
• the board’s role in strategy and risk oversight these components within the context of the
for the organization; board’s own dynamics and the desired organiza-
• the aggregate expertise and knowledge tional outcomes (as illustrated in the diagram on
required of the board; the next page).

8
20 Questions Directors Should Ask about Governance Committees

oRGAniZATionAL ConTeXT BoARD DYnAmiCS oRGAniZATionAL oUTComeS

Director succession/ Director recruitment/


retirement Selection

• Purpose • Capital
and goals (financial health)
4 parts
• Strategy (opportunity of board • People (quality
and challenge) composition of human capital)

• Management
management • Products (fit within
capability the market)

Director education/ Board evaluation/


Development Director feedback

Articulate the board’s Balance the board’s human Create metrics to monitor
governance value capital to create a healthy the board’s impact
proposition psychological architecture on performance

8. How can the governance committee


Crown corporations assess potential directors?
For many crown corporations, the pro-
The governance committee’s first and best
cess for recruiting and removing directors
opportunity to build board effectiveness is
differs from that of public corporations. through the nomination of high quality directors.
In most cases, the board has little influ- For this reason, the committee should establish a
ence over the government’s decisions on robust nomination process for assessing potential
director tenure. Nonetheless, the board directors and ensuring that they have the appro-
chair should communicate with the gov- priate attributes that will enhance the board’s
ernment to ascertain its priorities and ability to carry out its responsibilities.
thus anticipate decisions that will affect
In developing its nomination process, the gover-
the board’s mandate and membership. A
nance committee should:
proactive board may gain further credibil-
ity — and hence additional influence — with • Adopt a strategic perspective. The nomina-
tion criteria should be based on the board’s
the government by setting out the specif-
mandate, its current and anticipated needs
ic skills and experience the board needs,
and the organization’s strategy and objectives.
in light of the organization’s mandate, to
provide good governance. The board may • Seek input from stakeholders. Conferring
with current and past directors, the CEO and
also provide names of potential directors
other stakeholders can help to fine-tune the
who meet these criteria, with the under- nomination criteria and better ensure that
standing that the government will add the they are relevant to the organization.
requisite political dimension when making
• Assess the board’s current skills and exper-
the appointment decision.
tise. A solid understanding of the knowledge,
expertise and strengths of current board
members can be used to identify any skill
gaps to be filled by future directors. A skills

9
matrix, often used to guide the committee in In developing its approach to board and com-
nominating new directors, can also be used mittee tenure, the governance committee could
in planning development activities for current apply a combination of the following factors.
directors (see Question 11).
• Define and prioritize the nomination cri- Performance effectiveness
teria. The committee needs to identify the
attributes, competencies, experiences and Since the needs of the board and committees
relationships desired from new directors. change over time, individual directors may be
These objectives can be grouped and ranked highly effective under some circumstances but
in order of importance based on the organi- not others. A key criterion in determining a direc-
zation’s needs and any gaps in relation to the tor’s tenure, therefore, should be performance,
characteristics of current directors. This pro- as determined through valid assessments of
cess provides the governance committee with board and/or committee effectiveness and the
a helpful tool for assessing and comparing director’s own contribution. Performance should
nominees. The committee should also con- be considered relative to the board’s or commit-
sider the combination of criteria that would tee’s specific objectives, how well a director’s
represent the best fit for the board should it attributes match those objectives and a targeted
be necessary to trade one off against another. competency development plan for directors.
(Examples of nomination criteria include
business and organizational experience,
functional expertise, business knowledge, Rotation plan
interpersonal and team skills, availability and
motivation and human diversity.) Periodically changing the membership of the
board and its committees helps reinvigorate the
• Undertake a robust search. To help facilitate board and its committees by bringing in new
the search process, many governance com- directors with fresh perspectives and new ideas.
mittees maintain “evergreen” lists of potential At the same time, however, the rotation plan
director nominees. Executive search consul- should ensure that enough directors remain on
tants can also help in identifying and pre- the board or a committee to provide continuity.
screening potential candidates, and may help A planned rotation schedule can also support
in identifying candidates from under-tapped succession planning by allowing directors to
talent pools who would create or sustain take on successive leadership roles.
diversity on the board and bring different
perspectives to its deliberations.
• Assess potential directors. Candidates Director interests
should be evaluated against the ranked list
Directors’ interests may change over time for
of attributes, competencies, experiences and
personal reasons or because changes in the
relationships.
organization or operating environment create
• Recommend to the board qualified candi- different needs and priorities. Directors should
dates for formal nomination. voluntarily step down from a committee or the
board if they are no longer sufficiently motivated
to fulfill the contribution expected of them.
9. How long should directors serve on
the board or a committee?
Term length
Ideally, directors should serve on the board or a
committee for as long as they have the interest While term limits can be challenging, with com-
and motivation to do so and are contributing plex implications, some boards do find it helpful
value. In practice, however, a planned approach to set minimum and maximum terms of board
is usually required to manage board and com- and committee membership.
mittee tenure in a way that optimizes the board’s
talent and helps ensure that the directors’ A minimum tenure should provide directors with
collective skills and expertise are relevant to sufficient time to learn about the board and/or
the organization and its evolving needs. committee mandate, the way it operates, and to
become fully conversant in the specific fields of
expertise. Typically, directors require more time

10
20 Questions Directors Should Ask about Governance Committees

to become strong contributors when the board or for them to do so, particularly if they feel it is
committee mandate is more substantial and when a judgement regarding their contribution.
they serve on boards of more complex organiza-
tions. Prior experience and orientation plans can With a well-managed succession process, step-
shorten a director’s learning period. ping down from a board position should neither
be surprising nor disrespectful to the individual
Maximum tenures (either term or age limits) are nor be disruptive to the board.
used by some boards as a non-judgemental way
to retire members and rotate memberships in The governance committee should be responsible
order to rejuvenate the board and its committees. for managing the director succession process as
Term maximums should reflect the fact that there part of its overall board composition strategy (see
are benefits to continuity of board and committee Question 7). A good time to begin the process of
memberships; directors who execute mandates transitioning a director off the board is the day
competently and have a historical perspective of that director joins the board. Expectations should
activities and decisions can enhance the effective- be set at that time about how the director’s
ness of the board or a committee. Directors who tenure will be governed, such as a fixed term, a
remain too long on the board or a committee, performance review, the director’s own interests
however, run the risk of their skills becoming or a combination of these factors (see the discus-
obsolete. Holding onto a seat prevents the intro- sion in Question 9).
duction of new members with new perspectives.
To remind directors that the appropriate mix of
people and skills will change over time, the board
Board and committee chairs and governance committee should:
• Reinforce the performance mindset of direc-
The tenure of the board and committee chairs
tors. Hold periodic discussions with directors
should be determined using the criteria listed
about the changing needs of the board and
above.
the organization, highlighting any gaps and
overlaps in the current membership.
In controlled companies, it is not unusual • Remind directors that board service is
for the controlling shareholder to sit on time-limited. Annually reviewing directors’
the board and the governance or other expected retirement dates with the board
committees and their tenure is often reminds directors that all of them will eventu-
lengthy. Extra care should be given, there- ally retire, gives each director and the board
fore, to determining the tenure of other time to prepare for that director’s retirement,
directors since rejuvenation and new and eliminates the inference that retirement
is only due to poor past contribution to the
thinking are important. It is also important
board.
that independent directors be of suffi-
cient stature to interact effectively with • Confirm with each director, via the board
the controlling shareholder. chair, the expected time remaining in his or
her tenure. This should be discussed with
each director at the time he or she receives
their annual performance feedback.
10. How can the governance committee • Encourage directors to discuss their chang-
assist directors in retiring from the ing needs, interests and commitment.
board? Directors whose interests have changed or
who no longer feel as motivated as they did in
At some point in every director’s career, the time the past should be encouraged to step down
inevitably comes to step down from the board from positions that no longer inspire them.
or a committee. The transition of directors off
the board or a committee, therefore, should be • Keep messages about tenure consistent. The
viewed as a natural part of the board’s evolution. governance committee and the board chair
Nevertheless, many directors are reluctant to must work together to avoid delivering con-
leave a board position when the time comes tradictory messages to directors about their
tenure. When the time comes for a director to
leave the board, the board chair should lead
this discussion.

11
• Ensure directors receive, via the board chair,
the full thanks of the board for their contri- Part D: Enhancing the
bution. Directors who leave the board should
do so feeling their past contributions to the board’s performance
board are recognized and appreciated.
effectiveness
When board chairs retire
Through the nominating process, the governance
Directors concluding their tenure as committee gains useful knowledge about direc-
board chair pose a special challenge for tors and can use this knowledge to customize
the governance committee. With their approaches for developing directors’ skills
knowledge of the board, management, and expertise to further improve the board’s
stakeholders and the critical issues affect- performance.
ing the organization, a past board chair’s
continued contribution as a director and 11. How can the governance committee
potential advisor to the new board chair assist in director development?
can be very valuable. On the other hand,
their past authority and influence within Organizations and their boards operate in an
the board may make it difficult for them, environment that changes frequently, challenging
other directors, and the new board chair directors to adapt and grow in order to continue
to function effectively. contributing effectively. Nonetheless, the time
intended for directors’ development is often
The governance committee should rec- sacrificed so the board can focus on current
ommend to the board a policy regard- issues.
ing the possible role of a past board
chair. Usually, retiring board chairs do The governance committee is ideally positioned
to identify director development as a priority and
not remain on the board. If, however,
to take a lead role in planning, coordinating and
the retiring board chair’s perspective is investing in director development. Its responsibili-
considered to be vital to organizational ties may include recommending to the board the
performance, the governance committee objectives, means, evaluation criteria and budget
may recommend that a past board chair to provide the necessary development activities
remain as a director or be retained in an for directors.
advisory capacity for a short term.
Over time, a holistic view should be taken to
monitor and address development needs and
priorities for individual directors, committees
and the board as a whole.

In addition, the expectation should be set that


directors’ development is an ongoing activity.
All directors, not just new members of the board,
should participate in development opportunities
that include:
1. An initial board orientation
New directors become more effective
contributors faster when they are provided
with opportunities to learn about the business
(its business model, competitive landscape
and regulatory environment), the organiza-
tion (its people, strategies and risks) and its
stakeholders and their interests. Arranging
site visits and meetings with key execu-
tives and other stakeholders provides new
directors with a first-hand understanding of

12
20 Questions Directors Should Ask about Governance Committees

the organization. In addition, new directors discussions focused on the right matters and at
need an understanding of the board and its an appropriate level. In addition, as it conducts
committees and the expectations for their the board evaluation process, the governance
own performance (e.g., ethics and integrity, committee can ask directors constructive ques-
commitment and contribution, performance tions about the board chair’s effectiveness and
and development). solicit ideas to help the board chair positively
influence the board’s performance.
2. Ongoing director education
With the evolution of an organization’s oper-
ating environment, including the introduction In the heat of providing oversight and ad-
of new rules and regulations and changes vice to management, high level linkages
in stakeholders’ expectations, even the best between an organization’s goals, strategic
directors face the risk of their knowledge and choices and desired risk profile may be
skills becoming less useful. With input from missed. Governance committees can offer
committee chairs, other directors, executives support to the board chair to help keep
and advisors, the governance committee
the board focused on the integration of
should determine and prioritize areas of
ongoing development for directors. Learning
strategy and risk.
sessions may include external courses and
seminars as well as internal activities, such
as periodic education sessions within board 13. What is the governance committee’s role
meetings, executive seminars outside of in board evaluation and feedback?
board meetings, retreats, site visits and
in-house expert workshops. On many boards, the governance committee has
3. Individual director initiative the responsibility for ensuring that the board
evaluation and feedback process is carried out.
While the board should encourage and facili- Since this process is an essential tool for perfor-
tate opportunities for directors’ development, mance improvement, it fits naturally within the
directors should recognize that they also bear governance committee’s mandate for managing
responsibility for their own development. The board composition (see Section C) and improving
governance committee should support direct- board effectiveness (see Section D).
ors’ efforts to keep their own knowledge,
skills and experience up to date. The governance committee can assist the board
chair in enhancing the board’s performance by
ensuring there is alignment among the board’s
12. How can the governance committee needs, what is asked of directors when they join
help the board chair sharpen the board’s the board, the scope of the evaluation process,
performance focus? the feedback directors receive through an evalu-
ation process and the development activities
The board chair has the primary responsibility provided to directors.
for keeping the board focused and functioning
effectively. The governance committee, however, The responsibility for the board evaluation
has a unique opportunity to observe the overall process is often shared by the board chair and
functioning of the board and the board chair. the governance committee since both have
Through its role in nominating, evaluating and a mandated authority to address the board’s
developing directors, the governance committee performance. While the board chair most directly
gains a perspective that enables it to provide influences board performance, the governance
useful insights to help the board chair further committee’s mandate often includes advising
fine-tune the board’s meeting management the board on ways to improve its effectiveness.
and decision-making processes. Consequently, many board chairs choose to be
involved in the evaluation and feedback process,
By observing the way the board uses time in most often pertaining to individual directors.
its discussions, how it seeks out and processes
information and perspectives and how it makes
decisions, the governance committee can pro-
vide feedback to the board chair to help keep

13
A designated “point person” (such as the board on board performance. Board advisors, such
or governance committee chair, corporate sec- as external counsel, the external auditor and
retary or external consultant) often coordinates other consultants may offer professional
the collection of data and compilation of results. perspectives on board performance, including
Feedback intended for the board chair is typi- comparisons to other boards.
cally gathered and shared with the board chair • Decide how feedback will be obtained and
by the governance committee chair. If the board reported. Feedback can be obtained via
and governance committee chairs are the same surveys, interviews and roundtable discus-
person, either another member of the governance sions, and findings reported through written
committee or the chair of another committee and oral presentations.
takes on that responsibility.
• Determine who will receive the feedback
With the board’s approval, the governance reports. The governance committee can
committee should determine the resources and receive and comment on a draft of the
budget required for an effective evaluation feedback summaries. For transparency,
process. Often, the corporate secretary may however, the full board should receive a final
provide valuable logistical support and an report on the board, its committees and
external consultant may provide expertise the board chair. Feedback about individual
and third-party objectivity. directors should only be seen by the director
in question and whomever else it was agreed
To maximize the effectiveness of the evaluation would see an individual director’s evaluation
and feedback process, the governance committee at the outset of the process.
should:
• Involve the board chair in individual feed-
• Articulate the evaluation’s purpose and prin- back. The feedback process should be used
ciples. The purpose should be performance to enhance the relationship between directors
improvement and its principles should include and the board chair. If the governance com-
confidentiality of data and results, the time- mittee has been given the responsibility for
sensitive nature of the data, a developmental managing the evaluation process and the
focus in the use of data and a commitment to information it collects, the committee should
take action. ensure the board chair has the help he/she
• Decide the scope of the process. Directors, requires to prepare for one-on-one feedback
particularly the board and committee chairs, discussions with each director.
can be invited to share their experience and • Act constructively on the feedback. Engaging
interest in feedback in order to gauge their in board evaluation provides evidence that
appetite for evaluation. Most boards provide directors take their duties seriously, par-
feedback to the board as a whole and its ticularly when the board follows through by
committees. The next level of evaluation using the feedback to refine its performance.
typically provides individual performance Insights from the feedback should, therefore,
feedback to the board and committee chairs, be integrated into the developmental activi-
individual directors and the CEO (in his or her ties of each director and translated into the
role as a director). The governance commit- action plans for each committee and the
tee should identify the specific performance board. High priority objectives for perfor-
dimensions and topics to be probed in the mance improvement (see Question 11) may
evaluation so the feedback provided to be included in a subsequent evaluation to
directors is focused on what is most relevant demonstrate accountability.
to them. The feedback process should also be
timed so the results can be used in the annual
planning process. For more information, see the
• Choose the sources of feedback. Asking indi- CICA publication 20 Questions
vidual directors to provide feedback allows Directors Should Ask about
them to reflect on the value of their own Governance Assessments
contribution and how it could be improved.
Executives who interact with directors can
offer a valuable management perspective

14
20 Questions Directors Should Ask about Governance Committees

14. What should the governance committee


do if a director is not performing or An under-performing board chair
not interacting effectively with other An under-performing board chair affects
directors? the functioning and health of the board.
The governance committee should provide
A director who is not performing or not interact-
the board chair with feedback regarding
ing effectively with other directors is one of the
most difficult challenges a board may have to
his or her performance against the expec-
address. Boards are close-knit teams that rely tations set out in the chair’s mandate.
on collegiality to function well, which makes If the board chair also chairs the gover-
it difficult to give a negative assessment to a nance committee, another committee
colleague, particularly when the individual is member or a chair of another committee
well known, long serving and has a history of should provide feedback to the board
good performance. chair (see Question 13).
Despite the care taken to recruit, evaluate and
develop successful directors, situations will arise
when a director’s performance does not meet 15. Should the governance committee have
expectations. a role in chair succession?
The governance committee has a responsibility The board’s authority gives it the right to appoint
for recognizing and working with the board chair its own leader. Given the powerful impact a board
to resolve director non-performance. Typically, chair can have on both the board and the organi-
it is the board chair who communicates directly zation, deciding who takes on this role may be the
with the individual to address issues of director most important decision a board can make.
non-performance. The governance committee’s
role is to help the chair assess all directors’ behav- When choosing a new chair or reconfirming an
iour in a consistent and fair manner by ensuring existing one, boards must balance the benefits
that their performance is evaluated against the of leadership continuity with revitalization. The
specific and documented expectations that were governance committee can help the board man-
created when the directors joined the board age this challenge by seeing that the board puts
(these expectations may have been refined in place a sound process for board chair succes-
through board evaluation feedback as discussed sion. Such a process helps focus the board on its
in Question 13). The evaluation and assessment leadership needs and the qualities of individual
process will have additional credibility when candidates. By introducing clarity as to how the
it evaluates performance against established process works and operating with transparency,
criteria, provides independent verification of the governance committee can increase the trust
the feedback and offers developmental support and the legitimacy of the outcome.
to an under-performing director.
To support the board in choosing its leader, the
Communications about a performance issue governance committee should recommend for
should be delivered to the director in a profes- the board’s approval:
sional manner and followed up with an action plan
• A board chair mandate that accurately
for improvement, if appropriate, based on input
reflects the demands of the role and specifies
from the governance committee, the board chair
the anticipated tenure (reappointment to the
and the director involved. On an agreed-upon
role should be confirmed by the board upon
schedule, specific feedback should be provided
recommendation by the governance commit-
to the director arising from the action plan.
tee, itself based on board chair evaluation);
In some cases, a board chair and director may • A governance committee mandate that
conclude on a mutual basis that the best course includes responsibility for managing the
of action is resignation. In less urgent cases of board chair succession process; and
unresolved under-performance, the governance
• A board chair succession process.
committee may simply not nominate a director
for re-election.

15
For the board chair selection process to be • evaluating director performance, including
successful, it must be seen to be fair. This can board leadership qualities, and providing
be better achieved when the expectations and developmental feedback to directors who
processes are set in advance, consistently applied aspire to board leadership (see Question 13).
and transparent.
A well-planned and executed board chair succes-
The governance committee’s role in overseeing sion process increases the chance of selecting
the chair succession process should include: someone who is suited to the organization’s
• evaluating the board chair’s performance unique governance demands and matches the
annually; stature of the office.

• discussing the expectations of the board


chair annually with the board to create a 16. How can the governance committee help
shared understanding of what is required for the board keep its mandates, policies and
the chair’s effectiveness (these discussions practices up-to-date?
may be led by the governance committee
chair and are typically conducted without The board expresses its expectations, commit-
the board chair present); ments and values through its mandates, policies
• reminding directors of the board’s policy on and practices. As organizations grow and as legal
chair succession and the specific performance and regulatory contexts change and new stake-
expectations of the board chair, as defined in holder interests are asserted, these mandates,
the board chair mandate; processes and practices must keep pace with
and, even better, anticipate the changing circum-
• facilitating a discussion between a departing stances (see Section E).
chair and the board to offer a realistic over-
view of the time and activities involved in the The governance committee has an important role
position; to assist the board in fine-tuning its mandates,
• canvassing the board to identify directors policies and practices to ensure they fully comply
interested in assuming the role; with existing laws and regulations and help to
maximize the board’s effectiveness. This role may
• recusing a member of the governance com- include:
mittee from overseeing this process if they
are a candidate or delegating the responsibil- • reviewing board and committee mandates,
ity to a set of other disinterested directors; policies and practices to ensure they are com-
prehensive in covering the board’s mandate,
• creating an opportunity for candidates to are in accordance with the board’s gover-
address and be questioned by the board; and nance philosophy, are internally consistent
• seeking a consensus decision from the board and reflect the scope of what they actually do;
(absent the candidates and current board • monitoring the development of new or
chair) or holding a vote in the absence of changing governance practices, including
consensus. changes in the organization, its business
and industry; stakeholder expectations; best
The governance committee can prepare a pool practices; and new legislation, regulations and
of candidates for board leadership by: stock exchange listing requirements in order
• recruiting people to the board who have to keep the board’s mandates “performance-
the potential to fill the role of chair (see relevant”; and
Question 8); • working with the board chair and other com-
• planning the movement of directors among mittee chairs to create an annual calendar to
board leadership positions to give exposure coordinate work on critical issues brought
to potential board chairs (see Question 7); forward under these mandates, policies and
processes.
• refining director competencies through
a director development process (see
Question 11); and

16
20 Questions Directors Should Ask about Governance Committees

Part E: Emerging roles of Given management’s traditional role of speaking


for the organization, this may be uncertain terri-

governance committees tory for many directors. An advantage to having


the governance committee act as the board’s
“forward looking radar” is that it positions them to
The roles of the board and governance com- help the board identify, understand and address
mittee have changed considerably over the emerging issues. The governance committee may
past decade and there are indications that the recommend a shareholder engagement philoso-
governance committee’s responsibilities may be phy for the board that suggests appropriate and
extended even further. constructive interaction between boards and
shareholders. Such an approach would ensure
For example, some governance committees keep that board and committee chairs and the orga-
aware of and consider the effect that emerging nization’s executives fully understand the rules
issues may have on the board, as this knowledge and expectations relating to disclosure and their
is necessary for identifying and nominating respective roles and responsibilities.
directors with the expertise to make a relevant
contribution to the board. A growing number of Other stakeholders, such as corporate social
governance committees now apply their knowl- responsibility and environmental advocates, also
edge of emerging trends and issues to act as their expect their voices to be heard at the boardroom
board’s “forward looking radar,” providing the table. These stakeholders are increasingly aware
board with an early warning of significant issues of their ability to affect an organization’s reputa-
with the potential to affect the board and the tion and performance. In turn, shareholders are
organization. becoming much more sensitive to stakeholder
effects on financial and non-financial measures
This section examines some of the new and when assessing corporations.
evolving roles of governance committees.
For these reasons, many companies now frame
their behaviour in the language of corporate
17. How can the governance committee social responsibility and good corporate citizen-
enhance the board’s relationship with ship. It is important, therefore, that directors
institutional shareholders and other understand the interrelationships among stake-
holder interests, corporate social responsibility,
stakeholders?
perceptions of corporate citizenship, corporate
For many years, boards of directors had limited brands and consumer choices in the market.
interaction with shareholders (often confined to
Boards need a solid understanding of stakeholder
Annual General Meetings) and often none at all
concerns to be able to fully assess the risks and
with other stakeholders. Today, however, both
opportunities facing the business. The gover-
shareholders and stakeholders seek very different
nance committee may, therefore, consider corpo-
relationships with boards.
rate social responsibility in the business context
Among shareholders, a growing number of to assess the implications for the company.
institutional investors are demanding greater Similar to a shareholder engagement philosophy,
contact with directors and more influence over the governance committee can develop a stake-
their decisions (e.g., having a “say on pay”). They holder engagement philosophy for the board and
pay close attention to who sits on boards and help the board manage relationships with key
on what committees, and they take note of the stakeholders.
decisions the board makes. Some even judge
individual directors by the nature and outcome Boards need to understand shareholder
of major decisions. and stakeholder perspectives and inter-
In this environment, directors and shareholders ests, as these form the context within which
must find new and better ways to engage pro- business is conducted. Directors, there-
actively and productively. Shareholders want to fore, need to better appreciate the inputs
shorten the communication lines between them to and consequences of organizational
and the board to exert greater influence, while decisions and how they are reflected in
boards need to know how shareholders perceive both financial and non-financial measures
the board and the organization, the way they are of company performance.
performing, and issues of greatest shareholder
concern.

17
18. What is the governance committee’s role • involve the CEO in the process and encourage
in CEO succession? the CEO to drive succession planning and
leadership capacity building throughout the
Although one of the board’s most important organization; and
responsibilities is to appoint the CEO, few • encourage dialogue between the board chair
directors believe their board does a good job at and CEO so they work collaboratively to
managing CEO succession. Today, some gover- shape the CEO’s legacy and contributions
nance committees are helping their boards adopt to the organization.
a more disciplined approach to CEO succession
planning.
For more information, see the
An important first step is for the board to embed
the responsibility for CEO succession within CICA publication 20 Questions
a specific committee mandate. A review of Directors Should Ask about
committee mandates and membership helps to CEO Succession
identify the appropriate committee. Many boards
delegate the responsibility for CEO succession
to a human resource-focused committee or the
governance committee. 19. What role can the governance committee
play in preparing for a crisis?
Even when responsibility for the CEO succession
process is assigned to a specific committee, the No matter how diligently they work to identify
full board should undertake a structured CEO and mitigate potential risks, boards and organiza-
succession planning discussion at least annually. tions may still encounter sudden and unexpected
This attention by the board helps to reduce the crises. For this reason, organizations should
risk of leadership discontinuity and increases the have an up-to-date crisis management plan that
benefits of executive leadership development outlines how they will respond to a crisis, includ-
planning.1 ing identifying individuals on the board and in
management who will play key roles in managing
To further strengthen their CEO succession plan- the crisis and speaking for the organization. The
ning processes, the governance committee can board itself must know when and how to act in
help the board to: the uncertainty of a crisis.
• set the clear expectation that CEO succession
Management is responsible for developing the
is a full board responsibility (and is not to
organization’s crisis management plan; the
be left entirely to management or a specific
board’s responsibility is to see that such a plan
committee);
is in place. Although the governance committee
• evaluate the current succession process, both is not the crisis management committee of the
on paper and in practice; board, from its responsibilities for nominating and
• find opportunities to observe CEO succession evaluating the board, the committee is in a unique
candidates and judge their performance; position to know the skills and competencies of
board members that may need to be drawn upon
• nominate directors who have an interest in in the event of a crisis. It can also help to ensure
leadership development or expertise in talent there is clarity about where responsibility falls for
development; crisis preparation or in the event of a crisis.
• commit adequate resources to support the
board’s succession efforts; Governance committees that adopt a forward-
looking stance to monitor emerging issues can
• review periodically the talent outside of the provide their boards with early warning of issues
organization to help ensure that the board’s the board may face and help the board prepare
choices are made in the context of the best for sudden events, such as the loss of the CEO,
available talent; a corporate takeover or a shareholder revolt.

In the event of an actual crisis, the governance


1
This is generally true in the context of public and private committee can advise the board chair about:
boards. Boards of crown corporations or controlled compa-
nies may be constrained in CEO succession decisions; even in • the directors whose skills, experience or
these circumstances, a sound succession process may yield
relationships are relevant to the situation;
helpful suggestions to decision-makers.

18
20 Questions Directors Should Ask about Governance Committees

• the contingency plans that exist and may To help the board anticipate director compensa-
be relied upon; and tion trends and build legitimacy into director pay
decisions, the governance committee should:
• the approaches to the crisis that would con-
stitute good governance and be consistent • articulate a philosophy of director pay (e.g.,
with regulatory requirements and the board’s uniform base amount for all directors with
own ethical standards. additional pay for board and committee
chairs);
• consider the criteria and forms of payment,
For more information, see the
including determining methods of pay that
CICA publication 20 Questions ensure directors’ independence of manage-
Directors Should Ask About ment (e.g., cash or equity, not options or
Crisis Management equity grants based on performance vesting);
• undertake comparative studies of director
pay at similar organizations; and
20. How can the governance committee help • test pay philosophies and decisions with
the board in deciding directors’ pay? major shareholders to gain an owner
perspective.
Boards spend a considerable amount of time
deciding executive compensation but give much
less attention to director compensation. With the For more information, see the
increasing attention shareholders are devoting CICA publication 20 Questions
to executive compensation and their growing Directors Should Ask About
expectations for board effectiveness, director pay
may soon come into the shareholder spotlight. Director Compensation

Directors face growing time pressures and


increasing public scrutiny, and director pay has
risen as a result. Despite that, many directors
believe that their pay does not match the level
of effort, value and reputational liability inherent
in their role. Although directors determine how Conclusion
much they will be paid for their board service,
most are highly aware of conflicts of interest
The responsibilities of the governance commit-
and, therefore, avoid the attention and possible
tee have grown considerably over the past two
criticism associated with significant pay increases.
decades and the committee’s role continues to
Traditionally, the board’s human resource or evolve in response to the changing expectations
compensation committee had responsibility for of stakeholders and developments affecting
director compensation since their focus is primar- boards and organizations. The value of the
ily on human resource and compensation issues. governance committee can be realized in the
Today, however, many boards consider delegating way it helps the board define its mandate, how it
the responsibility for overseeing director com- constitutes itself, how it acts to shape the board’s
pensation to the governance committee for two composition and seeks to enhance the board’s
main reasons: functioning, and how it adapts to evolving roles
that may help the board to perform more effec-
• to avoid the perception of conflict that may tively. As with the board as a whole and its other
arise when the same people set executive committees, the governance committee is most
performance benchmarks and related execu- effective and contributes meaningfully when its
tive pay and then set their own pay (particu- mandate is tailored to the needs of the board and
larly if options are involved); and the organization and the committee is populated
• to integrate director pay into the holistic man- with directors with the best skills, expertise and
date that is focused on board effectiveness enthusiasm to execute that mandate.
and is responsible for director recruitment,
nomination and evaluation.

19
Where to find more 20 Questions Directors Should Ask about their
Role in Pension Governance

information 20 Questions Directors Should Ask about Special


Committees
20 Questions Directors Should Ask about
Strategy (2nd ed)
CICA Publications
on governance* Director Briefings
Climate Change Briefing — Questions for Directors
to Ask
The Director Series Long-term Performance Briefing — Questions for
Directors to Ask
Controlled Companies — Questions for Directors
The 20 Questions Series
to Ask
20 Questions Directors and Audit Committees
Should Ask about IFRS Conversions
Director Alerts
20 Questions Directors Should Ask about
Building a Board Executive Compensation Disclosure — questions
20 Questions Directors Should Ask about CEO directors should ask
Succession
Fraud Risk in Difficult Economic Times —
20 Questions Directors Should Ask about Codes questions for directors to ask
of Conduct
20 Questions Directors Should Ask about Crisis Human Resource and Compensation Issues dur-
Management ing the Financial Crisis — questions for directors
to ask
20 Questions Directors Should Ask about Crown
Corporation Governance The ABCP Liquidity Crunch — questions directors
20 Questions Directors Should Ask about should ask
Director Compensation
The Global Financial Meltdown — questions
20 Questions Directors Should Ask about for directors to ask
Directors’ and Officers’ Liability Indemnification
and Insurance
20 Questions Directors Should Ask about The Not-for-Profit
Executive Compensation
Directors Series
20 Questions Directors Should Ask about
Governance Assessments
20 Questions Directors Should Ask about Internal NPO 20 Questions Series
Audit (2nd ed) 20 Questions Directors of Not-for-profit
20 Questions Directors Should Ask about IT Organizations Should Ask about Board
Recruitment, Development and Assessment
20 Questions Directors Should Ask about
Management’s Discussion and Analysis (2nd ed) 20 Questions Directors of Not-for-profit
Organizations Should Ask about Fiduciary Duty
20 Questions Directors Should Ask about
Responding to Allegations of Corporate 20 Questions Directors of Not-for-profit
Wrongdoing Organizations Should Ask about Governance
20 Questions Directors Should Ask about Risk 20 Questions Directors of Not-for-profit
(2nd ed) Organizations Should Ask about Risk
20 Questions Directors Should Ask about the
Role of the Human Resources and Compensation
Committee

20
20 Questions Directors Should Ask about Governance Committees

20 Questions Directors of Not-for-profit Other References


Organizations Should Ask about Strategy
and Planning
Liability Indemnification and Insurance for On governance evolution
Directors of Not-for-Profit Organizations
Anderson, D.W., Melanson, S.J., & Maly, J. (2007).
The evolution of corporate governance: Power
NPO Director Alerts redistribution brings boards to life. Corporate
Governance: An International Review, 15 (5),
Increasing public scrutiny of not-for-profit 780-797.
organizations: questions for directors to ask
Anderson, D.W., Maly, J., & Melanson, S.J. (2008).
Pandemic Preparation and Response — questions Directors, executives and investors are refashion-
for directors to ask ing governance: Practical research tracks gover-
nance evolution, ICD Director, 138 (June), 28-32.

The CFO Series*


On the value of the Governance
Deciding to Go Public: What CFOs Need to Know Committee
Financial Aspects of Governance: What Boards National Association of Corporate Directors
Should Expect from CFOs (2007). Report of the NACD Blue Ribbon
Commission — The Governance Committee:
How CFOs are Adapting to Today’s Realities
Driving board performance; Best practices
IFRS Conversions: What CFOs Need to Know and key resources. NACD: Washington, D.C.
and Do
Anderson, D.W. (2007). The board’s hidden
Risk Management: What Boards Should Expect performance catalyst: Governance committees
from CFOs come of age. ICD Director, 130 (February), 13-14.
Strategic Planning: What Boards Should Expect
from CFOs On board evaluation
Anderson, D.W. (2007). How well is your board
performing? Your executives may have some
THE Control Environment (surprising) answers. ICD Director, 134 (October),
Series 18-21.

CEO and CFO Certification: Improving Anderson, D.W. (2006). Board evaluation is not
Transparency and Accountability just for directors. ICD Director, 128 (October),
21-22.
Internal Control: The Next Wave of Certification.
Helping Smaller Public Companies with Anderson, D.W. (2006). Directors embrace
Certification and Disclosure about Design evaluation for performance not compliance.
of Internal Control over Financial Reporting ICD Director, 127 (August), 23-26.

Internal Control 2006: The Next Wave of Anderson, D.W. (2006). Board evaluation: Use it
Certification — Guidance for Directors to develop strength. Directorship, June, 21-22.

Internal Control 2006: The Next Wave of Anderson, D.W. (2006). Board evaluation: An
Certification — Guidance for Management instrument of accountability and a tool for
performance improvement. Partners Magazine:
Understanding Disclosure Controls and Italian Chamber of Commerce, Spring, 16-17.
Procedures: Helping CEOs and CFOs Respond
to the Need for Better Disclosure

21
On the role of the board chair
Anderson, D.W. (2008). Board chair succession:
Choosy boards select better chairs. ICD Director,
137 (February), 22-24.
Anderson, D.W. (2008). First among equals: The
under-appreciated significance of the Board
Chair, ICD Director, 136 (February), 22-23.
Anderson, D.W. (2006). The Chair and CEO: Two
leaders, one vision? ICD Director, 126 (June),
28-30.

On CEO succession
Anderson, D.W., (2007). Do you know your next
CEO? What directors can do to succeed at suc-
cession. ICD Director, 135 (December), 24-28.

On renewing board membership


Anderson, D.W. (2007). Building a better board:
Building directorship by design, ICD Director, 133
(August), 20-22.
Anderson, D.W. (2009). Are term limits a sign of
a board’s performance failure? ICD Director, 145
(August), 28-32.

On shareholder and stakeholder


relations
Anderson, D.W. (2008). Are you listening to your
owners? Directors must step up their game, once
again. ICD Director, 139 (August), 22-25.
Anderson, D.W. (2008). Finding value in cor-
porate social responsibility: Is it time for CSR
to come out of the closet? ICD Director, 140
(October), 26-29.

*Available at www.rogb.ca

22
About the Author
David Anderson

David Anderson is President of


The Anderson Governance Group
(www.taggra.com), 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.

David speaks and writes on leadership in governance


and management, including regular columns in Canada
(Director), the UK (Chartered Secretary), and the US
(www.directorship.com). He has published scholarly
articles in Corporate Governance: An International
Review, Journal of Managerial Psychology, and
Leadership Quarterly. David served as Special Advisor
to the NACD Blue Ribbon Commission on Board
Evaluation in 2001 and to five subsequent Commissions.

David holds a PhD in Industrial and Organizational


Psychology from The University of Western Ontario,
where he instructed Organizational Behaviour, an
MBA from The University of Toronto and the ICD.D
designation from the Institute of Corporate Directors
in Canada. David has also chaired two not-for-profit
organizations.
20 Questions
Directors Should Ask about
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