Where are the Directors in a World in Crisis?

By Peter Dey and Sarah Kaplan

In the past year, and indeed in recent weeks and days, the landscape for Canadian corporate boards of directors has changed dramatically.

The COVID-19 pandemic has highlighted more than ever the corporate world’s role in addressing social issues. And beyond that, regulators, institutional investors, consumers and workers are intensifying their attention to climate risk, systemic racism, women’s economic inclusion and Indigenous rights, among other challenges of our century.

Governance and other reforms to address these challenges are speeding ahead in countries around the world, and Canada risks being left behind.

Twenty-five years ago, Canada faced a similar turning point in corporate governance. Triggered by the poor response by the Canadian corporate sector to the stresses of the 1990–91 recession, the development of the 1994 Dey Report asked, “Where were the directors?” That report proposed guidelines urging boards to align with emerging global expectations for good governance, in particular around board independence and oversight.

Today, we need a new set of guidelines. The governance standards of the 20th century are simply not adequate to address the challenges of the 21st. The question now is, “Where are the directors in a world in crisis?”

Our answer comes in the form of 13 guidelines in a report being launched today. Together, these guidelines– which emphasize the need for a corporate purpose, deep understanding of all stakeholders, rigorous board refreshment, realigned executive compensation, and active policies on the environment, diversity and Indigenous rights – draw a new picture of what it means to be a competent board and a competent board member.

Canada, unlike other jurisdictions such as the United States, has the advantage of the 2008 Supreme Court of Canada’s BCE decision, which held that boards of directors have a duty to act with a view to the best long-term interests of the corporation, and not exclusively in the interests of the shareholders.

This decision gives boards all of the leeway they need to establish a corporate purpose that addresses the impacts of the corporation’s operations on all of its stakeholders. At the same time, the BCE decision gave little guidance as to how companies should implement this approach and thus the ghost of “shareholder primacy” still haunts Canadian corporate board rooms.

In our guidelines, we argue that in establishing a corporate purpose and an understanding of the company’s stakeholders, a board will be better positioned to determine the best interests of the corporation, exercise good business judgment and execute its duties of loyalty and care.

Read the rest of the op-ed in the Globe and Mail: Where are the directors in a world in crisis?

Read the full report here: 360º Governance.