Promoting better governance

Serving on a board of directors has never seemed so fraught with potential pitfalls. Governance of Publicly Listed Corporations should help new and well-established directors to maintain a proper footing on the way to more effective governance practices

A review of Governance of Publicly Listed Corporations, by Thierry Dorval. Published by LexisNexis Canada, 2005.

Reviewed by Robert Colman

The corporate governance landscape has changed significantly over the past few years, due to the adoption in the U.S. of the Sarbanes-Oxley Act, and planned revisions to Canada’s own securities rules and guidelines. The press these changes have received has altered attitudes within boards of directors. There has been a greater effort on the part of board members to get proper training for their roles as active monitoring agents, and the development of a new attitude about how many boards to serve on, and in what capacity.

Thierry Dorval’s book Governance of Publicly Listed Corporations is a useful addition to the material currently available for the continuing development of potential directors. It is a useful reference guide for anyone serving on a board of directors, explaining the main responsibilities and legal obligations of such positions.

Independence: a governance cornerstone

Dorval’s book is divided into two main sections. The first explains the meaning of board independence, and the second describes how active monitoring by a board should work to the benefit of a corporation.

The first section explains, using case law from Canada and the U.S., the importance of board independence. It outlines where the duty of loyalty lies for boards, and in what circumstances this duty may be altered. The Canadian and U.S. interpretations of this and other aspects of corporate law are slightly different, and Dorval clearly explains those differences. This section of the book should be a useful guide to first-time board members who want to understand clearly this very sensitive issue.

The author also explains the importance of independent directors and the need for creative tension among board members. Although these are short sections, they outline the most relevant current thinking on these topics.

The second half of the first section deals with promoting independence — discussing independence criteria, in what manner the board and its committees should be able to act independently, and what the composition of the board and its committees should be. Dorval outlines the changes made in Canadian and U.S. securities regulations, setting out the necessary composition of certain board committees.

The maintenance of independence can be a challenge, so Dorval sets out how a board can avoid conflicts of interest, and how to handle conflicts when they arise. Again, as with the rest of this section of the book, by setting out the basic best practice thinking in corporate governance, Dorval is able to create a concise guide to effective leadership in a relatively brief text.

Active monitoring, committee composition

The second half of the book focuses on active monitoring — how the board of directors fulfills its duty of care through active monitoring, properly representing the interests of the corporation.

One of the most useful reference sections in Dorval’s book is his explanation of board members’ duty of care. The text outlines the normal legal standard duty of care. Again, through case law, Dorval explains the nuances of what this standard means. He goes on to explain in what situations an enhanced standard of scrutiny might apply.

Having described independence and active monitoring as the two pillars on which corporate governance should be based, the author then outlines the essential board and committee functions in greater detail. He explains the leadership and oversight roles of the board, and then gives detailed accounts of how several committees should operate: the audit committee, nominating and corporate governance committee, and the human resources and compensation committee.

This section of the book is particularly interesting because of the many rule changes in both Canada and the U.S. regarding the make-up and role of each committee. Dorval is able to concisely convey the important aspects of each function.

Dorval’s research is impressive. As a partner at Ogilvy Renault and a founding member of the Quebec Chapter of the Institute of Corporate Directors, he has developed an expertise in corporate governance policies and practices, and his footnotes offer readers many other avenues for further exploration of this topic. At the same time he provides enough useful tools to satisfy many. For instance, an extensive list of appendices lay out mandates for boards of directors, audit committees, nominating and corporate governance committees, and others; the mandate of the board chair, committee chairs and CEO; along with a board and committee simple assessment policy, and a simple directors’ orientation and continuing education policy.

As a whole, Governance of Publicly Listed Corporations proves to be a very useful introductory and reference tool for boards and individual board members. Its Canadian perspective and comparative analyses with U.S. case law and regulations make it a useful source of information for companies based solely in Canada and those with operations in the U.S.

Robert Colman is the editor-in-chief of CMA Management.

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