Steering the ship of corporate governance.

Anyone who's been a board member, whether private, public, or not-for-profit, is more likely than not aware of the phrase "corporate governance." This same assumption possibly could not have been made as little as 10 years ago, however. Perhaps it is even too far-reaching of a conclusion to draw in contemporary business circles that corporate governance is a widely understood topic.

Indeed it has become an entity that has grown from near-nothing, to that of primary importance for all kinds of companies across the country. In the words of David S.R. Leighton and Donald H. Thain, who co-authored the 1997 book Making Boards Work, "the volume of research in corporate governance has, from a trickle less than 10 years ago, become a veritable flood. Most leading business schools, including Harvard, Northwestern, Wharton and Stanford in the U.S., and Ivey and York in Canada, offer a variety of courses ranging from short executive-level programs to graduate seminars.

Perhaps I'm assuming far too much and hence, am improperly speaking on behalf of a silent majority, but isn't it interesting that very select few (at least from the people I talked to), aside from those who do sit on boards which happen to make corporate governance a fundamental responsibility, are aware of what corporate governance actually is?

For the benefit of those as ignorant as was this writer prior to researching the topic, corporate governance is, and I quote, "the process and structure used to direct and manage the business and affairs of the corporation with the objective of enhancing shareholder value, which includes ensuring the financial viability of the business. The process and structure define the division of power and establish mechanisms for achieving accountability among shareholders, the board of directors and management. The direction and management of the business should take into account the impact on other stakeholders such as employees, customers, suppliers and communities."

This definition is contrived from a document widely held as the gospel of corporate governance known as "The Dey Report," a Canadian report commissioned by the Toronto Stock Exchange in 1993, and chaired by Peter Dey, former head of the Ontario Securities Commission.

The aforementioned definition infers far-reaching implications, says Jim Hutch, P.Eng., president of Hutchtech Inc., who was just named as the new chair of the newly appointed board of the Saskatchewan Research Council. Aside from his new responsibilities with the SRC, Hutch has sat on as many as 18 advisory and corporate boards concurrently. Presently, however, he has cut that number down to a manageable nine or so. Among the boards he sits on -- which consist of private, public and not-for-profit and who deal in provincial, national and international markets -- are, International Road Dynamics (IRD), Analog Design Automation (ADA) (Ottawa), Goldcorp Inc. (Toronto), ETEC (Environmental Technologies Equipment Corp.), Prairie Plant Systems and of course, the SRC. He has served on five corporate governance committees, two of which he currently serves as chair. In short, he's truly involved in corporate governance in Canada.

"Corporate governance is the boundary between the board of directors and of management," Hutch says. "It's important that they know each others' roles; that of the management and that of the board. It's really important to keep the board of directors from being drawn in to do management's work and vice versa."

"What the board is supposed to be doing is assuming responsibility for the following matters: adoption of the strategic planning processes, assuring that the principle risks are identified and dealt with, succession planning -- including employee training, monitoring and the appointing of senior management, approval of a communications strategy for the corporation, and assuring the integrity of the corporation's internal control and management information systems."

Hutch also says that the notion of boards taking into consideration things other than the shareholders, as is implied in the Dey corporate governance definition, is a fundamental, yet oftentimes previously overlooked, responsibility.

"People are sometimes really interested to know that the board should be concerned not only about the shareholders, but also about the impact on the employees, the customers, the suppliers and the communities," Hutch says. "The board has this overall responsibility to be sure that everyone -- like the employees, like the customers, like the suppliers, like the communities -- are being treated properly."

"And it's not to be just good people," Hutch continues. "The point is, if you treat your customers and your suppliers and your employees badly, eventually that's going to catch up to you. Similar with the communities. If you chose to be irresponsible with the environment situation or your resposibilties as a corporate "citizen" and those kinds of things, you will run into problems."

Indeed corporate governance has become such an accepted practice among companies that often their corporate governance procedures are part of their annual report as well as web site. In fact this presence in the annual report and a report at the annual general meeting is mandatory for publicly traded companies, to ensure that corporate governance is both present and prevalent.

The page dedicated to corporate governance on the Potash Corporation of Saskatchewan website has the following heading: "PCS: Open, Effective, Accountable." Appropriately PCS has taken the initiative to present these variables, which essentially are the variables that must permeate the core directive of each and every board.

"The hardest things on boards are surprises," notes Hutch. "And good corporate governance can avoid that. A board can bring a tempering influence to ask questions and just make sure that this (impending decision) is what is supposed to be done so that the managing group is not enamored by the opportunity that has presented itself. The board may very well end up saying, 'Yeah, this is something that we want to do.' But they have to be provided with the total picture so that they can make sure that this fits with what the company is trying to achieve."

Various boards adhere to similar objectives, practices and principles, regardless of their differences, including whether they are public or private. Having said that, however, there are differences particular to each type of board. The aforementioned corporate governance reporting requirement at annual general meetings and in annual reports of publicly traded companies is one such example. By virtue of their ownership structure, private corporations have considerably more leeway. Often, their corporate governance is influenced by the financing agreements they have with their banks or equity partners.

Private corporations which have grown and that started at ground zero, often will have adjustments to make, notes Hutch. "Where problems come in is, very often younger CEOs have a problem understanding what the role of the board is," Hutch says, going on to add that often boards of private corporations are not boards of directors in the truest sense but rather, in reality, serve as an advisory board.

"They would rather use the board as, say, having experts in their (respective) field to give free advice," Hutch explains. "This free advice from these experts is a false economy measure. Because you may only need these experts now and again; so they're sitting around waiting in case something comes up in which they might contribute. But what is important is that you have a well-rounded director who participates fully, understands corporate governance and who really is concerned about the overall welfare of the company. You can readily involve that special expertise you need when you need it," Hutch says.

Obviously, the composition of private corporations will vary from one company to the next. Clearly they may choose to do as they wish with guidelines such as those recommended in the TSE's Dey Report. Hutch adds, however, that private corporations may well want to follow those guidelines imposed upon the public companies. That way, he says, if the company ever wanted to go public, its adjustment curve, in terms of the board and directors and corporate governance, would be diminished significantly.

The primary difference between publicly held corporations and privately held companies is that as a private firm, owners have the ultimate authority. "The primary role of directors -- friends and advisers -- is no form of power, (and) to work through (via) influence and counsel," says Hutch. "The selection criteria is personal relationships, friendships and advisers."

Whereas with publicly traded companies, this relationship-based selection criteria is not only frowned upon, but is in fact illegal. "The primary role of directors (of publicly traded companies) is that you're legally trustees for the shareholders, and overseers of management, in reality, to supervise the management of the business," Hutch notes.

Being a member of a board of directors is a serious matter. In fact directors are held legally responsible for statuatory deductions and can be subject to legal action with respect to their decisions. Hence the need for the company to provide directors and officers insurance and for government Crown corporations to provide Indemnification Agreements.

Regardless of the type of corporation, corporate governance is clearly an issue which will create and build better corporations. Perhaps that's why its very topic is becoming a much more understood, if not talked about, entity.