British-North American Committee - CORPORATE GOVERNANCE STATEMENT BY
CANADIAN, US, and UK EXECUTIVES UNDERSCORES KEY NEED FOR BOARD ACTION

Executive compensation should be based on and structured to reflect the
performance of the company over a three-to-five year horizon focusing on its
financial strength and market competitiveness. Restrictive terms on the length of
service for directors are not generally conducive to sustaining
an effective board.

LONDON and MONTREAL, Aug. 31 /CNW Telbec/ - Central to restoring public confidence in the running of financial institutions are reforms to the organization and effective operation of their Boards. This is a key point in a Statement published today by senior executives from organizations based in the US, UK and Canada.  The Statement: Issues Concerning Effective Corporate Governance has been published by the influential British-North American Committee (BNAC)1, which last year was an outspoken early advocate of the need for the respective countries to review their mounting public sector pension liabilities.

Launching the Statement, William I. M. Turner J., Chairman of the BNAC Corporate Governance Working Group, said:

"The senior executives in the BNAC agree with Lord Adair Turner, Chairman of the UK's Financial Services Authority, when he said at the Mansion House last September: 'It is possible to overstate the importance of bonus structures in the origins of the crisis: they were, I believe, much less important than huge failures in capital adequacy and liquidity regulation'. Examples of such failures include the Government in the US encouraging banks to provide sub-prime mortgages even when mortgage laws allowed home owners to walk away with no personal debt.  The UK authorities allowed banks to lend 125% mortgages worth five times annual salary.  Canada continued with independent regulation requiring strong capital ratios and consequently suffered much less than BNAC's other two member countries.  Following the crash, it is still politicians who set the limits within which the private sector competes but governments now show some signs of understanding that excessive borrowing is an illusory way to generate economic growth." 

In terms of the specific lessons for the private sector, Mr. Turner said: "It is also important that the private sector learns lessons about the way that it should operate and the BNAC is pleased to provide its view of the way ahead on this in each of its three constituent countries. The key need is for a properly functioning board of people of independence and integrity with appropriate experience.  Performance rather than artificial markers such as length of service should be used to decide who should serve. The board must be led by a knowledgeable chairman who is not also the chief executive and it must ensure that all the key facts of the business are made public. Although traders and other front line professionals may primarily be awarded annual bonuses, those executives serving on the board or as a head of department should have incentive schemes which primarily reward longer term success". 

A summary of the BNAC Corporate Governance Statement is as follows (full Statement appended):

First, the BNAC believes greater transparency should be required in both the balance sheet and income statements of financial institutions. This should include the disclosure of more information provided on asset quality, liquidity (including projected requirements and sources) and contingent liabilities

Second, there is a need to strengthen regulatory oversight. Overlapping regulatory responsibilities among different agencies should be eliminated and, where appropriate, the size and competence of their staffs should be increased.

Third, of critical importance is restoring public confidence in the way financial institutions are run. This is primarily the responsibility of the Board of Directors of those companies. The BNAC recommendations include:  

  • Board members should have a good understanding of a company's business, history and operations. We feel that establishing restrictive terms on the length of service for directors are not generally conducive to sustaining an effective board.  
  • A clear balance of power at the top of any organization is a key to developing an open and trustworthy corporate culture. We reiterate the need for a separation of the roles of chairman and chief executive officer. But, an independent and competent chairman must be familiar with the essentials of the business in order to bring an objective view of an "outsider". He has to be able to understand and influence decisions of the CEO.  
  • Board members should be selected by a nominating committee and be chosen based on their ability to work as part of a team while contributing their relevant expertise and experience. The reasons for their selection should be fully disclosed to shareholders who elect them to the board.  
  • An important responsibility of the CEO should be to ensure that Board members are provided regular reviews of business segments and their respective revenue, net income and risk contributions. The CEO should also make sure that they are fully able to understand the key balance sheet and external factors that influence those numbers.  
  • Management's assessment of the risks to the company's financial performance should be a regular topic on Board agendas. It is the Board's responsibility to ensure to their satisfaction that the risks are mitigated and that procedures are in place to monitor and manage them. Independent assessment of the risks should be periodically presented to the Board.   
  • Executive compensation should be based on and structured to reflect the performance of the company over a three to five year horizon focusing on its financial strength and market competitiveness. Factors to be considered should include an evaluation of the salary structure of the company as a whole and whether the differentiation of salaries between the various layers of management is appropriate; a determination on whether salaries are competitive in the market place, with total remuneration packages reflecting longer term individual performance.

The BNAC also notes that it is essential that commercial organizations set out their core ethical values as the basis for generating and sustaining a culture of integrity in the way they conduct their businesses. While most corporations are (rightly) concerned about earning adequate returns for their shareholders, they should also be concerned about making their organizations good 'corporate citizens' and sustainable in the longer term

A copy of the BNAC Statement: Issues Concerning Effective Corporate Governance is attached.

Notes for Editors:

The British-North American Committee: 

Launched in 1969, the British-North American Committee (BNAC) is a group of leaders from business, labour, and academia in Canada, the United Kingdom and the United States committed to harmonious, constructive relations among the three countries and their citizens.  BNAC is sponsored by three non-profit research organizations - the British-North American Research Association in London, the Atlantic Council in Washington, and The Massey College of the University of Toronto.  William E Mayer, Founder, Park Avenue Equity Partners; Sir Paul Judge, Chairman, Schroder Income Growth Fund plc, and Derek Oland, Executive Chairman of Moosehead Breweries Ltd, are respectively the US, UK and Canadian co-chairmen.  David Wilson, President and CEO, Graduate Management Admission Council, is Chairman of the Executive Committee.

British-North American Committee
UK Secretariat, St Clement's House, 27-28 Clement's Lane, London EC4N 7AE
Tel: +44 (0)20 3207 9432 Fax: +44 (0)20 3207 9134 Web: www.bnac.org

-----------------------------------------
1 See Note for Editors

Statement by the British-North American Committee
on
Issues Concerning Effective Corporate Governance

The BNAC has a strong business, political and employee representation in Canada, USA and UK.  Based upon our own experiences, we have developed this paper as a commentary on the way forward. We believe this covers many issues that are very applicable to Canada's future.  We hope you will find it stimulating and useful.

It is two years since the financial services sector of many of the world's leading economies were plunged into disarray.

The uncertainty this generated meant that individual and institutional investors were very reluctant to participate in the financial markets resulting in a dramatic decline in asset values, credit becoming largely unavailable and, as a result, liquidity became very difficult to generate. Rapid intervention by national governments, directly and through central banks and regulatory agencies, was undertaken in an attempt to restore confidence in the markets and to keep a number of financial institutions solvent. Some were allowed to fail.

The long term effects of this financial crisis and the impact of the aggregate cost of government interventions is still being determined but austerity programmes are being implemented in many countries.  

A related and not surprising consequence of this financial crisis is the erosion of public confidence in the senior management of financial institutions and the questioning of the competence of the regulators who provide oversight. In addition, the crisis clearly demonstrated that risks existing as a result of the global interdependence of the markets and the complexity of many of the financial instruments that are sold to investors were not recognised.  

A wide variety of inquires have been initiated to help us to understand better "what went wrong". The general public is expecting changes to be introduced to avert a repeat of the recent confusion. Reforms are being debated nationally and internationally. Some have already been legislated. The process of translating these reforms into specifics and then being implemented by the different regulatory agencies will take many months. The issues are very complex. The implications of what has been proposed have to be carefully evaluated in order to be sure they will be appropriate and effective and not have unintended consequences.   

Members of the British - North American Committee have discussed these issues at their recent bi-annual meetings. We now feel that sufficient time has elapsed for us to express a considered view on some of the reforms required to minimise the likelihood of the problems reappearing. 

First, we feel that greater transparency should be required in both the balance sheet and income statements of financial institutions. This should include the disclosure of more information provided on asset quality, liquidity (including projected requirements and sources) and contingent liabilities. The reporting of revenue and operating income by different business activities within the organisation should be more detailed so the potential volatility of results of specific activities can be better understood. In addition greater disclosure should be required in the marketing of financial products in order to provide investors with a better understanding of the potential risks. 

Second, there is a need to strengthen regulatory oversight.  Overlapping regulatory responsibilities among different agencies should be eliminated and, where appropriate, the size and competence of their staffs should be increased. While there is good coordination of activities among central banks regarding the implementation of monetary policies, and regulators have good working relationships with their counterparts in other nations, we feel that consideration should be given to formalising this cooperation in the regulatory examination of large global financial institutions. Ultimate responsibility and accountability should be established in order to ensure completeness of the oversight and ensure the timely identification of risks that could have global implications. 

Third, of critical importance is restoring public confidence in the way financial institutions are run. This is primarily the responsibility of the Board of Directors of those companies. The competence and diverse experience with governance practices in Canada, United States and United Kingdom of many BNAC members provides the basis for what we are suggesting as being necessary to restore this confidence.   

  • Board members should have a good understanding of a company's business, history and operations. We feel that establishing restrictive terms on the length of service for directors are not generally conducive to sustaining an effective board. 
  • A clear balance of power at the top of any organization is a key to developing an open and trustworthy corporate culture. We recommend the separation of the roles of chairman and chief executive officer. An independent and competent chairman must be familiar with the essentials of the business in order to bring an objective view of an "outsider". He has to be able to understand and influence decisions of the CEO.  
  • Board members should be selected by a nominating committee and be chosen based on their ability to work as part of a team while contributing their relevant expertise and experience. The reasons for their selection should be fully disclosed to shareholders who elect them to the board.  
  • An important responsibility of the CEO should be to ensure that Board members are provided regular reviews of business segments and their respective revenue, net income and risk contributions. The CEO should also make sure that they are fully able to understand the key balance sheet and external factors that influence those numbers.  
  • Management's assessment of the risks to the company's financial performance should be a regular topic on board agendas. It is the board's responsibility to ensure to their satisfaction that the risks are mitigated and that procedures are in place to monitor and manage them. Independent assessment of the risks should be periodically presented to the board by regulators and accountants in executive sessions.
  • Problems can arise when there is a disconnection between shareholders, CEOs, and the chairmen. Boards should require the CEO and his senior management periodically to present and comment on the assessments of significant shareholders and respected investment analysts.
  • Executive compensation should be based on and structured to reflect the performance of the company over a three to five year horizon focusing on its financial strength and market competitiveness. Factors to be considered should include:

a)     An evaluation of the salary structure of the company as a whole, and whether the differentiation of salaries between the various layers of management is appropriate.

b)     A determination on whether salaries are competitive in the market place.

c)     Total remuneration packages which reflect longer term individual performance.

The public perception of the competence and trustworthiness of a company's senior management and its board is critical to its long term viability. When this does not exist, its investors, customers and the markets in which it operates will begin to withdraw support. The inevitable result is that employees of those companies and communities in which they are based will be economically impacted. Certain segments of the financial service industry have shown how quickly this can happen and how other companies in the same sectors can be affected.

Finally, we believe that it is essential that commercial organisations set out their core ethical values as the basis for generating and sustaining a culture of integrity in the way they conduct their businesses. While most corporations are (rightly) concerned about making adequate returns for their shareholders, they should also be concerned about making their organisations good 'corporate citizens' and sustainable in the longer term. The way an organisation 'does its business' clearly matters.

Signed on behalf of the BNAC by:


Sir Paul Judge        William E Mayer        Derek Oland         David A Wilson
Chairman                  Chairman                Chairman                Chairman
United Kingdom        United States               Canada        Executive Committee

William I M Turner Jr
Chairman
Corporate Governance Working Group

26th August 2010         

Please Note


Inclusion of the attached list of British-North American Committee members should
not be taken imply that members necessarily agree with every aspect of the
statement.

Nancy Aossey General Wesley K Clark
President and CEO Founder
International Medical Corps Wesley K. Clark & Associates, LLC
(USA) (USA)
   
Paul R Baay Sir Frederick Crawford  
Managing Director Chairman
Abacus Energy Haruspex Consulting
(Canada) (British)
   
Ian B Bandeen F Peter Cundill
Vice Chairman and CEO (USA)
CNSX Markets Inc.  
(Canada) Baroness Dean of Thornton-le-Fylde  
  Chairman
Daryl Bennett President The Housing Commission
Liftlock Group (British)
(Canada)  
  Philip Evans
Amanda Bowman Senior Vice President
Chief Executive Officer Boston Consulting Group
The Atlantic Bridge (USA)
(USA)  
  J I Everest
David Brennan Vice Chairman
Chairman & CEO Energy Solutions, Inc.
Baring Asset Management (USA)
(British)  
  Maureen Farrow
Sir Andrew Burns   President
Chairman Economap Inc.
Royal Holloway - (Canada)
University of London  
(British) Brooks Firestone
  Founder
Dr Pamela G Carlton Curtis Winery
President and Co-founder (USA)
Springboard - Partners in Cross Cultural Leadership  
(USA) Lawrence P Fisher II
  President, Family Wealth
Hon Henry E Catto Chevy Chase Trust
Chairman Emeritus (USA)
The Atlantic Council  
(USA) Toby Foster
  (British)
   
John A Fraser Sir Paul Judge  
Master Chairman
Massey College Schroder Income Growth Fund plc
University of Toronto (British)
(Canada)  
  Sir John Kingman  
Alan R Griffith Former Vice-Chancellor
Former Vice Chairman, University of Bristol
The Bank of New York (British)
(USA)  
  George Kitching
Loyd Grossman Chairman and CEO
(Britain) Idelia Advisers Inc.
  (Canada)
Kerry L Hawkins  
Former President (retired) Frederick Kempe
Cargill Ltd President and CEO
(Canada) Atlantic Council of the United States
  (USA)
A Michael Hoffman  
Chairman Michael M Koerner
Palamon Capital Partners LP President
(British) Canada Overseas Investments Ltd
  (Canada)
Dr Nigel Horne PhD    
Director Sir Tim Lankester  
Foresight VCT Plc President
(British) Corpus Christi College
  (British)
Brian A Hunter  
Managing Director and CEO W A Fitzhugh Lee
Strategic Capital Allocation Group CEO
(USA) Green Source Energy
  (USA)
Hon Robert L Hutchings  
Diplomat in Residence Dr. David Levy MD
Princeton University Partner
(USA) PricewaterhouseCoopers LLP
  (USA)
Jonathan Jordan  
Former Chief Executive George Mallinckrodt KBE  
Burson-Marsteller UK President
(British) Schroders Plc
  (British)
Lady (Barbara) Judge    
Chairman Jeremy Marshall
Pension Protection Fund Chief Executive Officer
(British) C. Hoare & Co
  (British)
Rt Hon Paul Martin  
Former Prime Minister of Canada Andrew Prozes
Martin Aboriginal Initiative CEO
(Canada) LexisNexis Group
  (USA)
William E Mayer  
Founder Kirk Radke
Park Avenue Equity Partners Partner
(USA) Kirkland & Ellis LLP
  (USA)
Dean Menegas    
General Counsel Neil Record  
Spinnaker Capital Group Chairman & CEO
(British) Record Currency Management
  (British)
Sir Mark Moody-Stuart    
Chairman Sir Martin Rees  
Hermes Equity Ownership Services Master
(British) Trinity College, Cambridge
  (British)
Jon Moulton  
(British) Sir Bob Reid  
  Chairman
Jon Moynihan ICE Futures Europe
Executive Chairman (British)
PA Consulting Group plc  
(British) Guy Savard
  Chairman
Derek Oland Merrill Lynch Canada Inc.
Executive Chairman (Canada)
Moosehead Breweries Limited  
(Canada) Thomas R Saylor  
  Chief Executive Officer
George D O'Neill Arecor Limited
Chairman (British)
Meriwether Capital L.L.C.  
(USA) Hon. James R Schlesinger
  Chairman, Board of Trustees
  MITRE
Gordon F Page CBE MA FRAeS   Chairman (USA)
Hamworthy plc  
(British) Sir Richard Sykes DSc FRS  
  Rector, Imperial College
  (British)
Sir John Parker  
Chairman Jeffrey Symons
National Grid plc Partner
(British) Kirkland & Ellis LLP
  (USA)
Professor John C Polanyi  
Nobel Laureate Simon Webley  
University of Toronto Research Director
(Canada) Institute of Business Ethics
  (British)
Professor Thomas H B Symons, C.C., O. Ont., FRSC.  
Founding President and Viscount (William) Weir  
Vanier Professor Emeritus Former Chairman
Trent University Balfour Beatty Plc
(Canada) (British)
   
Michael S Sylvester Frederick B Whittemore
Chairman Advisory Director
Novagard Solutions Morgan Stanley & Co., Inc.
(USA) (USA)
   
Lord (David) Triesman   Dr David A Wilson
The House of Lords President and CEO
(British) Graduate Management Admission Council
  (USA)
James Z Turner  
Vice Chairman Margaret S Wilson
Alta Colleges, Inc. Chairman and CEO
(USA) Scarbroughs
  (USA)
John S M  Turner  
Fasken Martineau Hon Michael Wilson
(Canada) Former Canadian Ambassador to Washington
  (Canada)
William I M Turner Jr  
Chairman and CEO Simon Wooller    
Exsultate Inc. Managing Director
(Canada) Corporate Real Estate Group
  Trillium
Dr Paul Twomey (British)
(USA)  
  Lord (Anthony) Young of Norwood Green  
Peter Warner House of Lords
Partner (British)
Gleacher Shacklock LLP  
(British)
 

  BNAC Officers   
British Chairman US  Chairman Canadian Chairman
     
SIR PAUL JUDGE WILLIAM E MAYER DEREK OLAND
Chairman Founder Chairman and CEO
Schroder Income Growth Fund plc     Park Avenue Equity Partners     Moosehead Breweries
     
  Chairman, Executive Committee  
     
  DAVID WILSON  
  President and CEO  
  Graduate Management Admission Council  
     
  Offices and Staff  
     
For North America   For Britain
     
Ms. Elena Pak, Director   Ms. Melanie Jones 
Ms. Mary Micevych, Program Coordinator       BNAC British Coordinator
BNAC US Secretariat     British-North American Research Association
The Atlantic Council of the United States   St Clement's House, 27-28 Clement's Lane
1101  15th Street NW, 11th Floor   London EC4N 7AE
Washington DC 20005    
Phone: (202) 778 4993   Phone (020) 3207 9432
Fax: (202) 463 7241   Fax: (020) 3207 9134
cr="true" href="mailto:epak@acus.org">epak@acus.org; cr="true" href="mailto:mmicevych@acus.org">mmicevych@acus.org   melanie.jones@underlinegroup.com
bnac@acus.org   href="http://www.bnac.org/">www.bnac.org
href="http://www.acus.org/">www.acus.org    
     
  For Canada  
     
  Mr. Danylo Dzwonyk  
  Canadian Liaison Officer  
  Massey College  
  University of Toronto  
  4 Devonshire Place  
  Toronto, ON M5S 2E1  
  Telephone: 416-978-2549  
  Fax: 416-971-3032  
  danylo.dzwonyk@utoronto.ca  

SOURCE BRITISH-NORTH AMERICAN COMMITTEE

For further information: For further information:

On the Statement's contents:
William Turner
514-931-7436

On the BNAC:
David Robertson (BNAC UK Secretariat) 020 3207 9432
David.robertson@underlinegroup.com

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