MONTREAL, Sept. 15 /CNW Telbec/ - In a report released today entitled The
Independence of Board Members: A Quest for Legitimacy, the Institute for
Governance of Private and Public Organizations (IGPPO) proposes that any
organization governed by a board of directors should strive to constitute a
board that is both legitimate and credible.
The issue at stake is not so much the independence of boards, but their
legitimacy and credibility. Independence is meaningful only insofar as it
reinforces the legitimacy of a board. And only through its legitimacy does a
board acquire the authority to oversee the management of an organization.
For public or private organizations without shareholders or with no
active shareholder owning more than 10% of the common equity, boards should
include a clear majority of independent members. In addition, all standing
committees should be made up exclusively of members independent of management.
However, the boards of exchange-listed companies with significant
shareholders need to accommodate two forms of legitimacy:
1. That which comes from the independence of directors from management
and significant shareholders as well as from the manner of their
nomination and election;
2. That which comes from the financial and professional engagement of
In these companies, both forms of legitimacy must be represented on the
board and on all standing committees.
The issue is a key one in Quebec and the rest of Canada. The majority
(133) of the 253 Canadian firms making up the S&P/TSX Index (i.e., the largest
listed corporations in Canada) have at least one shareholder with 10% or more
of the votes. In close to one-third of all large Canadian companies, at least
one board member is a significant shareholder or a representative of that
Current rules and guidelines dictate that the majority of board members
and all members of standing committees should be independent not only from
management but also from significant shareholders. However, in Quebec and
elsewhere in Canada, a number of large corporations have one or more
significant shareholders, including Couche-Tard, Bombardier, CGI, Power
Corporation, Jean Coutu Group and Transcontinental.
As significant shareholders come with considerable legitimacy and
credibility stemming from their financial, time and energy commitment, their
presence of the board and on standing committees stands to reason.
In its 22-page policy paper, IGPPO makes a series of recommendations,
including the following:
- Any organization governed by a board of directors must strive to
constitute a board that is both legitimate and credible; only in this
way will boards play the role expected of them.
- Board legitimacy will be strengthened through a selection, nomination
or election process that ensures board members will have no interest
other than that of the organization and its stakeholders, especially
shareholders in the case of exchange-listed companies.
- In public or private organizations without shareholders or in
exchange-listed companies without a significant shareholder, a
majority of board members and all members of standing committees
should be fully independent of management.
- A board must review professional and personal relationships between
each director and the organization and its management, as well as
between each director and any significant shareholder. The board and
its governance committee must be strict in granting the status of
independent member only to those who are free from constraint in
their judgment and in their decision-making.
- The board and its governance committee must be alert to the
circumstantial nature of independence, which could mean that a
director who is independent by definition may not be truly
independent in some specific situations.
- For exchange-listed companies with a significant shareholder
(controlling more than 10% of common equity) who is actively involved
in company management or governance, their boards and their standing
committees should include members designated by these shareholders in
a proportion equivalent to their share of equity (their economic
- For companies where voting power exceeds economic interests because
of a class of superior voting shares, the recommendations of IGPPO's
first policy paper on multiple voting shares remain highly relevant.
- Companies with a significant shareholder (controlling more than 10%
of common equity) who is actively involved in company management or
governance should form a standing committee made up exclusively of
independent directors to review all transactions between related
parties, in particular between the company and the significant
shareholder. As is the case with other standing committees, this
committee would report to shareholders annually on any such
These recommendations give to the concept of independence a specific
role, a restricted but essential one, in the governance of organizations.
Indeed, the strict independence of members endows boards with a form of
legitimacy, which is necessary for them to fully discharge their fiduciary
Dr. Allaire, the Chair of the Institute concludes the policy paper by
stating, "Only a credible board will contribute significantly to the success
of an organization. Only a legitimate board has the right and authority to
impose its will on management."
About the Institute for Governance of Private and Public Organizations
Established in September 2005, the Institute for Governance of Private
and Public Organizations (IGPPO) is a joint initiative of HEC Montréal and
Concordia University (The John Molson School of Business). The Institute is
committed to promoting strong corporate governance practices among
organizations in Quebec and the rest of Canada. Its operations focus primarily
on key management activities, namely defining the corporate mission,
evaluating strategic management and financial performance, recruiting and
compensating officers and managing risk. It achieves this primarily through
research, training, the issue of position papers and the dissemination of
information. IGPPO training programs are based on the "value-creating
governance" model developed by Drs. Yvan Allaire and Michaela Firsirotu, who
have published a number of works on governance. Dr. Allaire chairs the IGPPO
Board of Directors. The Institute commissions academic research, organizes
conferences and training seminars, takes part in public debates on governance
issues, reinforces governance-related skills and promotes partnership and
knowledge transfer. For more, please go to www.igopp.ca.
For further information:
For further information: Yvan Allaire, Ph.D., FRSC, Chairman of the
Board of Directors, Institute for Governance of Private and Public
Organizations, (514) 340-6398, firstname.lastname@example.org