Playing corporate board games has become a serious business. Ten or 15 years ago, directors may have been recruited on the golf course, and decisions might have been made over a round of beers.
It’s a hot September morning in downtown Vancouver. Heat shimmers off the pavement, the hot dog vendors at Robson Square are firing up their grills and the sidewalk terraces along Hornby Street are packed to bursting with late-season tourists and office workers squeezing the most out of the dying days of summer. A well-tanned man in a blue golf shirt and beige Dockers strides purposefully past the trendy fashion stores that face the courthouse and enters a non-descript low-rise office building. Terry Lyons is among the most influential people in Vancouver business circles, but he passes unnoticed amidst the bustling sidewalk crowd. On most days, his schedule is his own, and he dresses for comfort rather than to impress. He is not a CFO or CEO, though he’s had plenty of offers. Lyons represents the new face of corporate directors. “I’m not retired,” the 58-year-old director of about 10 corporate boards says with a laugh. “I’m a professional director.” Sitting on corporate boards has become a serious business. Ten or 15 years ago, directors may have been recruited on the golf course, and decisions might have been made over a round of beers. But since Enron and Sarbanes-Oxley, the golf set has been weeded out of the boards of B.C.’s major publicly traded companies. “One of the things that has changed over the past 10 years is that companies think more deeply about who is recruited to their board,” notes Patrick O’Callaghan, managing partner of board-governance consulting firm Patrick O’Callaghan and Associates and an executive committee member of the Institute of Corporate Directors’ B.C. chapter. Rather than turn to their buddies, “it would be much more standard in today’s environment in B.C. for companies to think about the skills and experience that they need on the board. A company may need someone who has worked in a big, complicated, environmentally sensitive resource-based corporation. Or it might be that you’re looking for entrepreneurial skills – someone who has raised money, built a company, sold it, raised money, built another company and sold it.” Or it could be that a company needs someone with intimate experience of the scrums inside the halls of political power, which would explain the presence of several former politicians on Vancouver boards. Take Gary Collins, for example, the former B.C. Liberal cabinet minister who served for two years as president and CEO of Harmony Airways before it was grounded. He is currently a director on the board of Catalyst Paper. “There’s a company that has terrific interaction with government and with B.C. resources,” notes O’Callaghan. “It’s useful for them to have someone who understands how government works, how it looks at its resources. Gary Collins would have been recruited to the Catalyst board because he has a set of criteria that is important for Catalyst to be successful in the future.” Other notable former politicos sitting on B.C. boards include former B.C. premier Glen Clark, now executive VP at the Jim Pattison Group, who sits on the board of Westshore Terminals Ltd., a Pattison Group company. Then there’s the high-profile former federal fisheries minister Brian Tobin, who sits on the board of Lions Gate Entertainment Corp.; former federal Conservative MP John Reynolds, who sits on the board of Avcorp Industries Inc.; and former B.C. deputy forestry minister Lee Doney, who is a director for Western Forest Products Inc. (All research for this story is based on 2006 year-end annual information forms.) Whether boards recruit from the ranks of former powerful CEOs or the halls of government, it’s clear that corporate directors wield more power today than ever before. “The cult of the CEO is past us,” says Michael Phelps, former president and CEO of Westcoast Energy Inc. Phelps now sits on the boards of Canadian Pacific Railway Ltd. and Spectra Energy Corp. (formerly Duke Energy Corp.) and is a consultant to Brazil’s Companhia Vale do Rio Doce, following its 2006 takeover of Inco Ltd., where he was a board member. In today’s era of accountability and financial literacy, “the biggest role is to really get into the details, to be a full partner in the strategy-setting process,” says Phelps. A board has two primary responsibilities, explains O’Callaghan. The first is to hire, compensate and evaluate the CEO. “If they make a mistake there, everything else falls apart,” he says. This involves an ongoing interaction, in which the directors constantly provide performance feedback to the CEO and point out where he or she might be deviating from agreed-upon business goals and strategies. The second key role of the board is to approve the company’s strategic plan. While it’s the CEO who is ultimately responsible for charting a company’s course, this is a much more collaborative process than it was even a decade ago. That’s why a carefully thought-out array of experience and expertise is so crucial to a board today, O’Callaghan explains. Today’s corporations are so complex that a CEO can’t possibly master the entire skill set needed to consider all the legal, financial and technical variables that go into a business plan. Although the board has the power to hire a CEO and approve business plans, it would be a mistake to attribute a company’s success or failure to its directors, says O’Callaghan. He points to the example of Telus Corp.: “You’d find it tough to find anybody who wouldn’t say that Darren Entwistle has done an incredibly effective job of growing and developing that organization. No one would say he did it because he’s got a great board.” Telus demonstrates how an effective board should work, O’Callaghan adds: “The people on that board have worked very closely with [Entwistle] on finalizing strategy and ultimately approving the strategy of the corporation. Darren has effectively used his board to provide him with strong advice, guidance and ultimately approval of the direction he’s taken the corporation.” Phelps describes the satisfaction of playing a role on an effective board, but agrees that it would be a mistake to confuse the role of director with that of the CEO. "Directorships are important and they allow one to stay close to business,” Phelps explains. “They allow one to give advice, which is occasionally rewarding. But there’s nothing more fun than being a CEO when things are going well. The CEO is the orchestra leader, and there’s no role like it in business.” Phelps has witnessed first-hand the redefinition of the role of the board in recent years and is an unapologetic alumni of the former old-boys’ network. “Vancouver has changed so much,” he says. “Twenty years or even 15 years ago, there were the normal four, five, six people who were the Vancouver people on boards of directors, of which I was happy to be one. I was the CIBC guy for 16 years. Brandt Louie was the Royal Bank guy and still is. Jim Pattison was on the board of TD.” Phelps attributes the dissolution of the Vancouver old-boys’ network in part to the hollowing out of head offices; there just aren’t that many high-profile CEOs in town anymore. But it’s also because the increased time commitment and the demands for financial literacy require boards to look for young retired executives rather than sitting CEOs. They also tend to dig a little deeper into the ranks of middle management than they used to, looking for more former CFOs or VPs rather than CEOs. Vestiges of Vancouver’s former old-boys’ network may remain, but that can’t be avoided. People who have led major organizations are sought-after for their experience, and in Vancouver that’s a small pool. “If you get a group of people in Vancouver who have led companies, they’re likely to know one another,” O’Callaghan notes. “Take [Finning International Inc. CEO] Doug Whitehead, for example. Of course he’s part of a network of CEOs of significant companies in Vancouver. But he’s also leading a dynamic internationally based Canadian success story. Why wouldn’t you want him on your board?” In addition to his seat at the Finning board table, Whitehead is a director for Ballard Power Systems Inc. and Terasen Gas Inc. If there’s a social network of directors in Vancouver, its hub is the B.C. chapter of the Institute of Corporate Directors, a not-for-profit outfit dedicated primarily to educating both new and experienced directors. It administers the Directors Education Program, a 12-day course designed by the University of Toronto’s Joseph L. Rotman School of Management and delivered in B.C. by UBC and SFU. It leads to the Institute-Certified Director, or ICD.D, designation. “A director can be a lonely life,” explains Doug Hayhurst, president of the B.C. chapter of the institute. “You’re essentially an independent contractor, going from board to board to board.” He recalls how, when he was managing partner of PricewaterhouseCoopers in Vancouver, he could walk down the hall anytime to tap into any number of top thinkers in his area of expertise. “For many directors, this becomes their walk to the office.” On this September morning, the no-nonsense Lyons is on his way to a rented office at the headquarters of Northgate Minerals Corp., where he’s the independent chair of its board of directors. Later this afternoon, he’s scheduled to weigh in on an acquisition prospect for a junior oil-and-gas company on whose board he also sits. All told, Lyons sits on about 10 corporate boards, including Canaccord Capital Inc., Polaris Minerals Corp., Skye Resources Inc. and a handful of junior resource companies. He also sits on the board of the Vancouver Convention Centre Expansion Project. Lyons is sought-after for his experience with complex restructurings, particularly in the resource sector. He earned his reputation first with the complex unravelling in the mid-1980s of Versatile Corp., perhaps the closest B.C. ever came to having an industrial conglomerate along the lines of Ontario’s Brookfield Asset Management Inc. (formerly Brascan) or Magna International Inc. Versatile was into agricultural manufacturing, oil-and-gas operations, cold storage and shipbuilding when it ran aground in the mid-1980s. An engineer with an MBA, Lyons was appointed senior VP in charge of overseeing the restructuring. After he and partners Brian Kenning and Bruce McKay had untangled the web of holdings, Brookfield stepped in to finance the final stage of the restructuring, which would see the company reborn as B.C. Pacific Capital Corp., Brookfield’s investment vehicle in B.C. Lyons stayed on as a managing partner with Brookfield, overseeing financings and restructurings primarily in the mining sector. When Brookfield divested its mining holdings in 2004, Lyons faced a career decision. “Because I was predominantly associated with the resource side, when they started getting out of that business it was time for me to deal with my own affairs,” he reports with a laugh. With his experience and contacts, there was no shortage of management opportunities in the resource sector, but upon reflection Lyons concluded he’d prefer the life of an independent director. “My time is flexible; I don’t have a nine-to-five type of routine,” he explains. “I didn’t need the day-to-day executive role for financial purposes; I’m independent. And I enjoy the diversity of the different enterprises I’m involved in.” One of the first companies to come knocking was Canaccord, which was just going public when Lyons left Brookfield in 2004. Today Lyons is lead director of the Canaccord board, chair of its audit committee and a member of its corporate governance and compensation committee. All told, he attended 24 Canaccord board and committee meetings in 2006. Although Lyons estimates he’s earning less now than he did as a full-time executive with Brookfield, a director’s pay is nothing to sneeze at, especially at bigger public companies such as Canaccord that have market capitalizations in the hundreds of millions of dollars. O’Callaghan explains that Canadian companies have been ratcheting up director compensation in recent years to meet international standards and to reflect directors’ increasing responsibilities and liabilities. He estimates that a director of a large-cap public company can expect cash compensation in the range of $100,000 to $150,000. Although that may sound high for a part-time gig, O’Callaghan points out that it works out to about $400 or $500 an hour, which is comparable to the top end of the pay scale in the legal or consulting professions. Smaller companies typically offer a higher proportion of stock options and nominal cash compensation, including an annual retainer in the neighbourhood of $15,000 a year and about $1,000 plus expenses for each meeting attended. In 2006, at Canaccord, Lyons was paid about $130,000 plus stock options and expenses for meetings he attended. At Northgate he was paid $175,000; Polaris Minerals paid him $10,000 plus stock options; Skye Resources paid $22,500 plus options; B.C. Pacific Capital paid $50,375; and the Vancouver Convention and Expansion Centre paid him $21,500. Twenty-four meetings in one year for Canaccord alone may sound like an onerous schedule, but Lyons explains that companies with December 31 fiscal year-ends tend to clump their meetings around the same quarterly schedules, and he has no trouble finding gaps for holidays in his yearly schedule. Lyons estimates that he probably spends 100 hours a year on Canaccord. “So within a context of 2,000 hours, maybe you spend five to 10 per cent of your time on a company of that nature. You can handle three to four larger companies, then backfill them in with some smaller companies… It’s sort of a way to keep busy, keep your finger in the pie. And you want to be able to contribute.” And still leave plenty of time for golf.