The Real I ssues Maria Capozzi, MPA Principal, Governance Services - PowerPoint PPT Presentation

The Canadian Society of Corporate Secretaries 1 6 th Annual Corporate Governance Conference Banff Springs Hotel | Banff, AB | August 24 - 27, 2014 Crow n Corporation Governance: The Real I ssues Maria Capozzi, MPA Principal, Governance Services August 2 5 , 2 0 1 4

AGENDA Introductions 1. Public Sector Governance 2. Real Life Case Studies 3. Dealing With Sensitive Issues – Strategies to avoid the pitfalls – An Effective Board? 4. Pitfalls to Avoid 5. Discussion 6.

Introductions Maria Capozzi, MPA • With Manitoba OAG since 1997 • Conduct board governance audits & evaluations – Best practice reviews include: Study of Board Governance (2009 & 1998); Audit Committees (2006); Appointment Process (2012); Ethics (2014) – Governance assessments include WCB, Crocus Investment Fund, St. Boniface College, Lions Housing, School Division, Rural Municipalities • Currently on Manitoba ICD executive committee – Enrolled in Winnipeg’s first ICD.D class this fall

Introductions Office of the Auditor General • Independent Office of the Legislature – Appointed for 10 years – Report to Legislature, not to the government of the day • External auditor to government – Audit of the Public Accounts – Performance audits of government programs – Special audits and investigations – Governance reviews

Introductions Roundtable: • Organization & Role ? • Example of a tough board challenge you’ve faced or currently dealing with?

True or False? “Corporate governance today is harder than ever.” “Governance in the public sector differs from governance in the private sector.” – Is public sector governance harder than private sector governance?

Public Sector Governance  When the shareholder is government, the issues are considerably more complex  Yet much LESS research and guidance on public sector governance ! – Can’t always apply best practices from the private sector or non ‐ profit sector – But need to stay on top of best practices in these sectors because they impact public sector, or will affect over time.

Public Sector Governance A Three-Legged Stool: Government CEO Board of Directors

Public Sector Governance Government Responsible Minister & Department  $$  Mandate BOARD  Information  Advise  Advocate Management  Accountable & Organization

“Effective Board governance is a key component of ensuring that Crown organizations are well run, operate within their legislative mandate, avoid inappropriate risks, and provide services to citizens in an efficient and effective manner.” Survey of Board Governance in Crown Organizations, 2009

Public Sector Governance Unique challenges of public sector governance: 1. Financial issues are more complex  there is no one ‘bottom line’ – Have to be financially prudent, but also fulfill a public policy mandate.  Fiscal...Social…Environmental…Political…“bottom lines” – Never enough $$  especially in key social services like Health

Public Sector Governance Unique challenges of public sector governance: 2. Board control over key areas may be limited – Hiring and firing of the CEO  not always in the purview of Crown boards  CEO compensation may be set by govt – Board composition and appointment process  Government appoints Board members  Chair selected by government – Strategic planning choices and risk tolerance

Public Sector Governance Unique challenges of public sector governance: 3. More rules, constraints and sensitivities – Mandate constraints will always exist  Bounded by Legislation; legislative change takes time – Policy and Financial decisions  Budgets may be set by government  Doing what’s best for the organization may conflict with the public policy objectives of government – More regulations, policy requirements and ethical guidelines

Public Sector Governance Unique challenges of public sector governance: 4. Accountability issues much more complex – 1 Shareholder  But often no clear direction – Numerous/varied stakeholders  even indirect stakeholders may carry considerable weight – Multiple accountabilities and reporting requirements  Discuss and clarify  Accountable to whom and for what? – Relationship with Minister may have significant impact  Approach/personality of Minister; Minister’s understanding of issues  Ministers change without warning  Board has responsibility to speak truth to power, AND abide by/ implement government direction well.

Public Sector Governance Unique challenges of public sector governance: 5. A S pecial Duty of Care owed to citizens  Must safeguard the public interest – Accountability for use of public monies – Setting appropriate policies  Following them !! – Monitoring the organization and its performance – Ethical Leadership – Transparency  Lack of it places accountability at risk A Special Duty of Care is the responsibility of all organizations who spend other people’s money

DEALING WITH SENSITIVE ISSUES CASE STUDIES: REAL ISSUES

Lets Talk Sensitive Issues 1. Real Case Scenarios – Discussion at tables first 2. How good governance policies, processes and frameworks help overcome issues 3. Why are these issues so difficult to deal with? 17

CASES SCENARIO #1: – Board member has begun personal relationship with a member of senior management. – Relationship disclosed by employee to CEO, and by Board member to the Chair – Is this a problem? Why or why not? Real Life: Female BM; Male employee  Disclosed to full Board • • BM recused if/when necessary; Manager had limited involvement with Board BM served out remainder of term then left  Couple still happily married today •

 Ethics and Conflict of interest policies – Have policies and procedures in place  Policies specific to the Board, as well as for organization – Sign annual declarations  Conflicts come in many varieties. Real vs perceived conflicts  deal with both.  Term Limits  Process for removal of Board members 19

CASES SCENARIO #2: – Board member has become “too busy” to attend meetings. – What do you do? Real Life: • Letter written to Minister saying that as per policy, this BM is considered to have ‘resigned’, and request a new BM be appointed. In this case, “too busy” was a euphemism for dysfunctional board  BM did • not know how to deal with issue.

 Have attendance policy  By-laws should allow for removal of a board member  Term limits  Board evaluations 21

CASES SCENARIO #3: – Self ‐ assess as highly effective Board that works well together, even though represent different stakeholder groups – 97% unanimous decisions – Is this an effective Board? Why or why not? Real Life: Chair was a bully  pressured BMs into unanimous decisions • Unanimity is not an indicator of effectiveness  stifles independent opinions, • opposite of governance theory

Reaching Consensus  Consensus does NOT mean unanimity. – If insist on unanimity, independent opinion may be silenced.  Consensus is a process  What does consensus mean? – Means all can live with/support the decision, even if it is not necessarily your first choice.

Resolving Conflict  Criteria for reaching consensus – Everyone has had an opportunity to provide input. – Everyone believes they were heard & understood. – Everyone able to state the decision clearly. – Everyone agrees to support the decision in what they say and what they do  Ultimately Board takes collective responsibility once decision made – If you can’t do that....have the courage to resign.

CASES SCENARIO #4: – Contentious decision needs to be taken around a strategic issue  Board is divided – Chair pushing Board in particular direction, says it is the will of the Minister – How do you handle? Real Life: • Meeting delayed – decision postponed • Chair called each dissenting BM into his office for private discussion Special meeting called (limited notice)  unanimous decision made •

 Have a policy for decision ‐ making  Voting Majority ?  Culture should make it ok to have nay vote.  Get it in writing  Fiduciary duty  At end of day, do what’s best for the organization  If can’t live with the decision, have courage to resign. 26

Good Board Culture  Board Theory: To bring together individuals with diverse experiences, values and perspectives ‐‐ and through discussion and debate of those views ‐‐ Board assists organization in reaching informed, well ‐ considered decisions. – Diversity of thought crucial to effective governance – Need active participation by all members – Need a way to resolve conflicting opinions

What is Active Participation 1. Bringing your views to the table – Board culture that encourages openness, candor, and respect  allows your views to be expressed without fear of criticism or censure. 2. Listening with an open mind to others’ views – Trying to understand the concerns of others – Not talking all the time (or just waiting til your turn) 3. Working to resolve conflicting opinions – Board should not avoid conflict, but have process in place to resolve conflict in timely manner