The Directors Chair

36 Listed / /Spring 2011

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The Directors Chair

100 boards! (and counting)

If the Guinness Book of World Records included a category for most directorships, wed nominate William Dimma. The common thread? His faith in free enterprise
Interview by David W. Anderson Photography by Jeff Kirk

Its hard to imagine anyone with more to teach you than William Dimma. Chair, director, president, hes done it all, exceptionally well, dozens of times over. In this instalment of e Directors Chair, governance expert and Listed contributing editor David W. Anderson taps Dimma for his candid views on key board leadership issues: good chairs, bad chairs, working with CEOs, responding to shareholders, succession planning, age limits and Canadas nagging international embarrassment.

William Dimma
Primary role Director and Audit Committee Chair, Magellan Aerospace Corp. Additional role Chair, Advisory Board, TEL-E Group Corp. Former president A.E. LePage Ltd. and Royal LePage Ltd., Torstar Corp., Faculty of Administrative Studies (Dean), York University Former chair Home Capital Group Inc., Canadian Business Media, Monsanto Canada, Swiss Reinsurance Co. Canada and Swiss Re Holdings (Canada) Inc., York University Former director k56 corporate boards, including: Royal LePage Ltd., Brascan Financial Corp., Brookeld Asset Management, Canada Development Corp., Delta Hotels, Enbridge Inc., London Life Insurance Co., Royal LePage, Sears Canada, Torstar Corp., Trizec Corp., Union Carbide Canada Ltd. k45 not-for-prot boards, including: Canada Club of Toronto, Canadian Council for Native Business, Canadian Opera Co., Economic Council of Canada, Greater Toronto Airports Authority, Hospital for Sick Children, C.D. Howe Institute, Institute of Corporate Directors, Toronto Symphony Orchestra, Trillium Foundation Education BASc (University of Toronto), P.Eng (Toronto), MBA (York), DBA (Harvard; gold medalist) Professional accreditation ICD.D Honours kOrder of Canada (1996) kOrder of Ontario (2000) kKnight Commander of the Order of St. Lazarus of Jerusalem kHonorary D. Comm (Saint Marys University), Honorary LLD (York) kFellow, Institute of Corporate Directors Current age 82 Age when rst became a director 34 (1963) Years of board service 48 years

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The Directors Chair

David W. Anderson Youve served on a hundred boards. Why do you care

about corporate governance and board service? William Dimma I believe in the free enterprise system. First-class corporate governance clearly makes a dierence in enhancing the viability of companies and our economic system.
David W. Anderson Youve also had several notable successes as president,

chief executive and dean. From both your director and executive experiences, what can chairs do well that really makes a dierence? William Dimma Most importantly, eective chairs ensure their boards make good decisions. To do that, a chair has to help the board think though matters carefully. e best decisions, particularly the tough ones, are not arrived at by chance; they come from a rigorous decision-making process. is is where chairs ought to make their greatest contribution. make those good decisions? William Dimma I think chairs need ve balanced qualities to do this well: 1. An ability to think strategically, using discipline to stay above the day-to-day running of the business and the endless swirl of information; 2. A genuine interest in listening to others while still moving discussion along. If a chair tries to dominate the discussion, the board is in trouble. All great chairs are good listeners; 3. e disposition to work well with othersfellow directors and the CEOtempered with a tolerance for healthy tension. e optimal relationship between the chair and CEO is neither adversarial nor so amicable that disagreements are buried; 4. Prior director experienceexposure to other boards is key in the learning processand industry experience for depth of understanding, while remaining open to new thinking. e chair needs the experiential credibility and wherewithal to cope with governance and business complexities, in order to lead the board as an equal in problem-solving with the CEO; 5. A certain gravitas in self-presentation without being selfimportant and unapproachable. A chair needs a respectable comportment to carry the burden of putting crucial issues on the table. board can nd itself in considerable diculty if the chair is ill suited or underperforming. What can a board do when the chair is the problem? William Dimma One of the most challenging decisions a board can face is what to do in this situation; the worst thing a board can do is ignore it. While not wanting to move prematurely, once the board has come to the view the current chair isnt working out, I recommend moving quickly and diplomatically. If any director thinks there is a problem with the chair, the governance committee should hear about it and discuss the matter. Caught early, some problems can be xed with thoughtful feedback. If its serious matter, a woodshed experience between the governance committee chairor lead directorand board chair can make sense, but frankly, the likelihood of this working is slim. e practical solution may be for the governance committee to not let the chair stand at the next AGM in order to remove this director from the board. I think underperforming chairs were more common in the old days. Nonetheless, ensuring the board is well served by an eective chair is so important that I think the governance committee chair should not be the board chairto provide independent leadership to the governance committee to ensure the interests of the board itself are properly served.
David W. Anderson Youve argued for a strong and purposeful role for the David W. Anderson Given the unique role and inuence of a chair, a David W. Anderson What qualities do you see in chairs who help their boards

I come back to the governance committee; a well-working governance committee should think about chair succession as a process and actively manage that process from one chair to the next. Even at the point of recommending directors for appointment to the board, the governance committee should be thinking of the boards longer-term leadership requirements. Once directors are on board, the governance committee can monitor director performance and aspirations, noting which directors who are especially suitable and able and even encourage director education. e board chair also has a responsibility to think carefully about succession, engage the governance committee constructively, and avoid trying to choose a successor independently. At least once a year the governance committee should discuss with the chair, and then with the board, chair performance, succession objectives and options, keeping ahead of any need for change.

If any director thinks there is a problem with the chair, the governance committee should hear about it and discuss the matter. Caught early, some problems can be xed with thoughtful feedback
David W. Anderson Many boards aspire to managing their leadership

succession better, as well as succession for the rest of the board. In your view, how long should directors serve on a boardand what considerations should precipitate director turnover? William Dimma Im of the view that director turnover should be based entirely on performance, regardless of age or tenure. One of the best directors Ive served with was Allan Lambert, a former chair of TD Bank, who was an eective director of Brookeld until he was 91. Yes, performance does degenerate with age but there are enough exceptions that we shouldnt use age as the criterion. But a performance criterion for director turnover does place a great burden on board chairs and governance committees. Too many chairs regard it as awkward and embarrassing to tell directors they are not right for the board, so I understand why boards may resort to age or tenure. But this isnt good enough. e chair and board have to take it as their mission to nd and keep the best directors for the right amount of time.
David W. Anderson If boards are to manage their succession based on

individual director performance, would that not require the use of an evaluation process that was robust, credible and embraced by the board the kind that boards have almost universally avoided? William Dimma Yes, it does mean boards would need to adopt a formal director evaluation system. Directors have to step up to the plate to make reality closer to theory. I think the solution is boards need to make a strong, analytical commitment to performance. is would not only be in aid of succession, but would also improve director and board performance year-over-year. I must acknowledge, though, that in my years of board experience, Ive not personally participated in such a rigorous individual director evaluation.
David W. Anderson Besides age, one alternative commonly used by

governance committee in providing feedback and guiding the boards selection process for the board chair. How should a board chair be selected? William Dimma e governance function of the board is crucial and, as Ive argued, inuenced strongly by the quality of the chair. Consequently, the board should view chair succession not unlike CEO succession: it should be orderly and uneventful and works best with several years lead time, a clear role description and several strong candidates.
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boards to create turnover is a tenure limit. Is there a downside to this, other than the potential of removing some capable directors? William Dimma Yes, I think tenure limits change the power dynamics of a board with management. I want the board to be a longer-term entity than management, so if you have tenure limits for directors, you would need a shorter tenure limit for the CEO! So I would prefer an age limit for directors over tenure. As people are living longer with more capability, I think 80 could be the mandated retirement age. Of course if the tenure limit was long
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The Directors Chair

enoughsay 20 yearsthen its largely academic. Clearly, the focus should be on performance.
David W. Anderson Boards have greatly reduced their size over the last William Dimma Boards have gone from too big to now possibly too small. William Dimma Two major developments in Canadian governance structures

two decades. How has this aected performance?

Some bank boards used to have upwards of 60 directors and other corporations o en had two dozen or more. Now a board of 15 directors is considered close to unwieldy. e optimum is o en said to be seven to nine. However, I think the best board size for complex businesses is likely larger, given how much work is required of directors. To divide up and parcel out the work of the board into eective committees, you need enough directors to avoid asking them to serve on several committees.

are bolstering board independence and thus contributing to the rise in board power and providing greater protections for shareholders: the separation of chair and CEO roles, and the appointment of a majority of outside directors. Despite this, the fact that shareowners want to play an even greater role in executive compensation and director nomination suggests to me that shareowners do not as yet see boards as neutral, eective intermediaries trusted to adjudicate the corporations interests without undue bias toward management. And in truth, cutting past the PR, most boards are more with management than shareowners when there is a dierence of opinion. Despite this recent realignment of power, the legacy and the enduring factors that serve to bind directors to management continue to constrain the boards credibility with shareowners.

ing boards in order to provide better governance. e payo is to be found in working more productively with management. How do boards and CEOs best work with each other to get the most value for the company? William Dimma Ive seen the answer to that question change over my years as a director. e nature of the relationship between the CEO and board has evolved, most dramatically in the last decade, as your own research has documented. In an earlier time, the CEO was clearly in charge; by convention, the board was composed and served largely at the discretion of the CEO. Now I see the relationship as one of equalsa remarkable shi in powerand out of this we see better resolutions than we had before. Certainly directors have to be careful not to be seen as siding with management by default, but neither should they be disposed to hostility.
David W. Anderson Do you think the shi in power has gone beyond equality in favour of the board, such that the CEO clearly reports to the board? William Dimma Yes, it could be said that the CEO does report through the

David W. Anderson Clearly, directors are putting more eort into compos-

e fact that shareowners want an even greater role in executive compensation and director nomination suggests to me that shareowners do not as yet see boards as neutral, objective intermediaries
David W. Anderson What then is the proper role of a board vis--vis shareWilliam Dimma

chair to the board, but its not the same reporting relationship as between a vice-president and president. Its a more arms length reporting relationship. To function eectively, the CEO has to retain latitude to execute operationally once the broad strategy is agreed to by the board. While its dierent from the typical chain of command, the CEO does serve at the boards discretion, and occasionally we see that power acted upon. More today than ever before I see boards in charge, but there are still more boards that need to be in charge in a nuanced waynot to the point of dominating the CEO. Certainly, the character of the enterprise should be inuenced by the chair and board. And in practical terms, I think it is crucial the CEO and chair meet frequently to discuss the right issuesthose where the future of the enterprise is on the line. A CEO who doesnt work closely with the board and board chair is setting him or herself up for failure. eres an interesting parallel hereboards that do not engage meaningfully with their shareowners have begun to nd themselves judged harshly. is puts the board squarely between shareowners and management and under great scrutiny. How has this come about? William Dimma Traditionally, directors have been closely associated with management for several valid reasons: directors come from same gene pool meaning directors are typically business people coming from management roles and thus are bound to identify with management interests; directors of necessity work closely with management to perform their duties, forming social bonds; and directors are highly dependent upon managements knowledge, time and exercise of power over resources. Taken together, these advantages held by management over directors mean it is hard for directors to function independently. Finally, directors see the business reality alongside managementand more closely than shareowners.
David W. Anderson David W. Anderson Has the drive toward greater director independence

owners and management? e proper role for the board is to act as a balanced intermediary; a kind of arbitrator between the goals and aspiration of shareowners and management. Directors have to operate in the best interests of the corporation; within that, there are issues where directors may legitimately side more with management or shareowners. Ninety percent of the time, their views will be coincident. However, there are three issues on which shareowner and management views are likely to dier: executive continuity and succession, executive pay and director appointment. It seems to me there are two options in resolving such dierences: either the board comes to be regarded as scrupulously neutral, deciding issues objectively, or shareowners step in to play a more active role. It looks like shareowners will play a more active role regardless, but Im skeptical as to how far it should go. Id rather directors play the scrupulous intermediary role than shareowners getting in over their headsparticularly as theres such a broad spectrum of shareowners, some of whom may be disposed to meddle. If empowered shareowners, who nonetheless may be ill informed and lack objectivity, restructure boards and rewrite governance, this may lead to an incompatibility of boards with management. It would be sadly ironic if shareowners came in and upset the applecart.

David W. Anderson Looking more broadly at influences on corporate

governance in Canada, is moving from our current system of decentralized market regulation to a single market regulator a good idea? William Dimma Yes, conceptually, its ridiculous that Canada doesnt have a single regulator. Its a classic example of why a Swiss president once said We dont want to be another Canada. Its an international embarrassment that we cant nd our way to a single regulator.

given shareowners more condence that boards can withstand these forces and better represent shareowners?

David W. Anderson, MBA, PhD, ICD.D is president of e Anderson Governance Group in Toronto, an independent advisory rm dedicated to assisting boards and management teams enhance leadership performance. He advises directors, executives, investors and regulators based on his international research and practice. E-mail: david.anderson@taggra.com. Web: www.taggra.com.
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