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The Directors Chair

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The Directors Chair
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Veteran energy executive and corporate director Steve Snyder has been
president and CEO of TransAlta Corp., Canadas largest investor-owned
wholesale electricity generator and power marketer, since 1996. In this
instalment of e Directors Chair, a dialogue feature led by governance
expert and Listed contributing editor David W. Anderson, Snyder discusses
his experiences as a director, as a CEO working with his board and discusses
the CEOs role more generally in building bridges between the board, the chair
and company management. Snyder, a director with TransAlta, Intact
Financial and a former director of CIBC, also led TransAlta through market
deregulation in 2001.
Steve Snyder
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CEO, TransAlta Corp.
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Director, ntact Financial Corp.
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Canco nc., OE Canada nc., Nona ndustries Ltd.
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Alberta 8ecretariat lor Action on Honelessness, Calgary Connittee to End Honelessness, CanadaAlberta
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CBC, Calgary 8tanpede Foundation, Calgary 8tanpede
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B8c, Chenical Engineering (Queens), MBA (Western)
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3Honorary Bachelor ol Applied Technology (8outhern Alberta nstitute ol Technology)
3Alberta Centennial Medal
3The Conlerence Board ol Canada Honorary Associate Award
3Chanber ol Connerce 8herrold Moore Award ol Excellence
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The Directors Chair
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not done well. Ive seen 30-year employees promoted to CEO and then
nd unexpected friction with the board, asking, Why did they do that?
eyre just unprepared for the reality.
e CEO needs to know this and make it work; he or she has to be an eec-
tive interface with the board and board chair. e days of managing the board
as a puppet are over. I take it as my responsibility to get the right information
to the board at the right time. I make the assumption the board doesnt know
what it needs to know on operation issuesas distinct from strategic matters.
eres no way for the board to know these things and function well without the
CEO managing this well. For many CEOs, the typical outcome is wasted time in
meetings and lost opportunity to engage the board productivelyat the right
level and with the right information at hand.
An added challenge for CEOs is that boards are not inherently disciplineda
challenge not solvable by the CEO. It takes a strong chair to manage the board.
More oen than not, boards are overwhelmed by compliance matters which
constrains their time. So even with a good chair, its a constant battle each meet-
ing to get a board up to speed and focused where it really counts.
;Xm`[N%8e[\ijfe Is there something basic in how we think of boards
that needs to be updated for the new reality of governance today?
Jk\m\Jep[\i Yes. Consider this: a board gets a package of dense material 80
days aer its last meeting and comes together for 1.5 days. Typically, directors
only get up-to-speed halfway through the meeting. I think regular engagement
between meetings may allow directors to be productive within an hour, not 4
or 8 hours. Most directors dont think about this and for management its easier
to do nothing about it. Boards have to stop seeing governance as being done
only in board meetings.
Secondly, while companies change, boards dont necessarily keep pace. e
issues and rhythms of a company shi over time but boards are seldom
as adaptive to the needs of business. Management is adapting all the time to
change, but directors dont get out of their longstanding templates for a meeting.
e timeframes thus arent allocated correctly and as a result key issues are not
covered. I think the board has to listen to management and ask itself and manage-
ment at least annually if we need to change the time allocation of meetings.
;Xm`[N%8e[\ijfe From the CEO view, what makes for a value-
adding board?
Jk\m\Jep[\i Most importantly, a board adds value based on its degree
and diversity of expertise at the tableand its ability to coalesce this expertise
eectively. Ive gained insight I wouldnt have thought about from my board.
e value comes from this: were aggregating across 10 people; its not just the
narrow expertise of 10 people in serial. Its this integrated advice and counsel
from business leaders that a CEO needs to tap into. In theory, of course, this
is laudable, but in practice, its a challenge to make it happen without crossing
lines into management and tripping over all the egos in the room.
For many CEOs, its tough to use their board to bounce ideas around, as the
board is their boss. A CEO and board need a good dynamic and trust to bounce
around ideas without the board saying (or the CEO fearing theyll say), Does
he know what hes doing? e pressure boards are under to judge the CEO and
;Xm`[N%8e[\ijfe Has being a director on other boards made you a
better CEO?
Jk\m\Jep[\i In my job as CEO, I nd value in seeing how other boards
operate, how they get information and how it ows between the board and
managementwhich is always a challenging task. If Ive chosen a board well,
I can learn things that are useful to my company outside of my industry,
such as long term capital planning, gain alternate points of view and be
exposed to other systems and ways of doing things. Its easy to get into a rut
and being on an external board helps keep my perspective open.
;Xm`[N%8e[\ijfe Boards generally seek out active CEOs; do you see any
downside to this?
Jk\m\Jep[\i Current wisdom encourages putting active CEOs on boards,
but it is fraught with risk. An active CEO has an added burden beyond that
of a professional director, in that being a CEO is a very dierent role than
being a director. A CEO walking into a board meeting as a director of another
company must make a conscious decision to take on this dierent role. It
takes a strong mental discipline to change ones mindset and approach before
a meeting. e CEO mindset is that of a problem solver looking to get things
done. A director has to have a board mindset, which is that of a longer-term
overseeridentifying future concerns and having a CEO solve it. If youre
in CEO mode, you can run into conict with the sitting CEO trying to solve
their problems.
One has to recognize that companies have dierent cultures and histories.
eres a tendency to want to see things done your way; I have to pause and
ask if it will work for them. So the challenge is to be broad in your thinking
and not just fall back on how you yourself do things. I have to use mental
discipline to not impose my way of doing things. In my experience, many
CEOs think they can do this well, but they cant.
;Xm`[N%8e[\ijfe As a CEO, what do you look for on your own board?
Jk\m\Jep[\i My industry is engineering and capital intensive, so we need
directors who understand energy technology, the energy business and the
milieu we operate inits very dierent from, say, nancial services. I look to
certain members on specic issues for their expertise and independent advice
for example, a CEO whos grown a business in another country. I also look to
match my companys needs with theirs so theres mutual benet.
;Xm`[N%8e[\ijfe How can a CEO best work with his or her board to get
the most value from it?
Jk\m\Jep[\i is is still one of the big challenges. You wouldnt think
so aer all this time, but it is. Its hard to be prepared for the board-facing
aspect of the CEO rolewhere does one get prior experience in dealing
with board relationships? And on the other side, boards themselves are
not necessarily that good at determining what they want from a CEO.
So the CEO and board struggle as the CEO tries to communicate with the
board and the board tries to articulate what it really wants from the CEO.
Its like we stumble in the dark. Ill give you an example: boards say they dont
want to create extra work, so theyll say to the CEO, just use the report you
use internally and talk about it. But this is the kiss of death. Internal reports
are for people who use them every day. Directors dont know the lingo and
by their nature, internal reports take the board too deep into operations.
Now the board has no choice but to be in your job and asking a lot of detailed
clarifying questions. ats not necessarily productive.
e oset to this is that management has to prepare a separate board
reportbut now management doesnt know what a board actually needs or
how to present the information to be useful for directors. A CEOs inability to
communicate whats needed on both sides is a drain on that CEOs productivity.
;Xm`[N%8e[\ijfe So how does a CEO deal with this challenge?
Jk\m\Jep[\i e solution is that the CEO must provide a bridge between
the board and management, but CEOs need experience, communication
skill and a willingness to put in hard work in this area. Id say in general its
I take it as my responsibility to get the
right information to the board at the
right time. I make the assumption the
board doesnt know what it needs to
know on operations issuesas distinct
from strategic matters
The Directors Chair
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directors. e result is that CEOs are not getting the board interface they want
and need. Its out of balance for shareholders, directors and executives and it
needs to be resolved.
Overall, weve developed good governance principles: separating the roles of
CEO and chair, holding regular in camera meetings, engaging in better share-
holder communication... its where it goes next that concerns me and I dont see
a consensus. ese processes tend to the extremes, which is where people get
hurt. We need rules of engagement that keep us balanced and looking carefully
before more big changes.
I wonder if we are spending too much time on compliance and not enough
on the business. It feels like we spend too much time so RiskMetrics will like us
and end up neglecting bigger issues, such as succession planning and matters
regarding our labour force. e problem is were now spending two hours on the
proxy statement and one hour on the bigger issues. Boards will spend 45 minutes
of a meeting on the quarterly earnings release! How much time must we spend on
these things? is is being over-governedits overly prescriptive and takes
time away from real time benets a board can provide. Such distractions and
second-guessing divert board attention from fundamental issues.
;Xm`[N%8e[\ijfe Our research has documented a shiing power away
from management to boards and more recently to shareholders. What
might the proper balance look like?
Jk\m\Jep[\i Boards need to go back to their fundamental responsibility
to make decisions and accept consequences. Directors need to understand
changes in the external environment with the help of their CEO, make
conscientious decisions and explain those decisions to stakeholders. en
move on.
;Xm`[N%8e[\ijfe How do you regard the eort by shareholders to exert
more direct control over corporate decisions? Say-on-pay is an example.
Jk\m\Jep[\i Say-on-pay is formulistic and de-motivating to management.
Pay was the prime motivator but now its hurting. When performance is down,
you have to be paid less, but when performance is up, youre criticized anyway.
Lets look for where stakeholders can add value, not nd more things to do.
Whats next: say on capital? We need criteria for judging what has worked and
not worked in governance. Independence for the board is clearly good, but I
see less value when it comes to detailed reviews of proxy statements on pay.
e reality is that management has to deliver. Boards need to give advice and
put controls in place and then let management do its job. Its a mistake to dilute
the decision-making power. I worry about multiple agendas. A de minimus role
for directors and shareholders in management decisions is preferable. Wed be
better served building condence and trust with the board and shareholders for
management to succeed.

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.
tie compensation to those judgments makes trust dicult. So it really is up to
the CEO to set up the discussion and the chair to manage the dynamics.
;Xm`[N%8e[\ijfe e relationship between the CEO and chair seems
central to unlocking board value. How do you make it work?
Jk\m\Jep[\i Certainly the single biggest change in governance is the role
of the independent chair. Its a new system boards have imposed, so theres an
obligation to make it work. Yes, the relationship with the chair is critical.
As CEO, I have to work with the chair to meet the dierent needs of both
management and the board. e CEO needs to be able to trust the chair.
When that trust is present, Ive been able to phone up the chair for guidance
with the board and management team.
;Xm`[N%8e[\ijfe What do good chairs do well that really makes
a dierence?
Jk\m\Jep[\i Good chairs are rare; they have to get so many things right. A
chair has to know what the CEO and board need from each other and what
their priorities are, set the agenda accordingly to address the right issues and
actively focus discussion to keep directors on track. e best chairs orchestrate
the meetings, knowing when to use humour to move things forward and
setting the tone of the meetings and interfaces. When a chair can create the
condence that directors and management need to get their views on the table
and then guide the board to a conclusion, the CEO is in a good place. By their
nature, boards are not good at getting to a conclusion which can frustrate a
CEO, because management is all in about coming to conclusion. I think chairs
in general need to manage this better.
;Xm`[N%8e[\ijfe Given their importance, how should we select chairs?
Jk\m\Jep[\i e challenge is that few boards look holistically to decide what
the board needs in terms of the chairs approach and skill sets. If you need to
grow by acquisition but put an auditor in as chair, its a mismatch in approach,
because auditors are trained to question in much detail versus to move
expeditiously. ere are various general approaches to being a chair Ive
seen. Two common approaches are authoritarian and consensusat the
extremes, neither works well. Its a challenging balance that few get right.
e board should articulate what approach its looking for.
Even when a chair has the right approach, a denitive set of skills is still
required. e trap some boards fall into is taking the best business director
and making that person chair. But the chair should be the one with the best
chair skills, not the one who makes the best director; the chair should not
necessarily be the one the board looks to as the strongest business contributor!
Instead of selecting a chair by default, the board should set out the skills it
wants to see in the role and see if they exist on the board. If not, the board
needs to recruit those skills.
;Xm`[N%8e[\ijfe1 With such high expectations of the chairincluding
the development of productive relationships with the CEO and board
and apparent short supply, how long should a chairs tenure be?
Jk\m\Jep[\i I prefer shorter time frames for the chairthree to six years
not the six to 10 years we oen see. Organizations are uid these days so
we need to be more dynamic in changing leadership to stay well equipped.
I lean more toward adjusting the board to suit the company and the market.
To build up leadership capacity, a board should rotate its committee and
board chairs for development like we do in management.
;Xm`[N%8e[\ijfe1!e governance landscape had changed markedly
this decade. With increased pressure on boards to perform, how have
you as a CEO been aected?
Jk\m\Jep[\i eres a feeling out there that boards need to do more work
and this has encouraged them to look for the next thing to do. But are they
asking themselves Is this the highest priority and does it add value? With new
demands arising, boards nd it hard to balance business versus compliance
issues. At the board level, compliance is secondary for management, but not for
I wonder if we are spending too much
time on compliance and not enough
on the business. It feels like we spend
too much time so RiskMetrics will like
us and end up neglecting bigger issues