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Listed | Fall 2013

The Directors Chair

Gary Colter

Setting the bar highwhere it belongs

In The Directors Chair with David W. Anderson: No matter what the business, director Gary Colter says theres
no excuse for boards to cling to dated, inefficient and ineffective modes of governance
Photography by Jeff Kirk

As a member of the dissident slate of directors that shareholders voted into

power in the gripping Canadian Pacific Railway proxy battle of 2012, Gary
Colter has had a front row seat for recent debates over directors duties
and effective board governance. Put him in the progressive camp. Here, in
conversation with governance and leadership adviser and Listed contributing editor David W. Anderson, Colter opines on most of todays cornerstone
board governance issuestenure, board evaluation, committee and chair
structure, succession planning and engaging with shareholders. In the process,
he makes a convincing case for current thinking that sees boards as active,
responsive, engaged and hard-working teams committed to the success of
the corporations they serve.

Gary Colter
Primary roles
President, CRS Inc.; Corporate director
Current director
Canadian Pacific Railway; CIBC; Core-Mark Holding Co.; Owens-Illinois; Revera Inc.
Former executive leadership
Managing partner, Financial Advisory Services, KPMG Canada; vice-chair, KMPC Canada; managing partner, Global
Financial Advisory Services, KPMG International; member, International Executive Team, KPMG International
Former director
Saskatchewan Wheat Pool Inc.
HBA, Ivey Business School, University of Western Ontario
Fellow Chartered Accountant (FCA, FCPA)
Current age
Age when first became a director
Years of board service
11 years


Fall 2013 | Listed

The Directors Chair

Gary Colter

David W. Anderson Directors often conflate the terms gover-

nance and compliance. Candidly, theyll say, Lets get this governance stuff out of the way and get on with being a director.
Does it surprise you these terms are interchanged?
Gary Colter No, but they are different. Weve had significant challenges to the stability of our system through the financial crisis, and obvious weaknesses in governance before that, which precipitated new
rules and regulations. Its an understandable response on the part of
regulators when bad things happen to create a floor of new approaches. These blanket approaches apply to low- and high-performing organizations. In reality, a lot of this is good stuff to pay attention to, as
it lessens the chance of things going wrong, but it does change the allocation of time in favour of compliance over running the business. Its
a real art to creating annual meeting plans and agendas, and allowing
them to evolve with circumstances. Its never going to be perfect. So
the challenges are to set aside enough time throughout the year and
then allocate the right proportion of time for all the other important
things where directors naturally want to add value: testing strategy,
monitoring execution against the strategic plan, building leadership
capacity and succession planning. We cant get away from compliance
issues, but we do need to balance our time to govern holistically, attending to long-term value creation and value preservation.
David W. Anderson Directors devote much more time per direc-

increasing the longevity of directors, much less underperforming directors. I look at the board as whole. The board needs to have a range
of tenures and ages amongst its directors to benefit from the different
perspectives they bring. So in addition to keeping experienced star
performers, we have to bring on younger directors. Its not healthy
when the average age of the board gets too high. The good news is
that boards are upgrading their bench strength more diligently than
ever before. I look at a directors relevant experience to the industry,
contribution to board chemistry and teamwork and quality of input
to our deliberations. I think this makes it important for age and tenure limits to be reviewed periodically based on circumstances.
David W. Anderson Some investors and regulators continue to
push for such limits because they see them as catalysts for what
you describe. Is this rooted in a scepticism of directors ability
to self-monitor performance and act accordingly?
Gary Colter I think age and term limits are used as a means of last
resort to force board renewal. Thats why some stakeholders endorse this as the solution, but its not the right answer. Lets recognize there is a core tension here between the need for continuity and
new blood. No one who is interested in the welfare of an organization wants to see a board thats either stale or green. Given whats at
stake when were talking about corporate governance, boards have
an obligation to ensure that directors continued service on a board is
based on their performance. Frankly, its a failure of the board not to
remove nonperforming directors, regardless of their age. Thats the
problem with prescriptive tenure and age limitsthey diminish the
pressure on boards to apply performance standards along the way. If
you want a competent boardone with a mix of experience and new
thinkingthen you need to have an active, comprehensive process
for managing board membership. Im talking about a rigorous director succession planning, anchored by a robust, annual evaluation.

torship now than 15 years ago. Anecdotally, some say its doubled. How far ought this to go? If director time doubled again,
would company performance improve?
Gary Colter No, we quickly reach the point of diminishing returns.
I think weve evolved to a good place in North American corporate
governance. The current division of labour works well, with boards
providing oversight and management execution. If you ask management to spend too much time in meetings with the board, it becomes
counter-productive. Management needs adequate time to go out
and perform against the strategy and business plan approved by the
board. But if things get difficult, you can always lay on more time
including an extra strategy session or a business division review.
Where directors do get called on to spend much more time is during
times of difficultywhether it be a hostile takeover, operational trouble, reputational challenge or leadership transition. Directors commit the needed time because they want their companies to do well.

in a couple of years to your governance as a result of evaluation, youd

have to wonder why youre doing it. But my experience is we come
up with good ideas from board members each year to tweak our approach to governance, which makes us more effective.

David W. Anderson How relevant to the quality of boards and

David W. Anderson What are some specific changes youve made

board performance are a directors length of tenure and age?

Gary Colter Theyre not the most importantat least not for a given
director. Age and tenure limits are popular, but Im concerned that
the focus is misplaced. Im not convinced that leading-edge governance is served by current guidelines. Ive seen high-performing
directors making tremendous contributions well beyond typical numerical limits. Who would say that Warren Buffett is too old or that
hes been around long enough? Why would you prevent a capable
director from serving, based on an arbitrary number? In my view, age
alone should not be used as a determining factor in leaving a board.
David W. Anderson Are you suggesting boards do away with such

David W. Anderson How do you convince a board theres business

value in board evaluation?

Gary Colter The proof is in the pudding. If you havent made changes

to improve your performance as a result of board evaluation?

Gary Colter Feedback from directors and executives on my various

boards has prompted us to make significant, if incremental, change

to various aspects of our work over time. Weve rebalanced how we
spend our time in meetings; changed the timing, content and layout
of information coming to the board; adjusted our approach to director
recruitment to emphasize diversity of skills and backgrounds; reconsidered the size of the board, its committee structure and the philosophy of committee chair and member rotation; revisited the role of the
board versus management as circumstances and people changed; took
steps to strengthen talent management and succession planning, and
considered ways to enhance our relationship with management.

caps on tenure and age?

Gary Colter Im saying that boards need the flexibility to keep stars

David W. Anderson Thats a lot of good coming from board evalu-

and should review their policies in that light. Im not talking about

ation. Why does it remain an unpalatable proposition to many?


Fall 2013 | Listed

The Directors Chair

Gary Colter

Gary Colter Doing board evaluation well is not easy. Directors get
frustrated with the time it requires, even when its 60 minutes once a
year. Typical check-the-box exercises tell you little of value, so directors wont see meaningful change. A numerical rating slightly higher
or lower year over year is essentially meaningless. The pressure then
is to reduce the time asked of directors because not much comes of it.
David W. Anderson Board self-evaluation is notoriously weak,

It is important that any board communication be coordinated with

management and in most cases led by the independent chair.
David W. Anderson Yet its a common view. Why is shareholder

engagement so difficult for directors?

Gary Colter I think there are three main reasons. First, some direc-

tors hold the view that the board is elected by shareholders to do

a job and that they dont have to communicate. These directors
think engagement with owners is best left to management, led by
the CEO. In my view, this is out of date and changing for the better. Secondly, directors are concerned about the legal risk associated
with exchanging of confidential information inappropriatelya risk
that applies equally to management. As with management, this risk
is easily manageable, with careful planning and advice from the general counsel on how to conduct sessions so as not to run afoul of laws.
Engagement with shareholders in which directors mainly listen to
their points of view goes a long way to satisfying shareholders desire to be heard and poses little risk of selective disclosure. Thirdly,
directors worry about the issue of short-termism, and dont want to
give shareholders with short-term interests too much influence over
the affairs of the company to the detriment of long-term value creation. But I say you dont have to agree; its always better to know
what people think.

just as youve described it. In your experience, what approaches

to board evaluation are effective?
Gary Colter All the boards I serve on conduct an annual board evaluation, yet each does it differently. The most effective board evaluation
processes are regular, rigorous reviews of both board and director
performance. Some are self-evaluations while others use an outside
service provider. In either case, you have to set aside sufficient time to
answer thought-provoking questions that elicit director commentary.
Ratings are insufficient. Directors need to trust the process enough
to give their candid feedback on issues concerning them. This confidential and anonymous feedback has to be transparent for subsequent
consideration by the governance committee and the board. Out of
this, the value comes in developing a game plan for the following year,
addressing the issues identified. At the start of the next years evaluation process, I like to come back to the board and say what weve done
for each issue. This completes the cycle and allows the board to see
change and hold itself accountable.

David W. Anderson Are there risks to not communicating that are

David W. Anderson While many boards do some form of evalua-

Gary Colter Yes, when people want to communicate with you and

tion focusing on the board as whole, individual director evaluation remains a tough bridge to cross. Is it worth the effort?
Gary Colter I support vigorous consideration of each directors individual performance because I know that when its done right, it improves
board performance and the directors experience. I dont support requiring each director to fill out a survey on every other director. Its better to have an annual meeting between the independent chair and each
director in which they discuss a range of issues, including suggestions
for any of their peers to do with style or substance. The chair is in a position to accumulate this input, add his or her own observations and then
provide feedback to each director in a thoughtful and constructive way.

you make it clear you dont want to communicate with them, it

causes frustration. Frankly, it increases the risk they will do something you dont like, which may not be in the best interests of the corporation. When you listen, there is no downsideyoull pick up the
perspective of someone who has invested significant money. They
are entitled to have their views heard, whether you agree or not.
Directors need to consider thoughtfully and respectfully any suggestions for change or improvement. Its the right thing to do. Directors
have to recognize that expectations have changed and the trend is
clearly toward more communication and openness.

being overlooked?

David W. Anderson Sometimes the chair is the weakest link

either not holding the respect of the board or not being engaged
enough to meet with directors. What then?
Gary Colter The functioning of the independent chair is vitally important, so the governance committee itself needs to review the chairs performance with the board, with the board chair absent the discussion.
Having separate board and governance committee chairs is useful in
this regard. The governance committee must be prepared to modify the
evaluation process to suit the people and dynamics on the board.

David W. Anderson Youre setting a high bar for boards. How

close are we to this as a reality for most boards?
Gary Colter I think things are changing fast. If a board doesnt understand it needs to deliver results and doesnt set high expectations
for itself and its directors, then the board needs to change. Thats not
good governance, in my view. Directors need to know that shareholders are watching and raising the bar. Passive ownership among
institutional investors and private equity firms is decreasing. They
are using tools at their disposal to drive better performance. Im a
strong proponent of leading corporate governance because excellent
boards can make a difference.

David W. Anderson What about feedback from another source

shareholders? As a member of the dissident slate of directors

in the CP proxy fight, whats your view on communication with
Gary Colter Im an advocate of communication. I believe its always
good. When people tell me they dont think shareholder engagement
is a good idea, I ask, Youre not prepared to have a conversation with
the people who own this entity? Its a position I dont understand.

David W. Anderson, MBA, PhD, ICD.D is president of The

Anderson Governance Group in Toronto, an independent
advisory firm 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: Web:


Fall 2013 | Listed