Dec. 12, 2004. 10:10 AM

The ABCs of getting on board

STUART LAIDLAW
BUSINESS REPORTER

John Manley, Ottawa's former minister of many portfolios, has jumped from one frying pan to another. Now he's getting prepared for his new life.

As minister of finance and foreign affairs and deputy prime minister under Jean Chrétien, Manley dealt with some of the most contentious issues facing government.

In his new life as lawyer and director of one of Canada's top companies, he's now dealing with some of the biggest issues in the business world, from transparency to corporate governance to questionable accounting.

"Boards are no longer just rubberstamps for what management wants," says Manley, who joined the board of Nortel Networks Corp. in May.

"It's an important company for Canada, and it needed a vote of confidence," he says from his law office of McCarthy Tétrault in Ottawa.

To help him through, Manley has enroled in the Directors College at McMaster University in Hamilton. He's about half way through, and says the heavy workload is proof of how much such a course is needed by today's corporate directors.

"There's a lot of material," he says.

Chris Bart, the DeGroote School of Business professor who started the college in November 2003, says the course load has to be heavy because today's corporate directors are being called upon to know and do more than they ever were in the past.

"The days of not doing your job are over," he says. "The challenges are greater than ever."

The college is one of a growing number of director training programs being set up in the wake of such scandals as Enron Corp. and Hollinger Inc., in which top executives stand accused of draining company coffers for their own profit and using accounting tricks and compliant boards to hide their actions.

Shareholders and the public began have begun to demand that directors keep a closer eye on how companies are run, and directors are seeking training to teach them how to do that.

"There's tremendous pressure on directors," Conference Board vice-president Prem Benimadhu said from his Ottawa office.

"It is now a very, very hands-on position, and you have got to know what management is doing."

When the board went looking for a school with which to set up a director-training program, it found a receptive audience at McMaster. Bart was also working on his own plans to offer training for corporate directors when the Conference Board came calling in January 2003.

Over the next several months, Bart pulled together a curriculum and drew on the academic and corporate worlds to put together a faculty. The first classes were in November 2003.

Around the same time, others were starting to put together director-training sessions as regulators across North America began pushing companies to disclose the education backgrounds of their directors. One of those groups, the Institute of Corporate Directors, began classes the same month as the Directors College — and soon found itself swamped with people signing up for the course.

"There was such demand, we had to start a second and a third class within a few months," David Gavsie, chair of the ICD Corporate Governance College.

The ICD college, which it runs with the Rotman School of Business at the University of Toronto, has since expanded to Montreal, Calgary and Vancouver, where classes are held at local universities, and is in talks with universities in Ottawa and the Maritimes to offer classes there.

Its courses are divided into four modules, with classes taught by professors and business leaders, as well as seminars and forums to help graduates stay up to date. In fact, graduates are required to take 14 hours of such classes a year to maintain their ICD certification, institute president Beverley Topping says.

"Director need to be kept up to speed," she says.

ICD studies have found that directors now work an average of 200 hours a year preparing for and attending meetings, with some companies, such as Nortel, requiring at least 300 hours a year.

Compensation for what was once considered by many to be a casual commitment has jumped with the workload. An October ICD study found that the median pay for a director of a company in the Toroto Stock Exchange top 100 companies is about $79,000 this year, up from $73,000 last year.

"The role of director is becoming professionalized now," Topping says.

At the McMaster college, Bart decided to hold classes at luxury hotels in Niagara-On-The-Lake, and work the students day and night through the five three-day modules that make up the course.

Bart says the "cloistered environment" ensures the students concentrate on the work day and night.

"They have to shut out the outside world," he says. "We work them hard."

Each module focuses on a different subject, including accountability, leadership, finances, social responsibility and communication. It ends with a mock board meeting that goes well beyond the usual role-playing exercises often dreaded by participants in such training.

The students take part in a mock board meeting, complete with audited financial statements and management plans for the future of the company. The students are the board. The managers are portrayed by real-life chief executives and other corporate heads who go to Niagara-On-The-Lake to help with the course.

The students study the financial statements and other documents, pepper the executives with questions and try to figure out if they are trying to hide anything.

Too often, Bart says, directors are too trusting of management. They don't want to believe that a corporation's leaders might be taking money out of the company with questionable deals, so don't ask enough questions — for instance, whether an executive trying to buy a piece of property or another company has any connection to that property.

"You can't take things for granted. We pound this into them."

He says that students can sometimes be lulled into compliance by charismatic executives who charm their way through board meetings. Others might be bullied into submission by aggressive chief executives who demand obedience.

Either way, he says, shareholders and society at large are demanding that directors play a bigger role in the running of the company.

"What we learned from Enron was that directors didn't do their homework," he said.

Bart is currently in talks to set up a satellite school at Victoria's Royal Roads University, to be run from Hamilton.

"It would be a carbon copy of the program," he says.

Judy Bardecki of Toronto took the Niagara course to help her in her job as a board member at the Ontario Municipal Employees Retirement System (OMERS), the pension plan for 342,000 local government workers across the province.

"We have high expectations of the companies we invest in," Bardecki says.

Those expectations include long-term stability and growth, and Bardecki says the course has helped her to look beyond the quarterly reports to assess how well a company will be contributing to the health of OMERS pensions for years to come.

"It was a really valuable experience," she says.

What Bardecki liked most about the course was that rather than trying to give her all the answers about what makes a good company, it taught her to ask the right questions and an approach to problem solving that boiled down to just three questions: What is the problem, why is it a problem and what should be done?

"If everyone just stops and asks those three simple questions, you can better address the issue," she says.

Using such problem-solving techniques, she says, helps make sure the most is made of the limited amount of time that board members have to get the answers they need to make informed and responsible decisions.

"Boards are always under significant pressure," she says. "There is so much on the agenda to do, and only so much time."

Manley knows about such pressures. After meeting with the Conference Board of Canada last month about the implications of the November election in the United States, Manley found himself scrummed by the media wanting to know more about his current corporate duties than his expertise on foreign affairs.

"On the way out, I got questions about Nortel," he says.

"Most of the other board members are not going to casually encounter reporters with microphones at functions they attend."

That puts added pressure on him, as a public figure, to do a good job on Nortel's board, he says.

"It's becoming clear that boards of directors of corporations need to be concerned with stakeholders beyond just shareholders," he says.

"We have to be concerned with customers and employees and the broader public in order to preserve the reputation of the corporation and its ability to make a profit."

Manley says his experience in government will be valuable in the new era of engaged corporate directors.

"In politics, there are many stakeholders," he says. "Politics is really about balancing interests and making the judgments that are necessary."

Bart says all eyes are increasingly on all directors, and they need to be prepared.

"The media has decided that the director community is worthy of its attention and the spotlight is on it."

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