Navigating Corporate Governance: Trends and Challenges

1. Recent Trends and Challenges in Corporate Governance 14 April 2010 CIMA Canada

2. Agenda for tonight • What just happened? • What is Governance – Do we Really Know • What is Good Governance? • Some successes and failures • Sustainability – Do we Care? • What’s coming short term • A longer term perspective • What next • What next 21 MAY 2009 CIMA CANADA

3. What Just Happened • Large Scale Government Intervention • Government ownership and Loans • New Union/Management dynamics • Rights of bondholders and shareholders • Destruction of Asset values • Unemployment Rates High • Social Costs are high • Big time Change in psychology • Bad governance the cause? • Boiling Frog effect? • Everybody did their job but the ship sank!! 21 MAY 2009 CIMA CANADA

4. What is Governance? • A definition • Sum of the parts? • Kinetic force/ Dynamic Governance • How to get your arms around this • Models of Governance Some views • The “bubble” effect 21 MAY 2009 CIMA CANADA

5. Understanding Governance • Governance is what Governments do! • Corporate governance is what Corps do! • Activity of governing- Dynamic Exercise of power and policy • Dynamic pursuit of Success • Lots of moving parts 21 MAY 2009 CIMA CANADA

6. Corporate governance • Set of Processes : Customs, policies, Laws and Institutions • Affecting the Way People : Direct, administer or control a Corporation • Lots of Players : Shareholders, Board and Management, markets • Lots of Stakeholders: Government, Regulators, employees, suppliers, customers, society. • Look at Annual Reports : Good Luck 21 MAY 2009 CIMA CANADA

7. Governance • Its not just about any single or group of factors. • Is all of these things and the sum of the parts and something more • Like the three blind men and the elephant differing and partial views exist • It has to be dynamic and alive. • How to get your arms around this? 21 MAY 2009 CIMA CANADA

8. Governance Models : A Macro View • Totalitarian: Big Blue, 100% subsidiaries • Dictatorial: Precision organizations • Constitutional Monarchy: Conglomerates • Democratic Approach : Most common • Anarchy : Too big to govern? • Capitalism or Something Else : Thought provoking 21 MAY 2009 CIMA CANADA

9. Good Governance • Proof is in the pudding!!! • Pick your model or set of models. • Well thought through • Tried and tested • Weather the storms • Oversight and integrity of Information • Watch out for the iceberg : rear view mirror is not best way to drive • Honesty : Driving while Impaired with Foggy windshield • Ultimately about people and attitude 21 MAY 2009 CIMA CANADA

10. Success and Failures • Still around: AKA Life Expectancy • Healthy • Best in Class • Brand value • Knowing why you are there!!! • Examples of both ; Lets discuss a few • Sustainability : the New Mantra 21 MAY 2009 CIMA CANADA

11. Status of Governance today • What has improved and why? • What is still Broken? • What’s everybody talking about? • What’s next!! 21 MAY 2009 CIMA CANADA

12. What’s improved and Why • Enron, Enron and Enron • More active boards Chairman and CEO • Audit Committee skills • Legislation SOX, IFRS, Basel accords • CEO Focus: Executions and Analysts 21 MAY 2009 CIMA CANADA

13. What’s Broken? • Shareholder’s have no say • Democratic process and owner’s rights • Too many board members and same faces • Rating Agencies • Accountability and culpability • No pain for failure; Compensation • Everybody knows and nobody knows • The elite bubble at the top – I’m ok Jack 21 MAY 2009 CIMA CANADA

14. What’s Getting Fixed- Somewhat • Government initiatives: More government • Financial reform : Too Big to Fail • Capital Reform: New rules, Levitt’s rule? • Government oversight SEC, Fed et al • Canada we are ok !!! 21 MAY 2009 CIMA CANADA

15. External Factors • Government Deficits • Higher Taxes • Higher interest Rates • Pressure on growth and Valuations • Continued severe market reactions • Do more with Less • Innovation and China • Investor Trauma and jitters 21 MAY 2009 CIMA CANADA

16. What’s Next in Governance • Short term: • More Active Shareholders – Say on Pay • More Board Scrutiny – CEO Changes and Higher CEO Pay • Management attention to Government and customers • Better Management of Class action Issues • Change to Management Union Dynamics • Continued Pension and Benefit reform 21 MAY 2009 CIMA CANADA

17. What’s Next • Longer Term: • Smaller Boards • Professional Board Members • More Raider Agitation a la Icahn • Faster government intervention • Smaller entities and more direct control a la China • More Tax and Regulatory Arbitrage 21 MAY 2009 CIMA CANADA

18. What Will likely not Happen • Shareholders Revolution • Really independent competent directors • Elections do not make a democracy • Mass executions without parachutes • Changes to the current System in any material way: The Fix is still In!!! • So lets do IFRS!!! More SOX please!!! 21 MAY 2009 CIMA CANADA

19. What are we to do? • Its time to have an explicit governance strategy- Models, people, process, tactics. • What the organization stands for and what is not on – Address the culture • Comprehensive performance goals • Clear rewards and consequences • Risk and capital management priorities • Stress test sustainability remember last year • Periodically break the “bubble’ at the top • Don’t ignore socio-political realities 21 MAY 2009 CIMA CANADA

20. Final Note • Ahead is a period of muddling through • Likely not a boom or a bust • Too many vested parties in current methods of governance • No medicine for Analysts and rating agencies or external agencies • So don’t trust and always verify!!! • Just be careful-this story is not over • Good luck!!! 21 MAY 2009 CIMA CANADA