Catherine McCall, Executive Director at Canadian Coalition for Good Governance, explains how good governance is essential to all Canadian businesses
Russell: What is good governance?
Catherine: It means that public corporations are managed in a way so as to create the long-term sustainable value in the best interests of the corporation and all of its stakeholders, not in the interests of management and the board. And that you have the structures and processes in place to support an independent board and committees that are going to enable this independent oversight to occur.
Catherine McCall, Executive Director at Canadian Coalition for Good Governance, explains how good governance is essential to all Canadian businesses – even when it comes to managing the Great Resignation.
Russell: It means that public corporations are managed in a way so as to create the long-term sustainable value in the best interests of the corporation and all of its stakeholders, not in the interests of management and the board. And that you have the structures and processes in place to support an independent board and committees that are going to enable this independent oversight to occur.
On the stewardship side, it means that institutional investors are monitoring and engaging with the companies in their portfolios. They need to ensure that clients and beneficiaries interests are being looked after. And part of this is ensuring that the board, of course, is overseeing all material risks and opportunities that can impact the long-term value of the company.
And importantly, we now know that social and environmental factors can have a material financial impact on the corporation, and we can see that clearly with the pandemic, which was a virus, not a financial matter - but we saw the financial devastation that it wrought, including, you know, as well as the individual and social devastation. So how the companies responded to the pandemic, as well as how they respond to other eons matters is a matter of good governance. And I would end by saying that integrating matters means necessarily that the interests of all stakeholders and not just shareholders are important, so they must be taken into account. So that's employees, customers, the community, suppliers, the environment.
Russell: How can governance positively impact Canadian businesses?
Catherine: By taking the perspective in your outlook on your business and strategy that all stakeholders are important. You don't just focus on the bottom line, you focus on your employees, on your own customers. You have to look at the company as a collection of these stakeholders as a whole. And of course, employees are hugely important.
You have to look at the health and safety and well-being of your employees, it is so important, as we saw during the pandemic, to the health of the company itself. You need to have developed training programs and engage employee engagement, trying to make sure that employees are engaged and have a stake in the company. The culture has to reflect values that they can find acceptable with diversity and inclusion.
What I would say is that the employers should look at employees as a contributors of capital, human capital, shareholders, financial capital. But the idea that if we want the company to do well, all of the stakeholders have to do well.
Russell: Can you elaborate on the concept of employees as a key element of good governance?
Catherine: They are in the way that you can get there to that position, by taking a long-term perspective. We have to acknowledge that under our corporate governance system in the law, shareholders are the only stakeholders that have a legal accountability mechanism through their ability to elect directors. And that's a fact. You could call a shareholder, the first among equals - it is one way of looking at it, and stuff doesn't have to be that way. In Germany, they have employee representations on boards, that are groups, working workers groups. There are other ways, but currently in our governance and legal structure, it's only shareholders.
If you want to incorporate them, your employees, and give them the incredible position that they should have in company structure, you look at the long-term shareholders perspective and how do you create value, sustainable value and one of the most important parts of that creating value is human capital. You read this figure that 90 percent of the value on companies on the indexes these days is intangibles, a huge part of that is people.
Russell: If employee relations is a governance issue, is the great resignation a governance threat?
Catherine: That's a really good question. I'd have to say my gut instinct is say yes, it is. Why do I say that? I think it is because if you don't have the employees, you don't have a company and you can't create value for anybody. So if people are just saying we don't want to play anymore, then you're in trouble.
Listen to the full episode below to learn about Catherine’s perspective.
Catherine’s transcript has been slightly altered in this Q&A for clarity and brevity.