[00:00:07] Russell: When you hear the term corporate governance, you might not think it has a direct impact on you. But as we learned today, good governance has the power to affect us all in one way or another. To help us understand this, I'll be sitting down with Catherine McCall, the executive director at Canadian Coalition for Good Governance or CCGG. After this episode, you'll learn what governance means today, particularly good governance, the opportunities at our fingertips to improve governance across Canada, the value of collective power, and how that puts Canada on the global stage and finally, best practices for leaders who are looking to improve their approach to ESG. Enjoy the episode! Catherine, welcome to Contributors. 

[00:00:54] Catherine: Thank you very much for having me here. 

[00:00:56] Russell: Why don't we start with your role? Can you tell us a little bit about your journey at the Canadian Coalition for Good Governance or CCGG? 

[00:01:04] Catherine: CCGG Yes. A C2G2 which I like best because it's like it's like Star Wars. 

[00:01:09] Russell: I like that too. 

[00:01:10] Catherine: Yeah, well, I've been involved in corporate governance for many years, and I've always admired CCGG in the work that they did and very much was in favor of their mission, overall mission of improving governance in Canada, Canadian public companies. So I was very thrilled when I had the opportunity to start working there, and I started as a director of policy development. Then about three years ago, I became their executive director. 

[00:01:36] Russell: Can you tell us a little bit more about that overall mission? And why do you think that the work that CCGG does is important in terms of Canada's future? 

[00:01:46] Catherine: Sure. To put it very succinctly, the mission is to improve corporate governance at Canadian public companies to help ensure that those companies are run in the best interests of the the corporation and the corporation's stakeholders, and not in the interest of management and the board. We're also committed, and it's a very large part of our work over the past several years to assisting institutional investors like CAAT in meeting their stewardship responsibilities and fulfilling their fiduciary obligations that they have to manage the assets under their care on behalf of the ultimate beneficiaries and clients. And our members, our pension funds like CAAT, other other large pension funds, small pension funds, asset managers, mutual funds. And so their ultimate beneficiaries are the Canadians that receive a pension plan or will receive a pension plan who own mutual funds are saving for retirement or their kids education. Anyone who's going to are hoping to receive CPP or is receiving PPP. So in other words, it's ordinary Canadians, a majority of Canadians. And the liabilities of our members to meet the retirement educational needs of Canadians, they stretch forward for decades. So institutional shareholders have got to manage the assets under their care with the intention of creating long term sustainable value in the companies in their portfolios so that they can fund these liabilities. So CCGG is important because it's assisting institutional investors in meeting the needs of Canadians both now and in the future for financial security. 

[00:03:23] Russell: That's a great overview. I think one of the things that I thought was insightful, as I was preparing to meet with you, I was looking up and trying to learn more about CCGG. And for me, it became real when I realized corporate governance isn't this kind of esoteric concept. It's really about how so many public organizations are run. And as you know, regular Canadians, we are invested in Canada pension plan, for example. So corporate governance is something that impacts us very directly as shareholders in so many Canadian organizations via CPPIB. 

[00:04:02] Catherine: Absolutely. That's fundamentally important and is the reason I find this work so important and fascinating, really. 

[00:04:10] Russell: Let's talk a little bit about good governance. A good governance is in your name. That is the GG of CCGG. What does that mean? What is good governance? 

[00:04:21] 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. 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 [00:05:19]right [0.0s] 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 ENS matters is a matter of good governance. And I would end by saying that integrating ENS 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. 

[00:05:51] Russell: What is ENS? 

[00:05:53] Catherine: Oh ENS is environmental and social, and it's added to the governance to get ESG. And it's such a common term now that you tend to forget that it needs to be broken up. But ENS ESG means environmental social governance. Historically, governance was what we focused on. And then recent, I don't know. Oh, maybe the last ten years, it's beginning to realize the importance of the environmental and social integration that was necessary for good governance to to be to be a fact. 

[00:06:25] Russell: Absolutely, it's interesting on Contributors, our guests often talk about the environmental and social issues. And that is so much of what Canadian business leaders are focused on now to ensure the long term prosperity of Canada. But the G is something that comes up rarely, and that's why we're so pleased that you decided to be on the show because it's the third element that we rarely talk about. 

[00:06:52] Catherine: That's so interesting because for us, it's the fundamental element. And we actually approach environmental and social matters through a governance lens, which means that we are not looking at it through a sort of a corporate social responsibility or values lens, but more a matter of how these factors, the ENS factors can have a financial impact and materially affect the long term value of a company. So the governance is sort of the supersedes the ENS. To the extent that we're looking at it through from the perspective of shareholders elect, the board boards oversee risks and those risks include environmental and social. So that's that's a perspective we come out of. But we actually look at governance as being fundamental because you can't actually have an impact on the ENS, unless the proper governance structures are in place. 

[00:07:46] Russell: That makes perfect sense. Let let's bring in a real world example here. So many of our listeners would be familiar with the recent struggle for leadership of Rogers. Can you tell our listeners those that don't know what happened to Rogers and what does that have to do with governance? 

[00:08:06] Catherine: What happened at Rogers was the ability, I guess, the the I'm going to say the shock at the sort of people realizing that the it was a situation where the controlling shareholders, the Rogers family who own less than 30 percent of the stock. A control over almost 98 percent of the vote. So there's a separation of votes and equity contribution. And that meant that the board that the controlling shareholder who controlled the board could appoint whoever they wanted to the board, which is sort of opposed to what our fundamental understanding of good governance is that there is a one chair, one vote, a relationship between your equity contribution and your voting rights. And that stands to me that makes sense because if there's going to be an element of fairness in the capital public capital markets, then there should be a princess principle of fairness with respect to the capital that's been contributed and the voting and the power that you exert in the corporation. But what mattered to us was that it was fundamentally a governance issue because it was a matter of accountability and violating that principle of accountability, where the person that owns, that owns the shares or the people, the shareholders that own the shares have a right to elect directors. And those directors are therefore accountable to shareholders. So that breaks that principle. 

[00:09:27] Russell: So on this topic specifically, what is your view? Should it be one share, one vote? 

[00:09:36] Catherine: My answer to that would be you can get the benefits of both worlds. You can have the one, the multiple multiple class, multiple voting shares if you attach certain conditions to the existence of those shares. So one of the main or the most important would be a sunset clause so that the dual class structure doesn't exist in perpetuity after a certain number of years that comes up to shareholders for a vote, or it just dissolves. And that way, you can reintroduce the principle of accountability so that shareholders can decide whether they want to carry on the structure. And the important fact here is that things change. 

[00:10:12] Russell: Let's talk a little bit about the ownership of corporate governance. I've always found this to be a bit of a a paradox in terms of corporate structure. It's really clear that the CEO is ultimately accountable for running the company. The CEO is answerable to the board. The board is elected by the shareholders, so the accountabilities are all really clear. I struggle personally with in this model who owns corporate governance, so who is responsible for making sure that the governance structure is working well? What are your thoughts on that? 

[00:10:49] Catherine: It's a group effort. It's a it's a triad of interests or responsible rights and responsibilities, and it's supposed to function as that kind of multi multi unit or a group. And if it's working properly that it should, as you said, the CEO manages overseas management, the board oversees the CEO and the shareholders are supposed to elect the directors. So that's a certain amount of oversight. And both of them are both management in the CEO or supposed to work in the best interests of the corporation. That's the tying that's, you know, which is interesting because shareholders do not have an obligation, a fiduciary obligation to look after the best interests of the corporation. They can look after their own interests. So it's a kind that's an interesting kind of split there. But I think that. The only way are under our laws, our structure works is if all the triad is actually all doing their their part and that part of shareholders involved in involves the stewardship responsibilities that they have. 

[00:11:50] Russell: Absolutely. Can you speak a little bit to the difference between shareholders and stakeholders? 

[00:11:57] Catherine: Under Canadian law and the post-statutory law and common law, directors have an obligation to the best interests of the corporation. But under that best interest overview, they may take into account the interests of stakeholders, other other persons with an interest in the corporation. And that includes obviously shareholders because they've given their financial capital to the organization. But it also includes human capital, physical capital, other other forms of other persons that have given other kinds of capital to the organization. So employees and suppliers, the environment, the community because you can't operate a company without the physical capital of the environment. It's one way of looking at it. I think that the best way to look at it is from in my perspective, from the perspective of our members of institutional investors like CAAT, which is the need to take a very long term perspective on creating value. And if you look at the company from that perspective, you could not possibly create long term value if you didn't take the interests of these other stakeholders into account. 

[00:13:05] Russell: This show is called Contributor's, and what we really look to do here is to talk about organizations that are contributing to the long term welfare and prosperity of Canada. How do you see that CCGG is doing that? 

[00:13:21] Catherine: We do that through the collective action of our institutional investor members. We have so much power as a group, as a collective than we would our members would individually, no matter how large the the pension fund, even CPPIB in the case and you know, they're there on their own, they're not going to be able to accomplish as much. And we do that through, we have three main streams of activity. The first is policy development. So we release and publish policies on every many, many aspects of corporate governance, including diversity, including disclosure, say on pay majority. But we have there all available on our website, but we have an extensive policy library, you could call it. And the second activity that we we pursue is engaging with public policymakers and regulators to try and introduce the the interests or the perspective of institutional investors into the regulatory framework within within which they operate. And this is incredibly important and we do have an impact. We know that we've made like, I think, 20 submissions in the last 18 months to a not only federal regulators in the securities commissions, but provincial to the SEC in the U.S., even one to in Australia. So we have a very, very strong policy advocacy base. And the third way is our engagement program, our board engagement program. In that program, we meet with independent directors of Canadian public companies, typically typically large, larger companies on the composite index. And we communicate. The hope is to open a dialog between these issuers boards, and we don't talk to management because we're talking to the through the governance lens and what's important from that perspective. And those ESG issues, we talk to independent directors, open a line of communication between them and investors, and they're meeting with a huge portion of their investing popular base when they meet with CCGG. Typically, when we meet with a board, our members are in between 10 and 30 percent of the of the shares. So it's a significant amount and we try and advance ESG through that through that engagement program. And that is often the most valuable offering for our members, especially smaller ones that may not have their own internal engagement programs. But so we've kind of hit, you know, we contribute to good governance, I would say in in these three very different but very related ways because we talk to are in these engagement programs. We're talking to directors about the policies that we've developed that you know, are good, get good governance perspective is based on we talk, we try and have those reflected in regulatory and regulatory proposals and framework as well. 

[00:16:09] Russell: Can you give us an example of a regulatory change that has been made through that collective action? 

[00:16:16] Catherine: Yes, I can. And not and it's not in isolation. One of the the isolation from the social movements and social advances, but gender diversity has moved depending on your view, tremendously or maybe not so much. But there are a lot there's a lot higher level of women reflected in board composition than there was since, I guess, 2014 or 15, I think. And investors have made a concerted effort to make that happen. It is a result of changing social attitudes as well. Investors just didn't decide to do this out of nowhere, but recognizing that it does impact on the quality of boards and through that on the creation of value and independent thinking and a lot and risk risk aversion, a lot of important issues for with respect to governance. The amount of work that we've put into developing our own policy and. In interacting with policy regulators is is quite significant, and I think you can see and not just CCGG, of course. Many investors have taken the same path and they're, as I said, the broader social movement. But that has had an impact. So we can now see that there is more. And it's beginning to now, we've turning our focus, quite rightly, to underrepresentation and groups besides gender. So that's that's the newest focus then. And there you can see that reflected in the Canada Business Corporations Act was amended to include those underrepresented groups in its disclosure requirements. 

[00:17:50] Russell: That's great. I think that's also a place where the system is working like if I think about the regular people that that own shares in the organizations you would represent, so CAAT has members in the Ontario colleges as well as private businesses. You know, obviously the Teachers Pension Plan represents regular teachers. OMERS represents municipal workers. And I think generally these are people who would believe that boards should be representative of the larger populations and they should include women and they should include diverse populations. So this is the kind of common sense change that I think not only makes good business sense, but reflects what what the shareholders would believe should happen. 

[00:18:34] Catherine: Absolutely. And I like the way you said it, that it's working as it should because the money should be moved in ways that the owners of that money believe are appropriate. 

[00:18:54] Russell: As Catherine explained, companies and their leaders need to operate with the best interest of the corporation in mind. And in recent years, that's grown to include environmental and sustainability considerations. However, Catherine will argue that the importance doesn't end there. There's a shift that's become very real during the pandemic, when companies needed to operate within unprecedented circumstances. Let's hear what Catherine had to say about the current challenges and opportunities facing Canada and how good governance can help us prevail. Are there any challenges or barriers that you see us standing in the way of improved governance for Canada? 

[00:19:37] Catherine: I think the most direct or tangible issue that we're confronting now and this is this is with respect to addressing climate change, but also with diversity too to a different degree. And that is the need for greater data transparency from the issuers, from the corporate, because climate change, as you know, is a hugely complex matter. The science is still evolving. People don't even understand how to measure it in certain ways and how to measure certain risks like transition risks. And it's it's extremely complicated. But we can't make any headway unless we understand what's actually happening. So the not having the data there to work with, to be able to to have data that's consistent, comparable among peers and that you can track progress is very challenging. And then with diversity, those issues about disclosure, I mean, how do you address underrepresentation? Do you have a tick box or three percent of this group, you know, two percent of that group? Is that really what you want? And there's that that goes along with data disclosure about do people really want to disclose that? I mean, in certain countries in Europe, it's illegal to ask people about their ethnic background. And so those are all very complicated data related issues. 

[00:20:54] Russell: What are some of the global best practices around governance that you're inspired by? 

[00:21:00] Catherine: Oh, that's that's a good question, too. I would say it related to data collection. I think in in the EU they have a an approach to collecting data about ESG matters, environmental, social and governance matters that looks at it through a different lens. And we do something they call it not a different an additional lens, a double materiality lens. So here we're in North America, in the UK and Anglo-American world, where we tend to be looking at it as the impact. And it's the way I would describe it, the impact of ESG matters on financial wealth and how well being of the company. So it's a kind of how are these external matters impacting the company looking outwards? So sort of say, well, how is the company impacting the environment and society sort of in our more outward direction? If you include that aspect, it's being referred to as double materiality. And they are they're trying to grapple with that. We're still grappling with the one way direction. Now that's not to say that, you know, we necessarily should go the other way, but there's a lot more thinking going into this in Europe, a lot out of the gate ahead of us. They've made more progress and I think we're in the. Position of really having to play catch up to a certain extent, and that's I worry about people that say we're going too fast. You know, we're a resource based economy, we have to we have to make sure that we don't do things that well, that upsets certain industries when we have to acknowledge and understand what's here and not not ignore those industries. But this is where we are, and I think we need to kind of accept that and catch up. 

[00:22:47] Russell: What do you think Canada does well around governance? 

[00:22:52] Catherine: We are very good, in comparison to globally, I would say, in creating through sort of market forces the best sense of best practices rather than regulatory prescriptive from the top down models. So what we think of as best practices in Canada and has been incorporated into regulation and basically evolved through the market and issuers and investors saying this is what we want to see. So majority voting, splitting the chair and the CEO, independent boards, those are all and they have been reflected, as I say, in regulation but they weren't imposed. And I think that externally not well, some of them have been, but maybe pushing them a little bit. But I think what that means is that there is there's great buy in from the market participants when when the regulation does come to a certain extent. So I think we have we're very strong in that and we have, you know, we have in the context of North America, you know, we're we're way ahead of the U.S. in terms of splitting the CEO and chair, which is a fundamental governance issue. You can't have the person that's overseeing the CEO, be the CEO. So we yeah. So we're that in our majority voting and a number of things that that we are we have been good at. And I think that was that is the general market best practices and in voluntary basis that move those forward. 

[00:24:14] Russell: Yeah, I think that makes sense. Looking at this from the perspective of Canadian employers, I'm a Canadian employer, how can governance positively impact my business? 

[00:24:28] Catherine: Oh, I think by taking the perspective in your in your your outlook on on your business and strategy that all stakeholders are important. So 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, so you have to look at the health and safety and well-being of your employees. This is so important, as we saw during the pandemic, to the health of the company itself. You need to look have have developed training programs and engage in 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. So I think that what I would say is that the the employers should look at employees as a contributors of capital, human capital, shareholders, financial capital. But the idea that if we're the company to to do well, all of the stakeholders have to do well. 

[00:25:40] Russell: So it's interesting you you incorporate employees into governance in a way that I don't think I've ever considered before. You almost seem to think of employees as a key element of governance. Can can you tell us a little bit more about that? 

[00:25:58] Catherine: They are and the way that you can get there to that position, I think, is by taking a long term perspective. And, you know, 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 and a lot of, so you could call a shareholders maybe the first among equals is one way of looking at it, and it doesn't have to be that way. I mean, in Germany, they have employee representations on boards, you know that or groups, working workers groups. So there's other ways. But currently that in our in our governance and legal structure, it's only shareholders. So if you want to incorporate them employees and giving them the incredible position that they should have in company structure, you look at the perspective of the long term shareholders perspective and how how do you create value, sustainable value and one of the most important parts of that creating value is human capital. Like now, I think 90 percent, you read this figure that 90 percent of the the value on on companies on the indexes these days is is intangibles. You know, a huge part of that is people.

[00:27:13] Russell: If employee relations is a governance issue, which I think you've convinced me that makes a lot of sense, is the great resignation a governance threat? 

[00:27:27] Catherine: It's a really good question. I'd have to, my gut instinct is say yes, it is, and now I have to kind of back up and figure out why. Why do I say that? And I think I think it is because if you don't have the employees, you don't have a company and you can't 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. 

[00:27:49] Russell: What are the changes that you hope to see around governance in the next five to 10 years? 

[00:27:58] Catherine: I would like to see in a very this is a very granular way, I would like to see dual class share structures. We're all familiar with what happened at Rogers recently, and I would like to see that there be conditions attached to those structures so they can't continue indefinitely. And some of the negatives associated with those and the unfairness and lack of accountability can be handled by attaching things like sunset provisions and cocktails. That would be a strictly governance issue. Other than that, I would like to see ENS environmental and social issues continue to be further integrated, both from the investors perspective and on the issuers managements in the board's perspective. So they really are are are looked at as a as a whole. 

[00:28:45] Russell: In preparation for meeting with you today, I talked to a couple of people that have worked with you at CCGG. And my question to them was What is Catherine's secret sauce? What is the thing that she is particularly good at that other leaders could could learn from? And the answer I got was Catherine is particularly adept at looking globally and thinking globally in terms of governance, best practices and emerging trends, and then finding a way to bring them back and implement them within Canada. So how do you do that? 

[00:29:28] Catherine: I do that by looking at the fundamental theory underlying, I mean, we've talked quite a bit about you've asked some good questions about, you know, what is good governance and thinking about the theory underlying what we do and why we do it and recognizing that those are global issues. I mean, it is a global economy and the markets certainly are global and there are jurisdictional regional issues. But I think looking at it as a whole and seeing the similarities along with the differences is is allows you to learn from other other countries and what's happening around the world and opens up the possibilities, I think more. 

[00:30:09] Russell: So how can our listeners learn more about CCGG? 

[00:30:14] Catherine: Very, very simply, we have a great website. We have a website that's got all our policies on it. All our regulatory submissions talks about what we do. If you're an institutional investor, it shows you how to endorse. It tells you how to endorse our stewardship principles, which are incredibly important. But our website is a really good collection of who we are and what we do. 

[00:30:32] Russell: Perfect. Thank you so much for being on the show today. 

[00:30:34] Catherine: Thank you. My pleasure. 

[00:30:41] Russell: After my conversation with Catherine, I'll be taking away a few insights about good governance in Canada. First, taking into account the interests of all corporate stakeholders is not just the right thing to do because it's the law. It's also simply the better option for everyone involved within a corporation. Human capital is one of the most valuable assets of any company. So initiatives that benefit employees ultimately benefit all stakeholders. Second, just as corporations should be treated as a united front, we need to stop viewing others in the world as separate from us. What benefits one benefits all. So instead of thinking about how we can improve governance in Canada, we should perhaps be taking a broader global approach. Finally, Catherine left us with a reminder to avoid complacency at all costs by igniting more conversations, education and analysis about the challenges we face today, we can create a better future together. Thank you for joining us today on Contributors. Don't forget to subscribe rate and review the show on Apple Podcasts. And tune in for our next episode on April 6.