CN Rail and TD get nod for transparency to shareholders

CN Rail and TD get nod for transparency to shareholders
The goal of the CCGG’s report is to illustrate what should be expected from issuer disclosure, says Stephen Erlichman.
The Canadian Coalition for Good Governance has released its annual best practices guide for proxy disclosure and recognized three companies specifically for their efforts to provide transparent information to shareholders.
As part of its “2011 Best Practices for Proxy Disclosure” report, the CCGG named its Governance Gavel Award winners, which were presented in August to CN Rail, TD Bank Financial Group, and Manitoba Telecom Services Inc.

CN Rail took the award for best disclosure of board governance practices and director qualifications, while TD Bank Financial Group got the nod for best disclosure of approach to executive compensation. MTS received special recognition for best disclosure of governance practices and approach to executive compensation by a small or mid-sized issuer. In determining the winners, the CCGG considers elements of governance practices as well as director and executive compensation disclosure.

The winners, along with examples of other companies that offer best practices, are referenced in the CCGG’s annual review. It references a number of real-world examples of corporate governance disclosure provisions that the CCGG views as exemplary on topics such as majority voting, director nominee profiles, director independence, say on pay, and oversight of strategic planning and risk management.

“This is a highly-requested publication,” says Stephen Erlichman, executive director of the CCGG. “We had a lot of people calling us before we even published it — people want to know when it’s coming out. We had over 250 web site hits the first two days it was available which is a big number for any document we publish.”

The goal of the report is to illustrate what should be expected from issuer disclosure. Throughout the year, the CCGG staff go through proxy material and annual reports looking for best practices. The board makes final selections for the Gavel Awards, which were established in 2005.

“The idea is to provide good guidance to other public companies when they are trying to make disclosure in a similar area,” he says. “We just try to show people what is good and hopefully the other companies will try and do something to improve their material as well.”

The CCGG’s director of research, Tony D’Onofrio, presented the awards in August at the annual corporate governance conference in Quebec City, hosted by the Canadian Society of Corporate Secretaries.

“CNR is one of several governance leaders in Canada, substantially meeting all of CCGG’s guidelines outlined in our ‘Building High Performance Boards’ publication,” said D’Onofrio. “Along with maintaining separate chair and CEO roles and a majority voting policy, CNR offered its shareholders a ‘say on pay’ advisory vote as part of a broader shareholder engagement strategy.”

CNR also clearly disclosed its governance practices in the proxy circular, highlighting them in bullet points and summary text boxes.

“We felt that they provided ample disclosure on director backgrounds and qualifications, including a skills matrix and full details on the company’s continuing education programs. Overall, the circular was written and formatted in a way that was easy to read and understand,” said D’Onofrio.

TD Bank was recognized for its compensation discussion and analysis portion of its proxy circular, which the CCGG says thoroughly explained the design of its compensation plan.

“It disclosed the linkages between their strategic objectives, compensation principles, and performance indicators, as well as the resulting executive compensation,” said D’Onofrio.

TD also disclosed its approach to risk management and provided a specific report on risk and related links to executive compensation. The proxy circular included a “plain-language letter” from the chairperson of the human resources committee discussing the bank’s approach to compensation and explaining their reasons for reducing the formula-based bonus amount in 2010.

“Their disclosure clearly demonstrated the board’s ownership of the bank’s compensation plan,” said D’Onofrio. TD’s includes a “look-back table,” which shows the grant date values of the CEO’s compensation for each year of his tenure and the actual value of that compensation as of the most recent year-end. The table also compares the actual compensation the CEO received to the value of a $100 shareholder investment in each of those years.”

“This is about trying to make it understandable to the reader, not only in what the words mean, but link it in some way to the shareholder promise. Executive compensation is always going to be an important disclosure area — it was in previous years and will be in the future. We’re always trying to get good disclosure that is understandable and based on sound principles,” says Erlichman.

MTS provides one-page director nominee profiles, which allow shareholders to learn detailed information about their representatives on the board and to compare directors across a range of fields. The director biographies provide for disclosure of share and option ownership, interlocks, experience, the previous year’s voting results, and other useful information for shareholders.

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