Rahul Bhardwaj, President and CEO, ICD in conversation with Tom Watson

December 7, 2020

The Empire Club of Canada Presents

Rahul Bhardwaj, President and CEO, ICD in conversation with Tom Watson

Chairman: Antoinette Tummillo, President, Board of Directors, Empire Club of Canada

Moderator
Tom Watson, Editor, Ivey Business Journal

Distinguished Guest Speakers
Tracy Riley, Leader of Business Transformation, PWC Global Assurance & Leader, National Program, PWC Canada
Rahul Bhardwaj, ICD.D, President & Chief Executive Officer, Institute of Corporate Directors
James David, Vice-President, North American Operations, DiliTrust

Introduction
It is a great honour for me to be here at the Empire Club of Canada today, which is arguably the most famous and historically relevant speaker’s podium to have ever existed in Canada. It has offered its podium to such international luminaries as Winston Churchill, Ronald Reagan, Audrey Hepburn, the Dalai Lama, Indira Gandhi, and closer to home, from Pierre Trudeau to Justin Trudeau; literally generations of our great nation's leaders, alongside with those of the world's top international diplomats, heads of state, and business and thought leaders.

It is a real honour and distinct privilege to be invited to speak to the Empire Club of Canada, which has been welcoming international diplomats, leaders in business, and in science, and in politics. When they stand at that podium, they speak not only to the entire country, but they can speak to the entire world.

Welcome Address by Antoinette Tummillo, President, Board of Directors, Empire Club of Canada
Good afternoon, fellow directors, past presidents, members, and guests. Welcome to the 117th season of the Empire Club of Canada. My name is Antoinette Tummillo. I'm the President of the Empire Club of Canada, and your host for today's virtual event, featuring Rahul Bhardwaj, President and Chief Executive Officer of the Institute of Corporate Directors, and Tom Watson, Ivey Business Journal editor, to discuss the pandemic's legacy, old habits, and new possibilities.

I want to take a moment to recognize our sponsors, who generously support the Empire Club and make these events possible. Our Lead Event Sponsors are PWC and DiliTrust, and our Season Sponsors are the Canadian Bankers Association and Waste Connections of Canada. I also want to thank our Event Sponsor, VVC, and livemeeting.ca for webcasting today's event.

Now, I have a few logistical items to share before we get started. First, if you're finding your internet feed is slow, please see below and click the "Switch Streams" button. Don't hesitate to press the "Request for Help" button available to you. If you're experiencing technical difficulties, our team will be more than happy to assist you.

It is now my pleasure to call this virtual meeting to order. I would like to introduce Tracy Riley, Leader of Business Transformation for PWC's Global Assurance and Leader of the National Program at PWC Canada, to introduce Rahul Bhardwaj and Tom Watson.

Opening Remarks by Tracy Riley, Leader of Business Transformation, PWC Global Assurance & Leader, National Program, PWC Canada
Thanks, Antoinette, and it's great to be here. And PWC is very happy to sponsor this event. At PWC, our purpose is to build trust in society and to help solve important problems. And COVID-19 is one of those important problems. For those of you who I haven't met—and Antoinette gave some background on me, in that I sit on our global leadership team responsible for transformation. I have to say that I've spent a lot of the last nine months helping to make sure that our audit teams around the globe are prepared to support our clients, and deal with the complex issues that have arisen out of COVID-19. So, whether that be extra work around valuations, going concern, or just being able to exchange documents with our client teams in this virtual world. In addition to my role at PWC, I'm a director with the ICD GTA chapter, where we work with Rahul and his national ICD team to advance the governance knowledge and skills of directors in Canada. And I guess, as Rahul would say, "Better boards, better companies, better Canada."

In order to make this an interactive discussion today, I'm going to tee up a couple of polling questions. One of those will probably be appearing on the right-hand side of your screen now. I want to encourage you to respond, so that we can really tailor the conversation. In addition to the poll, there will be a question box also located up on the right-hand side of your screen. So, please use that to ask questions and let us know what's on your mind, and Tom will use the feedback that comes from polling and from the question box to really tailor today's conversation with Rahul.

The COVID-19 pandemic has posed an unprecedented governance challenge and ushered in a period of extraordinary experimentation and innovation. It's time for boards to question old habits, and really start to imagine new possibilities. This was confirmed to me by a group of national directors at an ICD GTA chapter event that we hosted last week. When participants were polled, 96 percent said that COVID-19 has forced boards to rethink, at some level, either their strategic role or their responsibilities. Only four percent of attendees said that there was little to no impact from COVID-19 on the strategic role and responsibilities of the board. So, I'm very excited to introduce today's timely discussion, titled, "The Pandemic's Legacy: Old Habits and New Possibilities."

I'm going to provide a very brief introduction for our moderator and speaker; however, I know that they are already well known to you, and in addition, their full bios are linked to the event site. But let me start with Tom. Tom will moderate our discussion today. He's an award-winning business journalist, the Editor-in-Chief of Ivey Business Journal, a columnist with Financial Post Magazine, and a contributor to Report on Business Magazine and other leading business publications. I know he's going to do a great job of steering today's conversation. That brings me to Rahul, our speaker for today. Rahul is the President and CEO of the Institute of Corporate Directors. The ICD has over 15,000 members. And Rahul, through the ICD, is committed to improving national outcomes by growing the board leadership and governance capacities within Canadian businesses, agencies, and not-for-profits. Rahul currently serves on the board of the Rideau Hall Foundation, the executive committee of the Global Network of Director Institutes, as well as the Leader Council at the Institute of Leadership at the Ivey Business School. Rahul's vision for Canada has made him a sought-after presenter and speaker locally, nationally, and internationally, particularly on issues related to leadership and governance. I know he's going to share some great perspectives and insights over the next hour.

So, with that, we're going to put one more question up, polling question up for you to answer. If you could answer that while I hand over to Tom and Rahul, they will gather the feedback from the polls and the questions, and really use it to steer the conversation. So, Tom, over to you.

Tom Watson, Editor, Ivey Business Journal
Thank you very much for the kind words. Welcome, everyone. Rahul, I'm looking forward to getting into the conversation, so we're just gonna jump right in. Obviously, disruptive forces were in play prior to the pandemic. Long ago, we had a conversation about directors moving away from "nose in, fingers out" to a more hands-on role in governance. But with social distancing and the restrictions of the pandemic, I'm wondering just how effective boards have been, what the specific challenges are, and what you're hearing. So, can you talk a bit about the challenges, the specific challenges, related to the pandemic that have been presented?

Rahul Bhardwaj, ICD.D, President & Chief Executive Officer, Institute of Corporate Directors
Sure. So, your question's got a lot built into it, Tom. So, let me say from the outset, I've always said that better boards making better decisions builds a better company, and of course, a better Canada. And to do that, I said "nose in, fingers out," which is something that we teach in our Directors Education Program. So, listen, maybe that's waning, and directors need to be what they call south of the border, a little bit more activist. Little did I know that some people thought that was revolutionary. But the point was to be evolutionary. And let's just be clear, "nose in, fingers out" waning? Perhaps. Does that mean that the board's got to get into management's role? Absolutely not. That's not what's being said. But you're sort of alluding to a completely different context within which directors are operating. And that's what I meant by that.

So, more specifically, you know, we're looking at a time of intense disruption. So, if we go back 18 months from now, we go back, we had, you know, geopolitical uncertainty, you had uncertainty south of the border about what's going to happen in terms of the election, you've got economic uncertainty, digital transformation, cyber risk, climate; it's a very, very complex environment for organizations to be operating in.

So, the traditional mindset of boards—which tends to be a little bit from the outside looking in, don't push too hard—isn't going to cut it. We say they need to get more involved. And in one particular way, they've really got to focus, and that's on strategy and that's on risk. And we can come back to that a little bit more, and—but question took it a little further, and it said, so, what I'm hearing? Now, the beauty is that directors are speaking a lot to each other during this time. So, we've been privy to some really interesting conversations. And when I synthesize those, I see a couple of themes.

First of all is when COVID-19 first arrived, there was a timeout, right? So, last March, April, there was a real hard stop, and liquidity was the big issue. So, boards had to freeze themselves, and they make sure that their companies had liquidity—and this was not-for-profits, just as much as it is for corporations, commercial ones—so, liquidity, employee safety, customer safety. So, there was a pause moment, where they had to make sure, you know, are they still going to be around in six to nine months. Which led to the conversation of, the "survive to thrive" conversation.

So, more than a handful of boards and chairs I spoke about said, listen, once we managed to stabilize, or at least sense the way of the direction, we could stabilize it. Now, we started to look at, okay, what are the ongoing risks, and what are the opportunities? We can come back to the opportunities in a second. But not every company or not-for-profit at that moment knew that it was going to be able to survive. So, that opened up a host of other issues. Some companies and boards had to look at, okay, where do we go to, to literally, you know, cut, to be able to make sure that we're going to be around in six to nine months. You know, a lot of not-for-profits were event-based; suddenly, their fundraising all dried up, or they had to go online. So, there were number of transformations that boards had to think about and pivot very quickly.

So, the big takeaway on this, though, was acceleration. So, we had disruption for sure, for the last five years; ten years, for that matter. But now it was accelerated. So, plans that people expected to take three to five years to put in place, I'm sure you've heard, had to be done in six months. And if you couldn't get it up and going in six months, you know, your business or your enterprise was in jeopardy.

Tom Watson
Let's, I understand you have some recent survey results, yourself. Let's talk a little bit about, we've got the second wave hitting us hard. But we also have the virus—I'm sorry, we have the light at the end of the tunnel, right? We're seeing some medications come into the marketplace—the words escape me; it's on the tip of my tongue. What is the timeline for recovery that you're seeing out of your folks?

Rahul Bhardwaj
That's a great question, because we asked everybody, so what's your sense of optimism—or, or pessimism, depending on what it is. And we asked two questions. And we asked a question on the expected time for recovery for one's organization, and then we also said, all right, what do you think's the time for recovery of the Canadian economy writ large? And in one case, we got a lot of optimism; on the other one, we had a bit of pessimism. And funny enough, they're a little contradictory, and it has me scratching my head. And the numbers work out a little bit like this: when we asked our directors how many, or what do they think in terms of the time frame for their organization to recover. We've got about almost 50 percent said, 'Yep, we're going to recover in 2021,' then we've got about a third of them saying, 'No, 2022,' and then we've got another 20 percent saying, 'No, our organization, that's out two to five years.'

So, remember, about half of them expect their organization to recover next year. When we ask them about the Canadian economy, about 28 percent of them say 2022, so they're already a year ahead there. Now, almost half of them said between two to five years, and just over ten percent said five years plus. So, it was a little odd to find that about half of the folks thought their organization was going to recover next year, but about half of them also thought that it's going to be two to five years before the economy recovers. So, there's a sense of optimism that they're going to recover ahead of the economy, or we're going to need to dig into that a little bit more.

QUESTION & ANSWER

Tom Watson
We just had our first question come in, and it kind of fits into that timeframe, because people are stressed. And the question is: what steps should directors themselves be taking in cooperation with management on the mental health front, to ensure that—I mean, recovery is going to be a long process, people are still going to be stuck at home for a long time. What steps do you think should be being, what steps are you seeing being taken effectively, and what more can be done?

Rahul Bhardwaj
That's a great question, and it's one that we touched on with a webinar in the summertime. It's on our website, if anybody wants to get into the weeds on this one, because highly important topic. And this was already a very big topic pre-pandemic.

Tom Watson
Right.

Rahul Bhardwaj
So, the mental health of the workplace, particularly in the context of, you know, uncertainty, and change, and stress, and anxiety about organizations and, of course, the future of work. So, there's a lot of stress and anxiety around that, and people recognized that this was something that was quite evident in the workplace. It wasn't good for the health and the culture of the organization, and boards have oversight of that, so they became very keenly aware of this. That's something that got accelerated—again, there's that word 'accelerated'—due to the pandemic. And we heard a number of board members talking about what do we do to make sure that we can take care of our employees and their mental health.

Now, in the first instance, it was literally their mental health and their physical health, right? So, if you're in an organization where you can actually help management work out remote planning opportunities, hopefully, that was done well in advance, so, that was hopefully a risk mitigation strategy that many organizations had in play. But if they didn't, it's how do we make sure our people are physically healthy, and that they're at home, and they know that they're in an environment where they can work, so hopefully, they can actually have an income stream to support themselves and their family. But also, remember, their children are at home now, and their spouses are at home. How do we create an environment where people stay connected, but they're still working? So, that was a very, very big theme at the beginning.

But tied to that was also the notion that management, management now had to pivot. We spoke a little earlier about what was going to be planned for five years now had to happen in six months, and there was no room for failure. It had to happen. So now, you've got, you know, management teams that are working overnight, they're working to keep their teams connected, and safe, and connected with the purpose of the organization. And at the same time, they're trying to come up with plans to still service their customers and do the work.

And now, let's throw another on top of it: the boards are pretty hungry for information right now. They're saying we need to, right, know what's going on, we need to understand what's going on in liquidity. So, management teams, can you please make sure that you're updating us a lot more frequently? So suddenly, there was a, a picture or a lens that said everybody's working on overdrive. That's not sustainable. How do we work together to make sure this doesn't happen? And, of course, they're directors, too, that we're hearing from. They're on multiple boards, they're on Zoom calls quite a bit, they're getting tired too. So, how do we make sure that everybody can actually work together in a sustainable fashion?

Tom Watson
That leads perfectly into the—we have our poll results in for the first question. More than 28 percent of participants in the survey say they're moving—working at least 50 percent more on their governance duties, 50 percent are at least 25 percent more, 14 percent 10 more, and only 8 percent, no change. And that brings us into everyone's hearing: never let a good crisis go to waste. We're here today to talk about opportunities. But how much bandwidth is there, really, to be looking at anything other than survival? And how do you prioritize where to look for these opportunities? So, what habits should we, should we be rethinking, and what opportunities should we be seizing?

Rahul Bhardwaj
Yeah, that's a great question. And I think it's a great question for a board to explicitly answer or ask themselves. So, I know that there are board chairs who put that, you know, as the first question to their board. In other words, before we get in the weeds here and we're looking at what we're going to do, can we think about how we need to be looking at things? Otherwise, it can be very, very overwhelming. And there certainly are opportunities here, as well, for organizations, whether it's to increase their digital, whether it's to rethink their workplace, whether it's their way of thinking about now that there's a geopolitical shift globally, maybe new markets suddenly become open to them. You know, how do they start to think that? And how do they start to work with management, perhaps even more closely, on understanding a lot of what the possibilities are.

In other words, don't wait for your strategic retreat once a year to have management bring forward something that they want to start to socialize. I think it's something that we're hearing is happening a lot more iteratively. So, the conversations are often around strategy and risk—which they should be, if the board's doing its job—but when they're looking at risks, it's not only how do we mitigate the downside, but what are the opportunities that come up in the marketplace as a result of risk? And, you know, the good boards have been doing this all along. Boards that have actually not had to do this for a variety of reasons; not because they're bad boards, but because their business wasn't going in a certain way that they didn't need to as explicitly, now they need to really get into that. And let's not forget innovation being a very big part of that.

So, when you talked about the survive-to-thrive mode, you know, and there are a lot of boards that are saying, look, when we come through this—and we will come through this—it's going to be a new normal. So, it's not as if when we survive, that we're going to thrive in the same environment as we just left; it's going to be new, it's going to be different. So, what lens do we bring to that? So, suddenly, all these pieces start to come out, but in an accelerated timeframe: strategy, risk, so oversight from the board, and innovation. How do you spur innovation in an organization that's fundamentally going through crisis?

Tom Watson
Would part of this be utilizing more effectively the time between board meetings?

Rahul Bhardwaj
Oh, completely. It's a really important point, here. And, you know, in our Director's Education Program, one of the things we speak about often is the asymmetry of information between management and the board. And, you know, that usually came up from a perspective that the management team's in there, you know, 52 weeks a year, and they've got all the information. And the board's got to make sure that they're getting the information they want and that they need, and then it's not being unduly filtered. And they're going to be spending a lot less time than management is in the operation of the business—and when I mean operation, I mean the oversight from the board perspective. But now, we're in a situation where the board is going to want more and more relevant information very quickly. So, that asymmetry, at least on the time periods, I think, is going to narrow. And this is an enormous job for management to really find out what's relevant, make sure that that's what the board's looking for. So, there's got to be, you know, when we talk about better boards making better decisions, part of that is a management team that knows how to bring material forward to really leverage the most out of the board. So, all of that is coming together much, much more quickly.

And to your earlier point, the frequency of meetings; you know, this is the refrain we've been hearing from everybody, and 'Zoom fatigue' is usually what you hear at the end of that sentence.

Tom Watson
So, obviously, part of the opportunity—I've heard you talk about it before: Canada has an opportunity to really sell our good governance as its competitive advantage, to take that to the next level. Is that what we're talking about when we talk about seizing the opportunity of the pandemic? We have momentum for change, so let's really focus on this competitive advantage?

Rahul Bhardwaj
Absolutely. Sure. I think there are a number of competitive advantages. And for me, that's singularly the biggest one. I think, as I've said before, that, you know, it's time to make corporate governance Canada's global competitive advantage. We've actually got a good governance system and regulatory systems, and we've also got a culture of corporate governance in Canada. But sure, do we have our issues from time to time? That's going to happen. But, you know, we've got a commitment to directors' education, we've got a very vital governance association across the country. Everybody's talking about corporate governance. Commitment to diversity—we can talk a little bit more about that later—but these are really important hallmarks, primarily because they build trust. And trust is the lifeblood of good corporate governance. And I think in Canada, we've done a really good job of that. So, when we go around the world and we talk about why others should put their future in Canada—in other words, if you're an immigrant, why should you move to Canada? Because we think you should be able to trust it. If you're an investor in another country, and we think that you should be able to put your capital in our country, why we point to our corporate governance, and we say, because you can trust placing your capital in Canada. And that's why, to your point, I think it can be our competitive advantage, and I think it's certainly an opportunity to differentiate ourselves even further now, as a result of the pandemic.

Tom Watson
So, part of raising the bar, at least part of the conversation on governance today, and seizing the opportunities of the pandemic, clearly, can't have those conversations without talking about EDI. We just mentioned diversity; but it's beyond diversity. I'm constantly hearing diversity, in fact, can be harmful if you don't have the E and the I. You've got to have equity and inclusion, or it's just really meaningless. So, I gotta ask, is systemic racism acknowledged as an issue in the Canadian corporate governance system?

Rahul Bhardwaj
You know, that's such a charged phrase. And I can see how some would say, you know, that's the outcome. I certainly wouldn't say I've seen anything of saying that was ever the intent. But I must say, though, that given what's taken place, particularly through the pandemic—you know, Black Lives Matters, and let's not forget before that, #MeToo, as well—there's been a massive shift in the cultural expectations in organizations, both from society, and also from boards. So, board oversight of culture is an extremely important piece of what happens. And then, boards are looking at the environment they're in, whether it's one of uncertainty, disruption, cyber, digital. It could be a space where they're looking at themselves and saying, are we exercising our fiduciary duty properly and well, with the composition of the board that we have now? You know, we need the trust of our customers, we need the trust of our employees. There's an expectation of greater inclusion. What can we do, and how can we do that to further the strategies of the organization?

Now, it's interesting to see two very important conversations come together around diversity and inclusion. There was a group, I would say, largely society, saying, you know what? It doesn't look fair. You know, from a social equity standpoint, we should see more diversity on boards. Whether that be women, or now we know Designated Groups, which is now a term within the Canadian Business Corporations Act.

But that's from a social equity standpoint. And we've had organizations—and this is the company side—that look at it and say the more they study the benefits of diversity, you know, it spurs innovation, it reduces risk. They make a business case for it. And that's that classic two circles overlapping with that Venn diagram, if you remember from public school. Now, we've got a Venn diagram that says, you know what? Diversity, inclusion, it's good for the company, it's good for society. Let's get on with it. And, you know, you're absolutely right that the pandemic created a wave of this in a way that I don't think anybody could have predicted. But I would say five years ago, when I was speaking to boards about the importance of diversity, some folks were still scratching their heads around whether there was any benefit. Now? Nobody. Everybody gets it, everybody's there. Now, proof's in the pudding, though. We've got to make a lot more progress than we are right now; there's some mechanisms in place, but we've got progress to make.

Tom Watson
Speaking of progress, back when everyone expected—well, not everyone, but a lot of people expected—Hillary Clinton to be the next President of the United States, we had women leading Germany, Great Britain, the IMF, securities, and the, I believe the US Central Bank, and the SEC, certainly the IMF. But even back then, expectations to reach gender parity predictions were a hundred years. So, gender parity in the C-suite, a hundred years. Now, expectations are through the roof for change well beyond that, and not just on the gender diversity front; like, across the board. And a lot of these expectations are being set by brand managers sending out woke messaging, and so forth. Is it up to the board to live up to these expectations? Or is this—and can we do it right?

Rahul Bhardwaj
That's a great question. Can we do it? Yes, yes, we can do it. If we, you know, if we put our shoulders to it and make a big deal about it, we want to make it happen, we can do it. Is there a very high expectation from the public writ large about the role of a corporation in society broadly, right now, around culture, #MeToo, around Black Lives Matter, around diversity on boards, and senior management? Absolutely. And there are great organizations out there, like Catalyst and others, that have been working in this area for a long time. And I would say, what we've done at the ICD is, you know, we created a board diversity template. We're helping companies actually get a policy in place to actually help move their company forward on diversity. And a lot of people might look at that and go, wait a second, that sounds kind of goofy, what good's a policy going to do? Well, this is kind of my point. That when you get it into the DNA of an organization, when you link it to its strategy, that means it's board-approved, that means you've got a policy. Now you can get on top, and actually make some progress. And we all know that once you've got it in a policy, it'll tie into KPIs, it'll tie into compensation. And you can see that there's a lot of momentum there. We can see the CBCA, you know, our big corporate statute, at least for the public companies under the CBCA, they've got to comply or explain regime. The securities regulators have that, the investment community, the institutional investors, all want to see it. So capital is speaking. They want to see diversity on boards. The federal government's coming up with their 50 – 30 Initiative right now. We have Black Lives Matter with a pledge. So, you can see there's a lot of momentum happening here. So, the expectations going up, there. But I think there are a lot of people who want to see this happen, and it's getting built into the DNA of companies. We've got to make quick progress, though, otherwise people will get cynical.

Tom Watson
In order to make this—obviously, the skillset for being a board member, and particularly a chairman, are evolving; not just on the expanded role in strategy and so forth, but to be a real influencer of corporate culture, and so forth. So, what skills are we missing, or what skills need further development? We have poll question two results in: governance experience is the top skill being used asset right now, industry knowledge nineteen percent, governance experience was fifty percent, IT expertise, three percent—I would have thought that'd be higher with Zoom requirements, and so forth—but compassion, empathy, it's 28 percent. I'm not sure that's high enough to do what's expected. What are your thoughts?

Rahul Bhardwaj
I think the answer is that it's a bit of everything, and they're all linked in together. To get a properly balanced board, you know, I think the, the folks that have been close to corporate governance understand, you know, you need a matrix that's actually aligned with the strategy of the organization. So, once the organization knows where it's going, it will be able to then look at the skillsets that they need around the board. And that doesn't mean you've got somebody who's, you know, solely a diversity expert, solely an IT expert, solely a legal expert. You still need people that can connect all of the dots on this.

But your question was really, what's the skillset going forward? And it's interesting to see industry knowledge fall to, you know, pretty low on that scale. It's important. If you don't understand how the organization generates revenue, and the environment with which it does, you're probably not going to understand the strategy. But that's table stakes. You need to get to the next level. And you'll know from some of the work that both of us have been around at Ivey, you know, we're looking at leadership character. I mean, it really counts. And when people look, you know, at the political regimes around the world—and I won't name them—and they listen to some of what's being said, you know, you know that character really counts. So, when I think about one of our advantages in Canada—and I'd like to think our boards reflect that—are things like judgment, things like wisdom. And the directors of the future, you know, they need to be really connected with the world. You can't live in a bubble that's just your industry or your company. The expectations for boards and for companies are too high; the reputation risk is enormous. And the overall risk, the ability for it to undermine your strategy—you could be the greatest thing today, but you could be out of business from what a kid's doing in their garage and technology the next week, unless you're connected with what's going on in the world.

And above all, you've got to be courageous. You know, we've heard about things such as conscious bias and, you know, confirmation bias, and things like that. You know, directors really need to be sensitive about their own assumptions that they're bringing to the table. And in a diplomatic way, they really need to tease this out from their own, from their own colleagues. So, it's an evolution. So, we're evolving "nose in and fingers out," and we're evolving what it means to be a director, as well. And I'm glad to say, I think a lot of corporate Canada is stepping up to that, and we're certainly teaching that in our coursework as well.

Tom Watson
There was a, you made a really interesting recommendation to a group of business students the other day for a Christmas reading. And I thought, perhaps, it was going to be something on privilege, and so forth, but it was Plato's Republic. And is, is that the judgment and part that you're implying, that there should be a bit of philosophy in your thinking, if you're going to aspire to the senior ranks of corporate Canada?

Rahul Bhardwaj
That's an interesting question, Tom—and I don't want to go too far down the rabbit hole, here, because we could lose folks—but this is an important one.

Tom Watson
No. We've got other things to talk about.

Rahul Bhardwaj
Okay. So, absolutely. I think a lot of the issues we're thinking about, both socially and, you know, and how do we move our country forward, and politically, these are issues that political theory and philosophy's been looking at for thousands of years. So, it's old wine in new bottles, in a lot of ways. It's a different context, I hundred percent agree with that. But there are a lot of lessons to be learned back then.

The Plato reference was, of course, in the context of 300 people in an HBA course. And they were talking about the CEO and fiduciary duty, and about a particular CEO who had voiced his own personal opinion on an issue that went quite viral over Twitter. And the discussion they were having was whether the CEO should just stick to their knitting, right? You're fiduciary of an organization; your duty is to the corporation. If it's not in the best interest of the corporation, zip it and don't say anything. Well, they thought that more was demanded of a CEO. That they should, in fact, have greater latitude to be the leaders they're set up to be. And that's where I took them into the cave allegory in Plato, which is really one of many, many themes that are in that very rich allegory. But I posed it to them to say, do you want to live in a world where leaders can't lead? And do you want to live in a world where leaders only lead for themselves? Because that's a question that they're thinking of thousands of years ago, as well.

Tom Watson
When it comes to leading, the directors are still—we keep talking about fiduciary duty. But I'm not sure everyone knows what that means, anymore. We know what it used to mean, and we know where some groups would like it to go. You did an interesting survey of your members about the appetite for taking on a greater role in servicing stakeholders. What did it tell you? What's, what's the appetite for changing what it means to be a director?

Rahul Bhardwaj
So, there are a number of ways of looking at this one. I mean, we can talk a little bit about, you know the Business Roundtable and fiduciary duty...

Tom Watson
Right.

Rahul Bhardwaj
...and I hope we come back to that. But as it relates specifically around our survey that we did, there are a couple of things that popped out. First of all, we asked the directors whether it's important for their organization to articulate and disclose a purpose. Now, you know, five years ago, nobody was really talking about purpose. Now, it's become a big thing. And not surprisingly, we've got about 88 percent of folks that either strongly or agree that you know what? It's time to be able to articulate a purpose. That's good to see, and I'm not surprised.

Then there was a question was, are boards responsible for the impact of the organization on their communities? And 92 percent agree. But I just caution everybody just a little bit on this: this is where definitions really matter. Because most of the directors and corporate leaders I speak to are very motivated by the impact that their organization has on communities. Whether it's creating wealth, or whether it's creating jobs, or whether it's creating products that make life better for individuals, they believe that they're very much supporting shareholders and stakeholders. The public, we know, has now raised the bar—and maybe in this case to even move the bar over a little bit in one direction. Because they're actually looking for accountability on boards, in terms of the impact they have on communities. And I'm not quite sure that we're there yet, or that's a conversation that's being had. When we looked at disclosing environmental and social factors about the business and its impact on society, about 90 percent said we're right there. So, no surprise. ESG, climate, boards are saying, yep, you know, we need to be able to do that, not only for society, but our shareholders, our investors need to know where we are.

And then, there was the real, the big bucket question at the end. And that is: should organizations have a more active role in ameliorating social and economic inequities? So, this is a far more broadened role or lens for a corporation. And there, surprisingly, we had about 80 percent that said, yeah, we agree, or somewhat agree—but half of them only somewhat agree, and a full 20 percent of them said, no, that's not the role of a corporation. So, I would say that we're still in the early innings of this conversation on the two, those two circles that create a Venn diagram between stakeholders and shareholders. I think there's an appetite to align their interests. I think the question over the long term is—and this is where the wisdom of the board comes in, in many ways—is what happens if those interests are in competition with each other? And that's not an easy question to answer. I think it's all very much in the context.

Tom Watson
I agree with you. There's a wide range of businesses—we've talked about what is stakeholder capitalism, what would it mean to a tobacco company, or do something like the Ashley Madison adultery service? I think—and I'm wondering if you agree—the idea of being very transparent about what your business is, what your goals are, what your corporate culture and philosophy is, and then let the market decide a little bit about how much they want to support you. But very, very clear transparency about what you're expecting from your board members. Because the law is not gonna—the law isn't there behind stakeholder capitalism, for sure. The expectations are, once again, public expectations, well beyond what I think is supported by corporate law.

Rahul Bhardwaj
Yup, I think that's absolutely right, especially your last point about corporate law. And this one's worth teasing out a little bit, Tom. And, you know, we were talking about fiduciary duty earlier, right? So, directors know they've got to do what's in the best interests of the corporation. Well, that's a big question: what is in the best interest of the corporation? I'm trying to paraphrase a lot, here; we all know the Milton Friedman "business of business is business."

Tom Watson
Right.

Rahul Bhardwaj
In other words, you stick to the business, all the benefits here will trickle down, and if you keep your eye on the shareholder value, all the other benefits will trickle to society. But if you take your eye off the shareholder value, you've got nothing to trickle down. And we know that that's had some enormous successes, and also some catastrophic inequities that have been created as a result of this, as well. So now the question is, well, where do you go with this? And I think what we're seeing is, you know, the Business Roundtable in the US that, through a great proclamation last year, made the point that, you know what? When we make our decisions and move our organization forward, sure, we're mindful of shareholders, but not shareholders alone; we also look at stakeholder interests. I might remind you, though, to the best of my knowledge, I don't think their boards actually approved any of that in a policy, and I think that's worth exploring a bit later. But I also think what was interesting is the Shareholder Association in the US also sent a letter saying, that's interesting, but that's not quite the reason or on the terms that we gave you our capital to invest on our behalf. So, there's a little bit of a disconnect there.

But we in Canada sat back quite, you know, with a big smile on our face and said, stakeholder capitalism, and we've already been there, we've been here for a while. And many of the audience will know about the BCE case that went to the Supreme Court. And of course, that was also captured in the recent amendments in our CBCA, that said, now, okay, directors, you may evaluate the impact on a series of stakeholders, here. And I emphasize that you may; it's permissive, it doesn't say that you have to. But I can assure you, at least in the conversations I've been a part of, the boards these days are doing that. I think they've already—they've always done that, but in various degrees of success. Now, I think they're more attuned to it. And what they're seeking to do, I believe, from what I'm hearing from our members, is really align those interests of shareholders and stakeholders. Now, it could be in the context of a merger or an acquisition, it could be in setting up a facility or moving a facility, it could be a host of things, interacting with Indigenous groups. And the question is, though, you have these multiple interests that you want to align. The big question is, what happens if they don't align? And that goes back to what we need of directors in the future. And that's that wisdom and that judgment.

Tom Watson
Right. The point I always make is some boards have absolutely no problem authorizing borrowing money to pay special dividends. But it might be—I don't know many companies that borrow money to keep employees on when layoffs are coming, take on debt to maintain employment. And that's what, unfortunately, I think that's what the expectations are. And I think that fiduciary duty has to catch up, or somehow be more transparent, just so that everyone's on the same page. And I just don't see it. I think the business world is well-meaning, and they're on the same page; but they're pretty focused on their jobs. And the job hasn't necessarily evolved as much as people expect it to have. We've talked a lot about meeting expectations and so forth, and different challenges. I just wanted to ask one question about CEO pay. The professional world has clearly been able to live through this pandemic easier than the working-class. We CEOs, in particular, have been doing really well over the last few years. And in the context of the brave new world, the post-pandemic world, stakeholder capitalism, whatever you want to call it, isn't it time to maybe pay senior executives based upon the real performance of their company, not on the stock market? Doesn't that give them a stake in the wrong game?

Rahul Bhardwaj
Right. So, of course, you're talking about it in the context of a public company.

Tom Watson
Yeah.

Rahul Bhardwaj
And remember, you've got a host of companies that aren't public companies, and that's a separate conversation. But there's a philosophy that links those two, and I'm going to come back to it. And you know, the comments that you made really speak to me about what's going on in the UK. So, the UK, you know, they're getting quite concerned about the disconnect between, you know, shareholder value that's created and the CEO compensation. And I think they're looking at the right space, though. I mean, the whole point, and this is the role of the board and the compensation committee, is to be clear on what their strategy is, to understand where the value is created, and to ensure that their culture—so, this is board oversight of culture, beyond harassment, beyond mental health, beyond #MeToo—it's a culture that incents the right behaviour, and compensates in a way that's also connected to the wealth it creates, whether it's for stakeholders or for shareholders.

So, it's sort of a long way around to saying I think boards do need to continue to get more creative about tying performance to the outcomes they're seeking, and tying performance to how the company is doing. And of course, how the company is doing—we've got a host of different measures. We've got financial ones; we just finished talking about diversity and inclusion a few minutes ago.

Tom Watson
Right.

Rahul Bhardwaj
And we know now that those are becoming targets for CEO compensation as well. So, I think it's far less orthodox than it was perhaps 10 years ago. And I think that's a, that's a good thing.

Tom Watson
It's also possible that you could look at performance with a lens that takes into account whether layoffs, or suppliers had to be squeezed to achieve profitability. I mean, there's different ways to get performance in a stakeholder model. That's, that's what the critic of stakeholder capitalism was calling sloppy thinking in that meeting we had the other day. Here's one from our audience, and it's wondering about the future of board meetings. Now that we know we can do it virtually, would it be a mistake to maintain virtual meetings at the board level?

Rahul Bhardwaj
Yeah, that's a great question. And so, I want to pull together a number of different conversations I've been in and heard around this. So, the initial reaction would be, you know, most people that are on boards are of a certain vintage. In other words, they're mid to, at least mid-to-late career, and some beyond, in second career, so they've grown up in an environment that is largely non-digital, right?

Tom Watson
Right.

Rahul Bhardwaj
So, Zoom is not the typical medium for them. So, this is something new. At the beginning, I think the sense was, well, people are going to really miss the face-to-face interactions. And I think that was a fair assumption to make. In the conversations that I've been having, I've got a little bit of that. But I've also got some responses that say, gee, you know, I can plan my time a whole lot better through Zoom meetings. I don't have to travel, so my safety is not an issue. But time is better, as well, spent.

And secondly, they're also finding out that they can have shorter but more frequent meetings, because they're digital, and they're finding that it's more efficient. Now, I don't want to make that a blanket statement; but a number of people did it, so I'm thinking that more than just a handful are thinking about that. So, this is one of those cases of maybe a little bit surprised about how the accessibility of online has actually created a certain efficiency. Now, I recognize that they're all saying, gee, we missed our board dinners—and I don't mean that just so they sit down and eat; but the time to get to know each other, understand who each other thinks, and how they bring their thinking to bear. Because relationships are really important on boards too. So, that's going to be a real challenge is how do you create that in the digital environment? But the short part right now is shorter but more frequent meetings, and it seems to be working.

Tom Watson
I'm being told we should start wrapping up, so I'm going to try and squeeze in one more audience question—and I apologize if this is one you really can't answer quickly—but it's really, someone's looking for advice on how to deal with a board member who, I guess, is dropping the ball for whatever reason, whether or not family life, or the pandemic has prevented them from meeting expectations—but they're ignoring the goals of the corporation for whatever reason. What's your advice on dealing with that?

Rahul Bhardwaj
Well, that's usually a good conversation to have with the board chair, first. It's not unusual that people have changes in life circumstances—some are voluntary, some are not—and they can't always step up into the time that's required. So, it's not unusual for a board chair to sit down with their board member and find out if they're actually best suited for that role. And of course, then you've got board evaluations. But that'll be for another day.

Tom Watson
All right. Antoinette, are you there? We can hand it back over to you, if you're ready.

Antoinette Tummillo
I'm ready. Thank you very much, Tom, great conversation. Thank you, Rahul. I've got DiliTrust, who's our Co-Lead Sponsor, and I want to thank them for being the Co-Lead Sponsor today. Don't know if you know them, but they currently service more than 500 Canadian businesses in both the public and private sectors. To better understand their integrated suite, they wanted to share this short video, which is going to be followed by a few brief comments from James David, who's the Vice-President of their North American operations.

[VIDEO:]
The DiliTrust Governance Suite, available as a SaaS solution, enables you to secure, digitize, and automate your corporate processes. Whether you're a board member like Tom, an in-house legal counsel member like Alexander, or the general counsel like Caroline. Today, Caroline has to organize the Board of Directors meeting. Using the Board Portal Module, she can seamlessly prepare the meeting by easily creating or duplicating an existing agenda, attaching all related documentation using the simple drag-and-drop upload feature. With DiliTrust's Governance Board Portal, you will enhance board and committee productivity, and ensure peace of mind.

Tom is currently reviewing board documents. At any time, and anywhere, Tom can access all the relevant information, and can vote directly via the portal. Some corporate activities of the organization also touch the legal operations of its subsidiaries and shareholdings, which are managed in real-time through the Entities Management Module. He has at his fingertips the data of all entities, their legal form, and their capital structure. Caroline, like Tom, also saves a lot of time by using the Contract Management Module. She can easily search for detailed information, as all contracts are centralized, categorized, and coded by colour.

With automated real-time alerts and notifications, you will never again miss any contractual term deadlines. The Litigation Management Module allows you to follow all the stages of all legal actions and to receive important alerts. Alexander precisely knows the financial outcomes of each case, and can regularly carry out an accounting reconciliation. By way of the Documentation Library, users will be able to annotate on all files. This module can be accessed on a permanent or temporary basis. Based on the different modules, the DiliTrust Governance Suite is a uniquely simple, complete, and secure solution for all of your corporate governance needs.
[END OF VIDEO]

Note of Appreciation by James David, Vice-President, North American Operations, DiliTrust
Thank you very much, Antoinette. I just simply want to take a moment to thank the Empire Club of Canada, Jehan Karsan, and all the support staff for hosting this interesting conversation on the many challenges facing our corporate directors today. DiliTrust is certainly proud to have been able to help organizations quickly transition to our new normal, respecting regulations and social distancing, and all the red zone restrictions, without disrupting business continuity. As of March, DiliTrust was especially proud to help mitigate disruptions for Canadian businesses, while organizations were forced to quickly and securely implement a remote and distributed board, and of course, their workforce, as well. From our clients in the financial sector such as RBC and Desjardins, to wonderful non-profits such as CAMH and healthcare, of course, and Food Banks Canada, we offer a full range of solutions specifically designed to help operational processes centred around better, good governance. So, on behalf of all of us here at DiliTrust Canada, thank you again to the Empire Club for organizing this wonderful event, Rahul, Tom, and all the participants for joining today's session. Thank you.

Concluding Remarks by Antoinette Tummillo
Thank you. I again want to thank Rahul for taking the time to be with us today, and Tom for asking some great questions. As we navigate this new reality, I have a feeling that this new reality is going to look different when we get to the end of it. We've kind of indicated that. I think it's a major learning curve for everybody as we deal with it; and thank you for sharing some of your insights on what's going on, what to expect, and what we need to be thinking about. I also want to thank Tracy for doing a great introduction. So, he made my job a lot easier today.

So, before we close out the meeting, I just want to let you know about our upcoming events. We've got a Small Business Success Panel Post-COVID tomorrow, with some very informed, a very informed panel to share their views. And on December 10th, we've got our signature Nation Builder Award, which we're very proud of. This year's award will go to, who else, but frontline workers. So, do plan on joining us. We've got a great lineup of VIPs, celebrities, and actual testimonials from frontline workers. And today is the deadline for submitting a testimonial for frontline workers at #NationBuilderHero of your choice. This is someone that you know that is a frontline worker, and they've got a chance—it's going to be a random draw, because obviously, there are so many heroes out there to pick from—so, it is a random draw, and they've got a chance of winning five thousand dollars. Registration for all these events is free. So, I hope to see you at our next meetings. And this meeting is now adjourned.