anderson puts bolton in the director's chair - listed (feb 2013)

7/29/2019 Anderson puts Bolton in the Director's Chair - Listed (Feb 2013)

1/436 Listed//Mining & Energy PDAC 2013 www.listedmag.com

The Directors Chair


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The Directors Chair

The bottom line on oversightIn The Directors Chair with David W. Anderson: Hugh Bolton, former topaccountant, now top chair and director, says directors on resource sectorboards must dig for answers to really know the business theyre in

Photography by Jeff Kirk

Hugh Bolton had a sterling career as a chartered accountant, culminating in hisrole as head of Coopers & Lybrand Canada in the 1990s. Te insights gained inthat arena have also served him exceedingly well in his second career as a corporatedirector. Bolton currently holds board positions in a number of sectors, withenergy and mining front and centre. Here, in conversation withListedcon-tributing editor and governance and leadership adviser David W. Anderson,Bolton reveals how successful boards in those sectors operate and what heslearned along the way.

Hugh BoltonPrimary role

Chair, Epcor Utilities Inc.

Additional roles

Director: Capital Power Corp., Capital Power LP, Teck Resources Ltd. (chair, Audit Committee), TD Bank Financial Group,

The Canadian National Railway Co., WestJet Airlines Ltd. (chair, Audit Committee)

Former chair and chief executive partner

Coopers & Lybrand Canada

Former chairMatrikon Inc., Abacus Insurance Ltd.

Former director

Research Technology Management, Inc., Junior Achievement Canada, Canadian Diabetes Association, Canadian

Comprehensive Auditing Foundation, Canadian Tax Foundation

Former commissions and councils

Alberta Business Tax Review Committee, Business Council on National Issues, Ontario Financial Review Commission

Education

University of Alberta, BA (Economics), Harvard Business School, Executive Education Program

(Corporate GovernanceAudit)

Professional accreditation

Chartered Accountant, Alberta (1963)

HonourskFellow, Alberta Institute of Chartered Accountants (1996)

kDistinguished Service Award, Alberta Institute of Chartered Accountants (2001)

kLife Membership, Alberta Institute of Chartered Accountants (2003)

kFellow, Institute of Corporate Directors (2006)

kLifetime Achievement Award, Alberta Institute of Chartered Accountants (2010)

Current age

74

Age when first became a director

59

Years of board service

15 years


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The Directors Chair

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Canada, Chile and the U.S.all have stringent regulations to which weensure management is complying. Environmental permits, whichhave provincial and ederal components, are hardest to attain. Whilewe havent seen any easing o regulation by the ederal governmentthat would reduce the environmental assessment done by companies,it is trying to dramatically increase the speed o the bureaucraticprocesses. Tis is particularly noticeable in the oilsands, where manage-ment is optimistic the approval timerames will be closer to one yearthan the current three. But its too early to tell i this will actually happen.While we pay close attention to regulation and expectations to be moreresponsible regarding the environment, the mining sector aces differentregulations compared to, or instance, the financial services sector.Im very proud o the act we at eck are cognizant o our social licenseto operateand that weve been recognized as one o the top 100corporations in the world or corporate sustainability.

David W. AndersonStakeholder demand or openness on the part o

business leaders continues to riseas do the consequences or firms

appearing to tightly control inormation and ignore input. Whats

your view o stakeholder relations in resource industries?

Hugh BoltonTe oilsands in particular have come in or some criticism

in this regard. Tey are now dealing with the reality that they can andmust do better. As Jeffrey Simpson [o Te Globe and Mail] has pointedout, businesses in the sector find themselves in the same position as thelumber industry once did. Tey need to learn the same lessons and wouldbenefit rom using the same model. I am hopeul that they are beginningto do so. Tey are taking their critics seriously and listening as opposed toshutting out their views. As a result o meaningul dialogueandtheres much more they need to haveI think the industry is makingchanges that will improve its reputation, production and environ-mental impact. Its remarkable to think that Suncor in the 1990s, underRick Georges leadership, understood the importance o engagement,yet the industry as a whole did not appreciate his wisdom. As directorswe have to remember that our responsibility is to the companyand to all

its stakeholders.

David W. AndersonMining companies scour the globe or viable oppor-

tunities and ofen find themselves having to operate in politically

unstable environments, acing both lower standards o disclosure and

higher incidence o corruption. How do you deal with this reality?

Hugh BoltonVery careully! Te U.S. Foreign Corrupt Practices Actmakesdirectors personally liable and open to elony prosecution or anycorrupt practices carried on by the company or its employees. Canadianregulators have been slower to act, but are now upping their game in thisregard. As directors, our job is oversightwe are entitled to rely onmanagementbut that doesnt mean we can just ask a question andhear management say, Yes, were fine, and think thats sufficient. We have

to ensure effective controls are in place to justiy that assurance. Teseinclude a relevant Code o Ethics and Code o Conduct, which try toensure people are aware o their obligations and that appropriate proceduresare in place or management to deal with incidents i they occur. Wemust assure ourselves that i problems happen, they are reportedimmediately and effective measures are instituted to ensure immediatecompliance. Tis obligation terrifies me.

David W. AndersonGiven these risks, what advice do you have or

prospective directors?

Hugh BoltonBe careul in considering board service, even in Canada.Just because a company is listed here doesnt mean you can be comort-able. As we saw with Sino-Forest, a Canadian listing was used by oreign

David W. Anderson What defines a great CEOin the mining industry?

Hugh Boltono be an outstanding CEOin this industry, a leader needsexpertise in three areas: scholastic knowledge o engineering or earthsciences, mining operations and capital-raising side o finance. Treeadditional attributes, complementary to these areas o expertise, thatI look or are IQ or raw intelligence, EQ or the empathy to relate topeople, and SQ or the social savvy to read the small p politics oorganizational lie. Its very difficult to find someone with all these things.Getting a smart person is table stakes. Its the other intangibles thatmake a great leader. Consider what it takes to develop a successul minerom a prospectors discovery to a successul assay to profitableproduction takes at least 10 years. It requires finding financial resourcesto prove up the mine and withstand commodity price swings, servicingmonumental environmental obligations, and having a range o manage-ment skills integrated at an executive level. Given these demands andthe stakeholder challenges acing the mining industry, EQ and SQ arethe things that will be more important in distinguishing a great CEO.

David W. AndersonWith such a tall order or an effective CEO, how

do you think about succession?

Hugh BoltonWhether a succession issue arises through retirement orother circumstances, its the boards responsibility to make sure thereare internal successors. Te board agenda must not just address CEOsuccession, but also succession or the management team. Te board

must insist that executives mind their responsibility to recruit, evaluateand develop top people. On my boards, we get an update on peopledown three levels below the CEO. I think succession is the No. 1 issue,as were all human and we all move on to different phases in lie andbusiness. Te average tenure o a CEOgoes by ast.

David W. AndersonDo CFOs make natural CEOcandidates?

Hugh BoltonPerhaps, but one needs more than just financial acumen tobe a good CFO, let alone an effective CEO. A strong CFOis an individualwho not only understands the accounting rules, but more importantly,understands the strategic role a CFOcan play. In act, to be a successulCFO, you dont even need to have an accounting designation. oillustrate, Claude Mongeau did an outstanding job as CFOat CN Rail,

under Hunter Harrison. Claude demonstrated he could operate strategi-cally as the CFOand is now CNs CEO. aking a different route, ColleenJohnston, Ds CFO, has an accounting background that she combineswith other skills, including an extraordinary strategic understanding owhat the company and board ace. So, i you have a CFOwith goodfinancial and strategic ability, then you have a natural candidate or CEO,but I would also say a knowledge o the operating side o the businessis just as important.

David W. AndersonTe ederal government has said it wants to stream-

line regulation to boost resource development and job creation. How

is the evolving regulatory landscape affecting corporate perormance?

Hugh BoltonTe jurisdictions with which Im most amiliarAustralia,

Businesses in the oilsands sector findthemselves in the same position as thelumber industry once did. Tey need tolearn the same lessons and would benefitfrom using the same model


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this fit? Te second question is, Have we got the financial resources?In other words, I want to be sure we are not betting the company to dothis deal. Te third question is, Do we have the human resources tointegrate the companies? It is the human side o integration wheremost companies ail in M&A transactions. I want to know what greatpeople we are acquiring, because mines dont run themselves. Te bestcompanies at M&A have thought through the question o people integrationthoroughly, as its the most important. Te ourth question is, Is thereanyone on the senior management team who isnt 100% behind thisdeal? I want to know i the CEOis overriding objections on themanagement team or underplaying the risks, because i managementsays theres little to no risk, Id vote against it. I probe management tosee i there has been solid debate to bring out the risks and advantageso doing the deal. Understanding risk is the key to mitigating it.

David W. AndersonManagement will always know more about the

business or a potential deal than the board. What helps directors to

understand risk in context and contribute ully to board discussions?

Hugh BoltonDirectors in any industry must really understand thebusiness theyre in. In the mining industry, its not as simple as buyingan asset and then going in and taking the minerals out o the ground.Tere are a lot o problems with the chemistry that can arise. You haveto make sure you have the people who can understand these things.Im not a mineralogical expert, but like all effective directors, I speak up

and say, I dont understandand I need to beore giving my approval.So one needs courage to ask dumb questions to fill gaps in understanding.In a similar vein, I like to see a contrarian mind on a board to stimulatediscussion and make sure we really see the ull picture.

David W. AndersonTe idea that directors must be intimately amiliar

with the nature o the business is a strong theme in your thinking. In

practice, how do you accomplish this?

Hugh BoltonOn the eck Resources board, we go and spend days at minesites to understand what were dealing with. You cant believe how itopens your mind in terms o whats actually happening and how essentialthis is to understanding the business. Tis understanding is secondnature to management, so its vital or the board to also have this ull

appreciation. In the case o a proposed acquisition, its good to see theirassets, but it is ofen not possible or a board to do so beorehand. Weensure that management has seen firsthand any proposed new assetsand reviews with us in detail the documented due diligence. Its a thought-ul, logical process that may allow you to avoid serious surprises.

David W. Anderson,MBA, PhD, ICD.Dis president ofhe Anderson Governance Group in oronto, anindependent advisory firm dedicated to assisting boardsand management teams enhance leadership performance.He advises directors, executives, investors and regulatorsbased on his international research and practice. E-mail:[email protected]. Web: www.taggra.com.

investors to raise money in our capital markets or operations in othercountry. Its not easy to know whats really going on. Extra caution iswarranted when considering board service or companies operatingin oreign countries. ake time to realize the possible extent o your liabilityby doing your own due diligence, including going to the country orcountries in which the company operates to see firsthand the propertiesand to understand their culture and regulatory environment.

David W. AndersonAre there specific acts o due diligence that you have

ound particularly useul?

Hugh BoltonYes, I get written permission rom the company to gobeyond the standard checklists and talk to the auditors and externalcounsel. I ask the auditor about the internal controls, looking orthings like proper recognition o revenue, and get them to take methrough the reporting. Getting a clean bill o health rom the engagementpartners o both the audit firm and external counsel I think gives one a duediligence deence i anything is in act out o order. When being recruitedto serve on small-cap company boards, investigate the promoters andcheck them out as ully as possible. When it comes to board composi-tion, I want to see industry experience and expertise in the mineral thecompany is ocused on.

David W. AndersonForeign investors have spent billions o dollars

buying Canadian firms in the mining and energy sectors, and see enough

potential to spend billions more. Should oreigners be treated differ-

ently than Canadians when it comes to such investments?

Hugh BoltonIts not a good idea to say to entrepreneurs and owners thatyou cant sell your company to others. Our economy would be muchpoorer i that were the general rule. Teres nothing wrong with oreignownership o assets in the ground. We dont have the capital in ourcountry or development, so we need oreign investment. However, I dolament the loss o Canadian control o some o our major mining firms.Its hard to articulate why, but its a philosophical judgment I would makeor industries that are at the oundation o our national security and

economy. As a country, we apply this type o thinking within airline andrail industries that are similarly considered oundational. In this industry,Im in avour o oreign ownership so long as there are reasonable rulesaround decision-making that affects operations within Canada. Aswith the approval o Nexens takeover, there has to be a compromise oncontrol o Canadian firms, in terms o who can run the company andwhat they can and cant do with the assets.

David W. AndersonCanada is a haven or junior mining companies

seeking capital and larger firms looking to acquire the best prospects.

As a director, how do you bring value to the decision-making pro-

cess when acing an M&Adeal?

Hugh BoltonM&Adeals are gut-wrenching ordeals or boards. Its my

job as a director to bring oversight, insight and oresight to the table.Oversight ensures accountability o management to the purpose andplan weve set. Insight generates an understanding o the business andindustry milieu in which it operates. Foresight is an ability to peek aroundthe corner, metaphoricallyits impossible to know the uture withcertainty, but with disciplined thought, we can narrow the possibilities.Applying these three sights generates the specific questions you needto ask management in doing deals.

David W. AndersonAre there general questions you like to ask o manage-

ment to decide whether to support a deal?

Hugh BoltonTe first question is, Are we on strategy with the proposedM&Adeal? All boards have a plan and strategy to accomplish itdoes

Im not a mineralogical expert, but likeall effective directors, I speak up and say, Idont understandand I need to before

giving my approval. One needs courageto ask dumb questions

anderson puts bolton in the director's chair - listed (feb 2013)

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