Ethical corporate governance is enjoying a prominent new seat at executive board tables in the wake of high-profile accounting scandals, but many companies are still suffering a “crisis of confidence” in the aftermath, say business leaders.
“I’ve served on 18 public company boards over the past 27 years, but I can’t think of any issues I’ve dealt with or people I’ve dealt with that have exhibited the kind of behaviour I’ve seen in the last year,” said Dick Haskayne, board chair at TransCanada PipeLines Ltd. and a senior executive and director for many prominent Canadian and U.S.-based companies. “I’m embarrassed at what I’ve seen.”
Haskayne was one of several business experts who offered a first-hand look at the challenges posed by ethics and governance issues at a special conference last week at the Calgary Chamber of Commerce. Haskayne noted that good governance alone can no longer guarantee a company’s success or reputation.
But even if Canada were to adopt rules along the lines of the U.S. Sarbanes-Oxley Act – which imposes stringent rules for companies and holds audit committee and corporate boards to a higher standard of accountability – “it’s a fact of life that you can’t legislate ethics,” Haskayne said.
“And many of the issues that plague us are a question of fundamental ethics.”
There are about 4,000 public companies in Canada, and more than 3,000 of them have less than $10 million in assets, added Wilf Gobert, an oil industry analyst and vice-chairman of Calgary-based Peters & Co.
“Their complaint about the people who say, ‘let’s just adopt the Sarbanes-Oxley law’ is that they can’t afford it,” he said. “So are we going to adopt laws that put us out of business, or do we want to adopt a made-in-Canada approach?”
Following the Enron, Arthur Anderson and WorldCom fiascos, investors need assurance companies are following proper corporate governance procedures and doing an honest job, as well as being in compliance with rules, regulations and ethics, Gobert said.
In Enron’s case, he added, there were competent people serving on the board who came from highly respected backgrounds. “But if you can’t rely on the quality of your independent financial advisers, your independent reserve engineers and the management themselves below the guy who sits on the board – if fraud is going to be committed, you’re not going to be able to avoid being a victim to it.”
The conference also heard from a former WorldCom worker, who gave an employee’s perspective on the importance of ethical governance. Craig Elias, who joined the global digital telecom firm as a Calgary-based account manager two years ago, said WorldCom looked like a solid company at the time.
“They looked like a great organization, they had a great product they could deliver and great credibility. And at that point in my career, corporate governance meant (nothing) to me,” said Elias, who went on to be named WorldCom’s top salesperson in the country in less than six months.
But Elias was soon watching in horror as WorldCom’s stock plummeted in the wake of revelations of massive accounting improprieties, yet company officials were still reassuring workers that it was business as usual.
“We got a comprehensive package from the then-CFO at WorldCom – I think we’ve all since seen him on the front page of the Globe and Mail in handcuffs – about how the low price of the stock had zero impact on WorldCom’s ability to conduct business,” recalled Elias. “I sent an e-mail to the 200 most influential people I know and said: ‘This is the truth about WorldCom.’ ”
After it was revealed WorldCom was reporting a minimum of $6 billion in accounting fraud, “I got some of those e-mails back reading: ‘Now we really know the truth.’ ” His job was terminated soon afterward, he added.
