ARCHIVED - Review of the Governance Framework for Canada's Crown Corporations - Meeting the Expectations of Canadians

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6. Appointments

Strong boards of directors are essential to effective governance of Crown corporations. Strong boards are built by recruiting individuals with the necessary knowledge and skills to oversee the operations of the corporation, and are sustained through appropriate orientation and training and by the necessary support from within the corporations and from the central agencies.

6.1 Appointments by the Governor in Council to Crown Corporations

There are 45 Crown corporations to which directors⁽⁸⁾ are appointed under the authority of the Governor in Council. The authority for appointments is contained in the FAA for corporations subject to Part X of that Act; for others it is found in the enabling statute for the corporation.

Depending on the statutory provisions, directors may be appointed either by the responsible Minister with the approval of the Governor in Council, or by the Governor in Council. Directors appointed under the FAA hold office for such term, not exceeding three years, as will ensure, as far as possible, the expiration in any one year of the terms of office of not more than one-half of the directors. Directors continue in office until replaced, and they are eligible for reappointment.

Directors appointed under other statutes may be appointed for a fixed term as determined by statute or for a term set by the Governor in Council. They may or may not continue in office until replaced, and there may be reappointment restrictions. For example, in the case of directors of the Canadian Museum of Civilization, a director who has served three consecutive terms is not eligible to be reappointed during the year following the expiration of the third term.

Depending on the statutory provisions, chairs may be appointed by the Governor in Council or designated by it from among the directors of the corporation. Chairs appointed under the FAA hold office for a term set by the Governor in Council. Appointment provisions under other statutes specify that chairs serve for a term not to exceed a certain number of years or for such term as the Governor in Council may determine. The FAA and most other statutes require the responsible Minister to consult the Board of Directors with respect to the appointment of a chair.

Chairs and directors normally serve during pleasure and may be removed or replaced at the discretion of the Governor in Council. However, there are four corporations in which chairs and directors serve during good behaviour and may be removed by the Governor in Council only for cause. These corporations are: the Canadian Broadcasting Corporation, the Bank of Canada, the Canada Pension Plan Investment Board and the Public Sector Pension Investment Board.

Depending on the statutory provisions, CEOs may be appointed by the Governor in Council, by the Board of Directors with the approval of the Governor in Council, by the Governor in Council on the recommendation of the Board of Directors or by the Board of Directors itself. The seven corporations where the CEO is appointed by the Board of Directors are: the National Arts Centre, the Canada Pension Plan Investment Board, the Pacific Pilotage Authority, the Great Lakes Pilotage Authority, the Laurentian Pilotage Authority, the Atlantic Pilotage Authority and the Public Sector Pension Investment Board. One CEO is ex-officio: the CEO of the Enterprise Cape Breton Corporation is the President of the Atlantic Canada Opportunities Agency.

CEOs appointed under the FAA hold office for such term as the Governor in Council may determine. Appointment provisions under other statutes specify that CEOs serve for a term not to exceed a certain number of years or for such term as the Governor in Council may determine. There is normally a requirement for the responsible Minister to consult the Board of Directors with respect to the appointment of a CEO.

CEOs normally serve during pleasure. However, there are three corporations in which CEOs serve during good behaviour: the Canadian Broadcasting Corporation, the Bank of Canada and the Business Development Bank of Canada.

6.2 The Appointment Process

In March 2004, the government announced an interim appointment process for Governor in Council appointments to Crown corporations, in the broader context of its comprehensive review of Crown corporation governance. The interim process served as an initial measure to help ensure a competency-based, professional and transparent appointment process.

Roles and Responsibilities

Over the past several months the government has studied the issue of Crown corporation governance and consulted with interested parties. This, together with the government's experience with the interim process, has led it to conclude that the appointment process needs to be further refined in order to achieve the correct balance.

As the owner and shareholder, the government has the responsibility of ensuring that the governance standards of its Crown corporations meet the highest level, and the appointment process is not only competency-based, professional and transparent, but is also consistent with the ability of the government to exercise its responsibilities as owner. The shareholder must be able to provide appropriate direction to Crown corporations, and Boards of Directors need to be responsive to the shareholder.

Within the framework of authorities establishing the corporation and directing the conduct of its activities, the chairs and the directors represent the interests of the owner, that is, the government as represented by the responsible Minister. The government must, therefore, have an appropriate role in the appointment of directors and chairs.

In the case of CEOs, the government, like the Board of Directors, wishes to ensure the appointment of individuals who can successfully lead a Crown corporation. The CEO, as an officer-director, is an office-holder in the employ of the corporation and responsible to the Board of Directors. Therefore, the Board of Directors should have primary responsibility for the selection of CEOs.

Appointment Principles

The government reaffirms its ultimate responsibility for the quality of Governor in Council appointments. The government's goals for the selection process remain as they were in March 2004: the process should be competency-based, professional and transparent. The government is also firmly committed to ensuring that its appointments are representative of Canada's regions and official languages, as well as of women, Aboriginal peoples, disabled persons and visible minorities. The government also recognizes the need for the selection process to identify candidates in a timely and cost-effective manner.

Selection Criteria and Competency Profile

Boards of Directors will advise the government on appropriate selection criteria for chairs, as well as competency profiles and future needs for directors. The government will make the final determination on the selection criteria and Board profiles, in consultation with Boards of Directors. The government will ensure that individuals appointed as chairs meet the selection criteria and that the directors appointed meet the needs of Crown corporations. In the case of CEOs, Boards of Directors will develop selection criteria, in consultation with the government. Selection criteria for chairs and board profiles will be made public by the government; similarly, Crown corporations will make CEO selection criteria available to the public.

The selection criteria for the CEO and chair will normally include a description of the education, experience, knowledge, abilities and personal suitability sought for the position. For directors, the Board profile will include a description of the experience, attributes and skills that should be possessed by the Board as a whole. This profile is based on the role and responsibilities of the Board, and will include a set of generic qualifications that all Board members must have, as well as specific qualifications that should be possessed by one or more members of the Board.

Measure #16 Selection criteria for chairs and Board profiles will be made public by the government. Similarly, Crown corporations will make CEO selection criteria available to the public.

Directors and Chairs

The government will identify candidates from a variety of sources. The government will develop a central Web site to solicit candidates for director and chair positions. In the interim, the government will advertise appointment opportunities in the Canada Gazette, as required. The government will look to Boards of Directors for any names they wish to submit for the government's consideration. In addition, the government will consider how best to use executive search services as a source of highly-qualified candidates.

Measure #17 The government will develop a central Web site to solicit potential candidates for director and chair positions.

CEOs

The selection process for the CEO will be determined by the Board of Directors. Each Board of Directors will establish a nominating committee to identify candidates for the position of CEO appointed by the Governor in Council. This committee may include outside eminent persons.

As a minimum, the process will include advertisements in either or both the Canada Gazette and the corporation's Web site. If the Board considers it appropriate, taking into account relevant factors such as timeliness and cost-effectiveness, the process may also include advertising in national newspapers and the use of an executive search firm. The Board's nominating committee will screen potential candidates and will then submit its preferred candidate to the government for final approval or veto.

Measure #18 The selection process for the CEO will be determined by the Board of Directors and will include, at minimum, advertising in either or both the Canada Gazette and the corporation's Web site.

Due Diligence

The government needs to ensure that individuals appointed as director, chair or CEO of its Crown corporations meet the highest standards of integrity.

Measure #19 The government will obtain references on all candidates for appointment as director or chair. In the case of CEOs, the Board's nominating committee will be required to do the same for any candidate it submits to the government for appointment. In addition, the government will continue to conduct background checks and ensure that candidates are not in a conflict of interest, prior to making any appointment.

Reappointments

The nominating committee and the Board of Directors should ensure that CEOs recommended for reappointment meet the current and future needs of the corporation as identified in the selection criteria. It is not necessary for other candidates to be brought forward by the Board when reappointment is recommended. Director and chair reappointments will be determined by the government, taking into account the Board profile, the needs of the corporation and the views of the Board of Directors.

Prior review of appointments by standing committees

The Government Leader in the House of Commons has provided parliamentary committees with a list of appointments, including those made to Crown Corporations, and asked the committees to determine which key appointments they wish to review prior to these appointments being finalized. The Procedure and House Affairs Committee has been asked to determine how the reviews would be conducted, and to consult with parliamentarians from both Chambers on how these reviews should be implemented. The government is of the view that individuals nominated for reappointment would not be subject to prior review by a standing committee if their initial appointment received prior review.

Measure #20 The government will work closely with parliamentary committees to ensure a workable appointment review process that will not unduly delay necessary appointments.

6.3 Succession Planning

For those corporations subject to Part X of the FAA, directors may be appointed for a term not to exceed three years. This is also true for some corporations exempt from Part X. This is a relatively short period and requires decisions on reappointments on a frequent basis. If the decision to reappoint is not made in a timely fashion, directors continue in office until reappointed or replaced. While this allows the directors to continue to perform their functions it creates uncertainty and is not conducive to the proper functioning of the Board.

The government proposes to amend the FAA and other enabling statutes to permit the appointment of directors for up to four years to help ensure the maintenance and continuity of expertise on Boards of Directors.

Measure #21 The government will amend the FAA and enabling statutes to provide for appointments for up to four years.

 

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