Recommendations to Improve Governance Practices

Report Recommendations to Improve Governance Practices Task Force on Governance October 2011 Document 211106 Ce document est disponible en français 2011 Canadian Institute of Actuaries

INTRODUCTION At a meeting held March 24, 2010, the CIA Board created a task force charged with reviewing the CIA s governance model and practices and identifying potential improvements. Anne Vincent was appointed Chair of the Task Force on Governance and John Dark, Dave Dickson and Al Edwards were appointed members. Daniel Lapointe was asked to serve as a resource person. The task force held five conference calls, reviewed relevant material and retained the services of Mel Gill, President of Synergy Associates, to provide advice and expertise. It concluded that the CIA s governance model is not broken but there is room for improvement. Hence the following recommendations, which aim to improve the Institute s governance practices and are all unanimously supported by the task force. BOARD STRUCTURE AND COMPOSITION The task force discussed whether it was necessary to make changes to the election system and the Board s structure/composition to ensure appropriate representation of the membership and effectiveness in the conduct of business. Research indicates that boards composed of more than 12 members are generally not as effective as smaller boards. However, the task force felt CIA Board meetings run rather well in spite of the fact the Board is relatively large (16 voting members). Furthermore, the Board has found appropriate ways to deal with the occasional lack of representation from major practice areas. As an example, in 2009 it created a pension task force (chaired by a Board member and composed of non-board members of the pension practice area) to provide guidance on decisions relating to pensions. In 2010, thanks to the effort put in by the Elections Committee, the membership elected three members from the pension practice area, thereby correcting the lack of pension representation the Board had been struggling with. The task force studied the SOA system of reserved board seats but concluded that such a system was not necessary in the CIA context. It also considered the Election Committee s report. Therefore, it does not recommend changes to the election system and/or the Board s structure/composition. Board s Authority to Remove a Board Member The task force does, however, recommend that the Board move ahead with legal counsel s recommendation to change the CIA Bylaws to enable the Board to remove from office a member unfit to perform his/her duties or likely to bring the Institute and/or profession into disrepute. Recent events in another actuarial organization should serve as a lesson and prompt the CIA to adopt bylaw provisions that would grant the Board the required authority to handle an exceptional situation where a member is acting in a way detrimental to the Institute and/or the profession. Such provisions exist in the bylaws of other professional bodies. The task force believes the CIA Board should approve the bylaw amendments suggested by counsel. Recommendation 1: That the CIA Board approves the bylaw amendments that would grant the Board the required authority to remove from office a Board member in exceptional circumstances. 2

Risk Management Committee The task force also thinks the Board should create a Risk Management Committee that would report directly to the Board. Risk management is becoming a key function in most organizations (across all sectors of the profit and not-for-profit worlds) and in recent years the CIA has been advocating that actuaries are the professionals best suited to occupy positions in this emerging field. It would appear nonsensical if the Board chose not to create a Risk Management Committee that would report directly to it. The chair of the governance task force discussed this matter with the CIA Secretary-Treasurer and there was agreement that the risk management function should be kept separate from the duties of the Committee on Finance. That committee reports to the Board and must focus its attention on the financial risks faced by the corporation while the Risk Management Committee would have a broader approach encompassing all risks. The committee would be chaired by a Board member, and a member of the Secretariat staff (probably the resident actuary or director of finance) would be an ex officio member with the title of risk manager. Those who would be responsible for drafting the terms of reference of this new committee could learn from recent efforts of the SOA, which is busy creating its own Risk Management Committee. Recommendation 2: That the CIA Board creates a Risk Management Committee chaired by a member of the Board and supported by a Secretariat staff member who would be given the title of risk manager and an ex officio seat on the committee. The committee would report directly to the Board and have responsibility over all risks the corporation faces, while the Committee on Finance would continue to focus on the organization s financial risks. BOARD PRACTICES Board Orientation The task force came to the conclusion that more time and resources should be allocated to Board orientation. At the present time, orientation boils down to a short 60-minute session facilitated by the Executive Director at the September Board meeting. The task force believes more should be done. The current Board orientation package should be expanded to include: a) Minutes of previous Board meetings; b) An outline of strategic issues facing the organization; c) Mel Gill s book Governing for Results, a Director s Guide to Good Governance; d) The strategic plan; e) The operational plan; f) The President s Manual; g) The Secretary-Treasurer s position profile; and h) A checklist reminding the Board about statutory business that requires attention at each meeting. 3

The session should be longer and held during the evening prior to the September Board meeting (e.g., from 6:30 to 9:30 p.m.). It should continue to provide Board members with practical information usually covered by the Executive Director, discuss their role and duty from legal and administrative perspectives, and present the strategic and operational plans. The Board should consider occasionally inviting a speaker to facilitate a session on governance practices, elaborating on best practices and helping members better understand their role and duties as directors. The task force does not recommend that such a speaker be invited at the orientation session, but rather once every two or three years at a regular Board meeting. The Board s decision-making capability and efficiency at meetings would be improved if more time and resources were devoted to the annual orientation. Recommendation 3: That the Board orientation session be augmented from one to three hours and the orientation package be expanded to include material such as previous minutes, an outline of strategic issues facing the organization, etc. Board Self-assessment The CIA Board does not conduct a self-assessment exercise. According to Mel Gill, effective boards are characterized by a willingness to regularly examine their own practices, and selfassessment should be a regular component of board practice. The task force believes the Board should implement a self-assessment process for Board members and the Board as a whole. Examples of questions in a director self-evaluation checklist: do I understand the organization s budget and financial statements? Do I attend Board meetings regularly? Do I carry out assigned tasks in a timely and effective manner? Such a self-assessment could be done every two or three years and facilitated by an experienced consultant. The task force encourages the Board to consider hiring Mel Gill for this purpose, as his approach appears to be inexpensive ($4,000 $6,000) and practical. Furthermore, Mel can compare the results of our assessments against other boards, and provide feedback. Alternatively, the Board may prefer to have a subset (two or three Board members) develop its own self-assessment tools using what can be found in books and articles on governance in notfor-profit organizations. Recommendation 4: That a self-assessment mechanism be created to measure the performance of the Board and its members. This can be done with or without the help of an experienced consultant. In Camera Sessions The task force discussed the pros and cons of holding regular in camera sessions in the not-forprofit sector. Although few experts challenge the fact that Boards must have the authority to meet in camera when warranted by special circumstances, there is no consensus regarding the merits of holding in camera sessions on a statutory basis. More not-for-profit organizations are introducing this practice, already common in the for-profit sector. Some not-for-profit organizations hold in camera sessions at every meeting. 4

The CIA Board decided in 2009 that an in camera session (where council chairs and staff would be asked to leave) would be conducted at the March Board meeting. The first was conducted in March 2010. The task force members who attended (Anne Vincent and John Dark) felt the exercise was helpful. Therefore the task force recommends that the Board maintains its 2009 decision and continues to hold an in camera session at the end of the March meeting. Recommendation 5: The Board should maintain its recent practice of holding an in camera session once a year at the Board meeting held in March. Observers at Board Meetings In light of the recent experience of having a guest speaker at the June 2010 Board meeting, the task force discussed at length whether such events should be open to the public or considered a private function. Although it appears increasingly common in the not-for-profit world to open up board meetings, the task force recommends the CIA Board do the opposite. It thinks that it would be wiser to consider them a private function where people external to the Board would be welcomed to attend as observers and/or guests by invitation only. The task force is of the mind that privacy is more conducive to frank and productive deliberations. Board members should have an environment that favors the expression of bold ideas and outside the box thinking, which can sometimes be hampered by the presence of observers. Furthermore, by making the minutes easily accessible to any member or non-member of the organization, the CIA leadership ensures it is acting transparently. Should there be a situation where a member or non-member requests to make a presentation to the Board (and supposing the President agrees), the task force thinks the guest should be given appropriate time to present his/her case and then be asked to leave so the Board can discuss the matter in private in a serene atmosphere conducive to honest and open discussions devoid of unnecessary restrictions and/or posturing. Recommendation 6: That the Board develops and approves a policy clearly stating that its meetings are open to observers and guests by invitation only. The policy will outline the appropriate protocol for such situations. Board Code of Conduct Mel Gill strongly recommended that the Board adopts a code outlining standards of conduct expected of its members. The task force reviewed the SOA s Policy on Responsibilities and Conduct of Members of the Board of Directors and concluded that much of it would be helpful to the CIA. Recommendation 7: That the Board creates a task force charged with developing a code of conduct for Board members. The task force would be instructed to adapt to the Canadian context the SOA s Policy on Responsibilities and Conduct of Members of the Board of Directors. 5

Board Planning Chart To provide the Board with a comprehensive view of statutory matters that will appear on agendas and help Board members prepare for meetings, the task force recommends a chart be prepared to outline regular agenda items. For instance, it would indicate that the annual budget is discussed and approved at the March meeting, the auditors appointment is handled at the June meeting, the orientation session is conducted at the September meeting, etc. Recommendation 8: That the Secretariat creates a chart outlining statutory agenda items of each Board meeting. The chart would be given to Board members at the September orientation session and included in each Board meeting package as a consent agenda item. Reports from the Secretary-Treasurer at Every Board Meeting The Secretary-Treasurer already provides regular financial updates to the Board. The task force believes it would be preferable to have the Secretary-Treasurer report at each and every Board meeting. Such reports would focus, of course, on the organization s financial situation and confirm that all relevant government filings have been completed. They would also help the Board fulfil its duty regarding monitoring compliance. The Committee on Finance already uses a Financial Control Checklist to monitor the Institute s financial situation and make sure the organization complies with its reporting obligations. The Secretary-Treasurer could report to the Board at every meeting on the status of this monitoring exercise. Recommendation 9: The Secretary-Treasurer should report at every Board meeting on the organization s financial situation and confirm that the Committee on Finance has conducted the Financial Control Checklist exercise. GOVERNANCE MODEL AND DECISION-MAKING AUTHORITY The governance task force sees no major issues with the CIA s governance model. There appears to be a consensus within the organization that the Board should be responsible for strategic planning, financial stewardship, policy development, monitoring compliance and risk management while the councils /Secretariat s authority should apply to program design and implementation. The task force believes the Board focuses sufficient attention on high-level strategic matters and it generally does not waste time and energy micromanaging. Board meetings run rather smoothly with members afforded the opportunity to add items to the agenda (before and at the meeting) and speak their minds on all matters presented for discussion. Review of Committees Mel Gill pointed out that our structure comprises a great number of committees, some reporting to the Board but most to a council. He suggested we review each committee s mandate to determine if it serves a purpose and whether it should be disbanded or merged with another committee. 6

The task force believes it would be helpful for the Board and councils to review the role of all 38 committees currently in function and decide on their future. A review of liaison roles should also be conducted, and the Board should ensure unnecessary task forces are removed from the website. Their leaders should be reminded that task forces handle a specific matter in a particular timeframe and make recommendations before being disbanded with thanks. Recommendation 10: That the Board instructs the councils to review the mandate and level of activity of each committee under its authority, to determine whether or not it should be disbanded or merged with another committee. Authorities Matrix The Presidents asked the governance task force to look at the Policy on Decision-Making Authority within the CIA and suggest changes if needed. The task force concluded that the current Authorities Matrix is adequate and does not require major amendments. It does, however, need fine tuning. The task force recommends that the Compensation Committee (which reports directly to the Board) be added to the matrix and given authority over the approval of the annual salary and benefit package and over changes to the Secretariat s headcount. The task force also recommends that the authority to select all suppliers, without exception, be given to the Executive Director. It believes the Board s role is to design and approve policy whereas the Executive Director s is to implement policy. Therefore, the Authorities Matrix should reflect this principle. Recommendation 11: That the Board approves the changes to the Policy on Decision-Making Authority within the CIA, as outlined in the governance task force report. CONCLUSION The governance task force unanimously agreed that the CIA s governance model is not broken but there is room for improvement. The majority of its 11 recommendations (numbers 3 through 9) are aimed at improving identified Board practices. Recommendation 1 (giving the Board authority to remove a Board member in exceptional circumstances) is the only recommendation that requires a change to the bylaws to implement. While it recommends a review of CIA committees with a view to disbanding or merging some, the task force also recommends the creation of a Risk Management Committee reporting directly to the Board. Finally it recommends a few minor changes to the Policy on Decision-Making Authority within the CIA. The task force would like to acknowledge the contribution of Mel Gill, whose expertise has been tremendously helpful, and thank Daniel Lapointe for his support. 7

RECOMMENDATIONS 1. That the CIA Board approves the bylaw amendments that would grant the Board the required authority to remove from office a Board member in exceptional circumstances. 2. That the CIA Board creates a Risk Management Committee chaired by a member of the Board and supported by a Secretariat staff member who would be given the title of risk manager and an ex officio seat on the committee. The committee would report directly to the Board and have responsibility over all risks the corporation faces, while the Committee on Finance would continue to focus on the organization s financial risks. 3. That the Board orientation session be augmented from one to three hours and the orientation package be expanded to include material such as previous minutes, an outline of strategic issues facing the organization, etc. 4. That a self-assessment mechanism be created to measure the performance of the Board and its members. This can be done with or without the help of an experienced consultant. 5. The Board should maintain its recent practice of holding an in camera session once a year at the Board meeting held in March. 6. That the Board develops and approves a policy clearly stating that its meetings are open to observers and guests by invitation only. The policy will outline the appropriate protocol for such situations. 7. That the Board creates a task force charged with developing a code of conduct for Board members. The task force would be instructed to adapt to the Canadian context the SOA s Policy on Responsibilities and Conduct of Members of the Board of Directors. 8. That the Secretariat creates a chart outlining statutory agenda items of each Board meeting. The chart would be given to Board members at the September orientation session and would be included in each Board meeting package as a consent agenda item. 9. The Secretary-Treasurer should report at every Board meeting on the organization s financial situation and confirm that the Committee on Finance has conducted the Financial Control Checklist exercise. 10. That the Board instructs the councils to review the mandate and level of activity of each committee under its authority, to determine whether or not it should be disbanded or merged with another committee. 11. That the Board approves the changes to the Policy on Decision-Making Authority within the CIA, as outlined in the governance task force report. 8