But certainly from the ’60s on, with the sizable number of mergers attendant on the conglomerate movement, and carried into the ’70s and ’80s during the time of unfriendly tender offers, boards of directors developed a higher profile. Another factor raising that profile was the large and growing number of lawsuits aimed at corporate directors. Also in the background was the growing concentration in the corporate equity ownership of publicly owned companies by institutional investors.

By 1990, the stage had been set and an increase in the rate of change began in the structure, organization and operations of boards. Some large institutions had begun to flex their muscles in order to have a voice in the mode of board operations. CalPERS (California Public Employees’ Retirement System) was in the forefront of this development in attempting to fashion “desirable” change in corporate board operations and raising the profile of board decisions. More and more controversy was publicly aired by shareholders, resulting in a response that affected the makeup and operations of boards.

All these phases in the forces of change were dramatically overshadowed by a number of corporate scandals with the opening of the twenty-first century. In very short order, Enron, WorldCom, Tyco, Global Crossing, Adelphia, etc., reported major deficits or declared bankruptcy with very large losses to shareholders and lenders. In all of these cases, and a substantial number of others of smaller magnitude, boards were accused of not operating responsibly and therefore breaching their fiduciary responsibility.

These occurrences ushered in a new era of pressure for change. The Sarbanes-Oxley legislation was passed quickly and virtually unanimously by the United States Congress. The major exchanges and the Securities and Exchange Commission (SEC) were galvanized into action, changing long-standing regulations and methods of overseeing corporate board operations and organization. The interest in board activities has grown enormously in a short period of time, from little or mild interest to top-of-mind, keen interest.

In the discussion that has ensued around the dramatic development of interest in the activities of boards of directors since the implosion of Enron, the emphasis has been on structural change. Major importance has been placed on transparency—the proportion of independent versus inside directors. The role of the audit committee in overseeing and reporting the financial condition and operating results has been greatly increased. Committee membership was mandated to be entirely of independent directors. The definition of an independent director has been much more strongly circumscribed. In the United States, institutional investors have given strong support for a separation of the CEO function from the chairmanship. The importance of the internal auditor role has increased.

These are major changes that have been centrepieces of federal legislation, new rules promulgated by the exchanges or new SEC rules. It is, therefore, very interesting to note that academic research conducted on corporate boards has been singularly unable to demonstrate a relationship between structural changes and corporate performance. This has been a difficult reality for the advocates who have championed these various changes in the structure and operations of corporate boards.

Now, along comes a new book that investigates the question of how boardroom decision-making is conducted. Richard Leblanc, as the basis of his PhD dissertation, interviewed intensively almost 200 directors and observed in real time the operation of the boards and/or committees of twenty-one enterprises. James Gillies has the personal experience of serving on the boards of thirty companies. In essence, the authors reviewed how boards actually make decisions.

The authors classify board members by behavioural characteristics and analyze the interaction of groups with differing sets of characteristics. From this analysis, they hypothesize what attitudinal and personal traits produce highly productive boards as opposed to those less so. This, of course, leads to suggestions of how to structure a board that will be conducive to a highly productive and well-functioning enterprise.

One can ask why it has taken so long for a study such as this to appear. The answer, I believe, is simply that shareholder activists could observe the action of potential and current directors through data supplied by the proxy instrument or by SEC filings. However, it has been very difficult to learn about personal attributes and how individuals respond in board discussions and, in the process of making decisions, sitting as a board of directors. Board meetings have not been open to shareholders, even large institutional investors or even regulatory bodies. Interesting data about board decision-making does occasionally become public in court records or in controversial confrontations that are fought in public view with both sides vying for shareholder support. But these forms of information cannot properly be generalized and probably cause erroneous conclusions.

This is a truly pioneering work that is not only worth study by students and academics interested in corporate governance but should also be profitably read by directors, officers, investors, regulators and professional advisers interested in the construction of well-functioning boards.

Over the years, a number of our colleagues at the Schulich School of Business have been involved in the development of this book. We are particularly indebted to Professor Gareth Morgan, without whose help on the methodological problems associated with the research we could never have completed the work, and to Professor Rein Peterson, for the incisive comments he always cheerfully provided while the book was being written. Professor Ian McDougall of Osgoode Hall Law School was a helpful constructive critic of the work.

We owe a particular debt to Professor Robert Tricker, former editor of Corporate Governance: An International Review, Professor Bernard Taylor of Henley College and Drs. William Dimma and Josef Fridman for reading the manuscript and providing us with useful suggestions. We are extremely grateful to Laurence D. Hebb, Q.C., a former managing partner at Osler, Hoskin & Harcourt LLP. Larry’s analytical rigour and consistent support contributed immensly to this book. In addition, Professor David Leighton, one of the great scholars in the field, not only read the manuscript, for which we are grateful, but over the years has been a friend, supporter and, at times, colleague. His friendship and encouragement as one of the pioneers in the study of corporate governance in Canada cannot be sufficiently acknowledged. We are also grateful for the commentary of Peter Bartha, Carol Hansell and Paul Waitzer, who discussed various aspects of the project with one of us as it evolved over time. And we owe a very special debt of thanks to Dr. Barbara Kelley who patiently introduced us to the complexities and ambiguities associated with contemporary behavioural psychology.

We gratefully acknowledge the support of the Institute for Corporate Directors (ICD) for permitting the use of some of the data generated by an ICD-funded study on director education, conducted by Dr. Leblanc. We also thank the Australian Institute of Company Directors, the Institute of Directors (London) and the National Association for Corporate Directors (Washington) for their continuing support.

The study of corporate governance is a tricky business. The authors could never have completed this study without the great good fortune of meeting, debating, chatting and exchanging views with a great many business leaders throughout the years. Among those who were particularly helpful in formulating our views, with which many disagree and who of course have no responsibility for them, are Ronald Atkey, John Bankes, Nicholas Barnett, Matt Barrett, Isabel Bassett, David Beatty, Jalynn Bennett, Roy Bennett, Conrad Black, Bill Blundell, David Brown, Michael Brown, the late Max Clarkson, John Cleghorn, David Conklin, Purdy Crawford, Tom D’Aquino, Robert Dale, Bill Davis, Graham Day, Michael Deck, Paul Desmarais, Jr., Peter Dey, Wendy Dobson, Bill Etherington, John Evans, Ralph Evans, Don Fullerton, the late George Gardiner, the late Douglas Gibson, Peter Gleason, Bill Glikbarg, Jim Goodfellow, Fred Gorbet, Peter Gordon, Chuck Hantho, Rob Hines, Ken Hugessen, Hal Jackman, Tom Kierans, Alex Lajoux, Claude Lamoureux, Patrick Lavelle, Jack Leitch, Frank Logan, Peter Lougheed, Fiona MacDonald, Michael Mackenzie, Joe Martin, Frank McKenna, Doreen McKenzie-Sanders, Margaret McNee, John McWilliams, Michael Meagher, Gord Nixon, Mary Mogford, Brian Mulroney, David O’Brien, Patrick O’Callaghan, Tom O’Neill, Heather Osler, Sunny Pal, David Peterson, Michael Phelps, Chris Pierce, Gary Polonsky, Alfred Powis, Rob Prichard, Bob Rae, Ced Ritchie, Mac Ryerse, Guy Saint-Pierre, Art Sawchuck, Guylaine Saucier, Francis Saville, Seymour Schulich, Maureen Stapleton, Frank and Belinda Stronach, Maurice Strong, Larry Tapp, Paul Tellier, Axel Thesberg, Chris Thomas, Richard Thomson, Beverly Topping, Denis Turcotte, John Turner, Rudy Vezer, Liz Watson, Paul Weiss, Bill Weyerhaeuser, Rick Whiler, Bernie Wilson, Red Wilson, Rob Yalden, Adam Zimmerman and John Zych.

We also wish to express our deep appreciation to Dr. Dezsö J. Horváth, the wise, experienced and energetic Dean of the Schulich School of Business, for his constant encouragement of this project and his thoughtful insights on corporate governance. Dr. Leblanc also thanks Dr. Rhonda Lenton and Professor Joanne Magee, Dean and Associate Dean of the Atkinson Faculty of Liberal and Professional Studies, and Drs. Brian Gaber and Monica Belcourt, current and former Directors of the School of Administrative Studies, York University, for their support and commitment to the study of corporate governance, law and business ethics.

We sincerely appreciate the enthusiasm and encouragement which Karen Milner, Elizabeth McCurdy, Pam Vokey, Meghan Brousseau, Erin Kelly and Michelle Bullard at John Wiley & Sons brought to this book as they managed its production from manuscript to final form in a highly efficient and effective way.

By its very nature this book is highly controversial. It also almost certainly contains mistakes, contentious conclusions and unsupportable generalizations. For these we take full responsibility, blame and, if there is any, the occasional credit.

The amazing thing about all this activity is that it has been based on very little knowledge about the relationship of corporate governance to corporate performance, and almost no knowledge about how boards actually work. Paradoxically, while regulation of, and writing about, private sector boards has increased in a dramatic fashion, actual knowledge about how boards work has increased hardly at all. The reason for this is that boards are notoriously difficult to study. Of all the major institutions in society, they are probably the most closed. Few board meetings, if any, are ever open to the public and it is seldom that outsiders are invited to attend. Hence little is really known about how and why boards make decisions. Most of the writing about boards, and it has in recent years been voluminous, has been limited to analyzing information that is publicly available through annual reports, regulatory filings and corporate releases. As a result, most writing is largely about various aspects of board structure and composition; that is, whether the positions of chair and CEO should be occupied by the same person, the appropriate percentage of independent directors that should serve on a board, the size of the board, the committee structure of boards and the independence of such committees, and so on.

This book differs from other books and articles on corporate governance in that it is based on original data obtained over a period of five years, from the study of the boards of directors of twenty-nine private sector for-profit companies, four government-owned enterprises, and six not-for-profit organizations. Most significantly, the study included attendance and observation in real time of activities at board and/or committee meetings of twenty-one of these organizations, which included eleven of the private sector boards and each of the government owned and not-for-profit boards being examined. In addition, since the research upon which this book is based was completed by Dr. Leblanc, he has observed and advised corporate boards and directors in Canada, the US and other countries. His findings from this additional work tend to support the hypotheses advanced in this study.

The twenty-nine private sector companies studied operated in almost every sector of the economy and ranged in size from large, including some of the largest corporations in North America, to small and medium. The type of ownership varied from widely held to closely controlled by a dominant individual, family or a foreign parent, and the majority were publicly listed on the Toronto and/or New York stock exchanges. While being studied, the boards were dealing with issues as diverse as CEO succession, mergers, acquisitions, divestitures, unfriendly takeovers, financial distress, global expansion and new government regulations.

The data obtained from attending board and committee meetings were supplemented by interviews with 194 directors, primarily, but not exclusively, with those associated with the companies studied, and included additional interviews with directors after this study had formally concluded. Directors’ backgrounds were as diverse as their companies. The group consisted of current and former regulatory officials, active and retired directors and chief executive officers, as well as other officers of boards. In addition, the group included shareholder representatives and activists, lawyers, auditors, former senior politicians and government officials, consultants, compensation experts, human resource professionals, professors, university presidents and business school deans. Many of the directors interviewed served on more than one board, including the boards of companies domiciled outside of Canada.

Since many of the observations in this book are based on the collective views of the people interviewed, a very large number of quotations from the interviews are included in the text. While many are repetitious—many directors complain of the same problems—it is essential that the many quotes be read with care. Only by savouring the comments of almost 200 directors is it possible to gain a real flavour of the state of boardroom governance at the turn of the century. It should be noted, however, that no attempt was made to draw a random sample of directors interviewed and so broad generalizations should not be drawn from their views.

Traditionally, the study of corporate governance has been limited by the perceived inability of researchers to actually attend board meetings to observe “how in fact boards make decisions.” The fact that this study was completed—and the means by which it was completed—should put an end to the idea that research on boards must be limited to published data and hearsay. It is possible to study the manner in which boards function in real time. The methodology of how this can be accomplished is summarized in Appendix B in order that this type of qualitative research may be replicated and built upon in the future.

Not astonishingly, the study’s data indicate that the decision-making processes of boards are greatly influenced by the behavioural characteristics of individual directors. Consequently, a classification scheme for types of directors, based on behaviour, has been developed. Not unexpectedly, directors with certain behaviour patterns are common to an ideal, “functional board,” which include the Conductor-Chair, Change Agent, Consensus-Builder, Counsellor and Challenger. Similarly, certain other directors are common to a “dysfunctional board,” which include the Caretaker-Chair, Controller, Conformist, Cheerleader and Critic.

Based on the study’s data gained by observing boards in action and interviewing practising directors, a model of the ideal, effective board of directors is proposed. The performance of a particular board or director may be measured against this model of the effective board. It is hypothesized that if the board of directors is effective, as defined by the proposed model, other things being equal, it will make decisions that will result in the company earning superior rates of return for the shareholders.

However, because so many exogenous factors impact on the financial performance of an individual firm, neither effective nor ineffective governance may be a necessary nor sufficient condition to ensure positive or negative financial performance. Indeed, the majority of the studies of corporate governance have not been able to show a causal relationship between the structure and form of boards and corporate financial success. This study of board activities does not either, nor was it designed to. But common sense suggests that there is a positive relationship between the two, and this study strongly indicates that the connection may be found by studying board processes.

The basic result of this study is the development of the hypothesis that boards based on structure and form may not be optimal for providing effective governance for a corporation. Rather, if good corporate governance, when governance is defined as effective decision-making, is a prerequisite for good corporate financial performance, directors must be selected on the basis of how their competencies and behavioural characteristics complement each other and how they match the strategies that a corporation may have for achieving its goals.

This study is the first of what we hope will be many in the analysis of the relationship between board and director effectiveness and corporate financial performance. Gaining greater knowledge of how boards function—of board processes—may be the key to resolving the still unsolved major question about corporate governance—“What are the conditions of corporate governance that must be present to assure solid corporate performance?”