In 2021, the Johnston Centre launched the LongView, an evolution in governance reporting, which enables every company in the TSX index to compare elements of its governance - process, structure and disclosure - with other issuers at a glance, while moving away from the Johnston Centre's previous judgment-based approach.
Below our Senior Research Officer, Tony Spizzirri (TS), explains how the LongView differs from the Johnston Centre's Board Shareholder Confidence Index, and why a judgment-free approach to governance reporting was long overdue.
After nearly 17 years, why did you choose to re-imagine the Board Shareholder Confidence Index (BSCI)?
TS The Board Shareholder Confidence Index was a fantastic tool, in the same way that the Globe and Mail’s Board Games is a fantastic tool. These ranking systems are effective at promoting generally accepted good governance practices and for that matter, shining a light on the governance of each ranked company. They’re great at promoting established best practices, especially if you have a platform like the Globe and Mail and we’ve seen how disclosure and governance have evolved over the last 20 years. This evolution was certainly driven, in part, by the publication of these rankings on an annual basis. However, ranking systems like the BSCI, broadly apply general rules across all companies and can thus be misleading as markers of good governance because they are dependent on disclosure and are insensitive to the realities of each corporation.
For instance, controlled companies are negatively affected because ranking systems judge these companies harshly, in some ways, only because they are controlled by a shareholder or group of shareholders. Through our own research on publicly-listed family firms, we have found that they are great long-term investments. They outperform widely-held companies and they also have longer lifespans. This indicates to us that both the existence of a controlling shareholder shouldn’t be an indictment of a company’s governance and that the BSCI was an inadequate benchmarking tool for these companies.
Also, the Globe and Mail’s Board Games has a far reach in Canada and the Centre is connected to it, which led to the perception that the BSCI is one and the same. So, we wanted to create a report that addressed the following issues:
- A perceived lack of differentiation between BSCI and the Globe & Mail’s Board Games.
- Difficulty making meaningful comparisons between companies at a glance.
- The fact that issuers with poor ratings tended to dismiss the BSCI entirely instead of seeing it as a potentially useful guide or tool.
- The structural disadvantages for controlled companies, even those with exceptionally good disclosure.
What is the purpose of LongView?
TS The BSCI had a clear purpose: to shine a light in areas of corporate governance to promote improvement. With LongView, we just knew we wanted to change it dramatically from the BSCI. Ultimately, we felt that the best path forward, was to create a report that made it easy for a company to compare its governance practices and disclosure to its peers on the TSX Index without judgment. We chose to focus on four key parameters of governance: board composition, board independence, board compensation and CEO compensation. We felt that individual reports for each company was an effective way to highlight the unique circumstances of each company as well. You don’t just see a name in a table aligned with scores.
How did you decide what to include?
TS We focused on four key measures of corporate governance, namely, board composition and independence, board compensation and CEO compensation. We then asked for feedback from TSX Index corporate secretaries and other governance professionals on the report’s usefulness. Their feedback was very important and really shaped the LongView reports you see today. We also thought it would be useful to provide guidance on a handful of questions in The Globe and Mail’s Board Games to complement and promote transparency in areas we feel are important as well. I imagine we’ll learn from this first publication and improve upon it.
What are your hopes for LongView? What would success look like?
TS If the companies that find ranking systems inadequate for their purposes are using the LongView reports, then that’s a win. I think the long-term success of LongView depends on the continuing engagement with governance professionals as LongView evolves to fit the circumstances of the times. The way we designed the report, we can be more sensitive to current and emerging trends in corporate governance, compared to what was possible with the BSCI.
What has the initial reaction been?
TS The initial reaction has been overwhelmingly positive, and we couldn’t be happier with the result.
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