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Benefits and Pensions MonitorA Conversation With… Stephen A. Jarislowsky BPM: Today, youʼve become synonymous with corporate governance and the Canadian Coalition for Good Governance (CCGG). When did that start? SJ: We were always involved with that, right from the beginning. The Canadian Coalition and the Quebec institute, La Gouvernance, which we also set up here, are just ways of trying to get some sense into the industry and into the corporations by having institutional investors and other organizations which have influence band together to make changes. But I tell you, itʼs not easy. BPM: You said that itʼs always been something that youʼve been interested in right from the beginning, but itʼs really only in the last five years that there has been an organized effort, the Canadian Coalition for Good Governance, which you helped to found. Why did it take so long? SJ: It was the first time we were able to do it by law. Late in 2001, the Canadian Corporations Business Act was amended. Before that, shareholders did not have a say. The investors were totally dispersed. The small investor couldnʼt really do anything and a lot of the big investors were beholden to the corporations to get their business. It was the CEOs who had all the influence. So the only way we could actually act this way was by getting together and that became possible in late 2001 and the CCGG came into being the next year. BPM: Is the coalition making a difference? SJ: It is making some difference, but not yet with this excessive type of compensation, which has become so complex. I just read an article by two researchers in Boston who found out where the top executives of the Fortune 500 companies are living, and the bigger the house, the worse the performance of the stock. What is happening is the consultants are saying “Joe is earning so much a year at ABC company. Comparatively, your company is bigger, therefore, you should have more.” At the same time, this board has three other CEOs on it who say, “gee, this guy could help me too.” But, if somebody makes too much money, he isnʼt hungry anymore, and that is what is happening. It starts with a signing bonus and ends with a change of the control bonus. So all the executives will have all these options immediately come vested and theyʼll be getting a big bonus, about three years pay, because the company is being taken over, and the next day they are working for the new corporation. BPM: Is part of the problem, perhaps, that weʼve become so obsessed in the financial markets with growth equals performance? Unless a CEO is driving growth at the expense of all else, we do not consider it a good company? SJ: I donʼt even think it is growth; I think itʼs manipulation. For instance, if you raise the return that youʼre going to get on your pension fund, like they did in the 1990s, from five to nine per cent, your earnings go up because you pay less into the pension fund. A company can also manipulate its depreciation to make it appear as though its earnings have gone up. I was taught that depreciation was ʻwear and tear,ʼ obsolescence. Now the obsolescence is being looked after by a special charge. In the old days, you had to show actual depreciation. Now you donʼt. There are all kinds of these gimmicks that create rising earnings without doing anything. BPM: So the way out of it is what? SJ: I think what has to happen is that we donʼt attack the CEOs, we attack the boards. By law, a director is supposed to be a fiduciary for all the shareholders. In reality, a director is a fiduciary for the CEO or for the majority shareholder. At the heart of any improvement would be to really go after the boards, insisting that they perform their fiduciary duty and remove directors who do not. -----------------------------------------------------------------------------
Born in Berlin, Germany, in September 1925, Jarislowsky emigrated to the United States in 1941. After studying mechanical engineering at Cornell University, he served in the U.S. Army and, on his return to the U.S. in 1946, he returned to school and earned an MA with Phi Beta Kappa Honors from the University of Chicago. He then completed his MBA studies at Harvard Business School, graduating in 1949. He first came to Montreal, QC, while with Alcan Aluminum. In June 1955, he launched Jarislowsky, Fraser & Company Limited. Over the last 40 years, he has directed the growth of the company as it has become one of the largest and most successful investment management firms in Canada. A champion of corporate governance in Canada, in 2002 he helped found the Canadian Coalition for Good Governance and, in 2006, he co-founded the Institute for Governance of Private & Public Organizations, a research and training centre in Montreal. His book ʻThe Investment Zoo,ʼ a mixture of autobiography, advice, and his views on international policy published in 2005, knocked the French edition of the ʻThe Da Vinci Codeʼ off the bestseller lists in Canada. < previous |
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