The Directors Chair

36 Listed //Mining & Energy PDAC 2013

www.listedmag.com

The Directors Chair

The bottom line on oversight

In The Directors Chair with David W. Anderson: Hugh Bolton, former top
accountant, now top chair and director, says directors on resource sector
boards must dig for answers to really know the business theyre in
Photography by Jeff Kirk

Hugh Bolton had a sterling career as a chartered accountant, culminating in his

role as head of Coopers & Lybrand Canada in the 1990s. The insights gained in
that arena have also served him exceedingly well in his second career as a corporate
director. Bolton currently holds board positions in a number of sectors, with
energy and mining front and centre. Here, in conversation with Listed contributing editor and governance and leadership adviser David W. Anderson,
Bolton reveals how successful boards in those sectors operate and what hes
learned along the way.

Hugh Bolton
Primary role
Chair, Epcor Utilities Inc.
Additional roles
Director: Capital Power Corp., Capital Power LP, Teck Resources Ltd. (chair, Audit Committee), TD Bank Financial Group,
The Canadian National Railway Co., WestJet Airlines Ltd. (chair, Audit Committee)
Former chair and chief executive partner
Coopers & Lybrand Canada
Former chair
Matrikon Inc., Abacus Insurance Ltd.
Former director
Research Technology Management, Inc., Junior Achievement Canada, Canadian Diabetes Association, Canadian
Comprehensive Auditing Foundation, Canadian Tax Foundation
Former commissions and councils
Alberta Business Tax Review Committee, Business Council on National Issues, Ontario Financial Review Commission
Education
University of Alberta, BA (Economics), Harvard Business School, Executive Education Program
(Corporate GovernanceAudit)
Professional accreditation
Chartered Accountant, Alberta (1963)
Honours
k
Fellow, Alberta Institute of Chartered Accountants (1996)
k
Distinguished Service Award, Alberta Institute of Chartered Accountants (2001)
k
Life Membership, Alberta Institute of Chartered Accountants (2003)
k
Fellow, Institute of Corporate Directors (2006)
k
Lifetime Achievement Award, Alberta Institute of Chartered Accountants (2010)
Current age
74
Age when first became a director
59
Years of board service
15 years

www.listedmag.com

Mining & Energy PDAC 2013\\Listed 37

The Directors Chair

David W. Anderson What defines a great CEO in the mining industry?
Hugh Bolton To be an outstanding CEO in this industry, a leader needs

expertise in three areas: scholastic knowledge of engineering or earth

sciences, mining operations and capital-raising side of finance. Three
additional attributes, complementary to these areas of expertise, that
I look for are IQ for raw intelligence, EQ for the empathy to relate to
people, and SQ for the social savvy to read the small p politics of
organizational life. Its very difficult to find someone with all these things.
Getting a smart person is table stakes. Its the other intangibles that
make a great leader. Consider what it takes to develop a successful mine
from a prospectors discovery to a successful assay to profitable
production takes at least 10 years. It requires finding financial resources
to prove up the mine and withstand commodity price swings, servicing
monumental environmental obligations, and having a range of management skills integrated at an executive level. Given these demands and
the stakeholder challenges facing the mining industry, EQ and SQ are
the things that will be more important in distinguishing a great CEO.

Businesses in the oilsands sector find

themselves in the same position as the
lumber industry once did. They need to
learn the same lessons and would benefit
from using the same model
David W. Anderson With such a tall order for an effective CEO, how

do you think about succession?

Hugh Bolton Whether a succession issue arises through retirement or

other circumstances, its the boards responsibility to make sure there

are internal successors. The board agenda must not just address CEO
succession, but also succession for the management team. The board
must insist that executives mind their responsibility to recruit, evaluate
and develop top people. On my boards, we get an update on people
down three levels below the CEO. I think succession is the No. 1 issue,
as were all human and we all move on to different phases in life and
business. The average tenure of a CEO goes by fast.
David W. Anderson Do CFOs make natural CEO candidates?
Hugh Bolton Perhaps, but one needs more than just financial acumen to

be a good CFO, let alone an effective CEO. A strong CFO is an individual

who not only understands the accounting rules, but more importantly,
understands the strategic role a CFO can play. In fact, to be a successful
CFO, you dont even need to have an accounting designation. To
illustrate, Claude Mongeau did an outstanding job as CFO at CN Rail,
under Hunter Harrison. Claude demonstrated he could operate strategically as the CFO and is now CNs CEO. Taking a different route, Colleen
Johnston, TDs CFO, has an accounting background that she combines
with other skills, including an extraordinary strategic understanding of
what the company and board face. So, if you have a CFO with good
financial and strategic ability, then you have a natural candidate for CEO,
but I would also say a knowledge of the operating side of the business
is just as important.
David W. Anderson The federal government has said it wants to stream-

line regulation to boost resource development and job creation. How

is the evolving regulatory landscape affecting corporate performance?
Hugh Bolton The jurisdictions with which Im most familiarAustralia,
www.listedmag.com

Canada, Chile and the U.S.all have stringent regulations to which we

ensure management is complying. Environmental permits, which
have provincial and federal components, are hardest to attain. While
we havent seen any easing of regulation by the federal government
that would reduce the environmental assessment done by companies,
it is trying to dramatically increase the speed of the bureaucratic
processes. This is particularly noticeable in the oilsands, where management is optimistic the approval timeframes will be closer to one year
than the current three. But its too early to tell if this will actually happen.
While we pay close attention to regulation and expectations to be more
responsible regarding the environment, the mining sector faces different
regulations compared to, for instance, the financial services sector.
Im very proud of the fact we at Teck are cognizant of our social license
to operateand that weve been recognized as one of the top 100
corporations in the world for corporate sustainability.
David W. Anderson Stakeholder demand for openness on the part of
business leaders continues to riseas do the consequences for firms
appearing to tightly control information and ignore input. Whats
your view of stakeholder relations in resource industries?
Hugh Bolton The oilsands in particular have come in for some criticism
in this regard. They are now dealing with the reality that they can and
must do better. As Jeffrey Simpson [of The Globe and Mail] has pointed
out, businesses in the sector find themselves in the same position as the
lumber industry once did. They need to learn the same lessons and would
benefit from using the same model. I am hopeful that they are beginning
to do so. They are taking their critics seriously and listening as opposed to
shutting out their views. As a result of meaningful dialogueand
theres much more they need to haveI think the industry is making
changes that will improve its reputation, production and environmental impact. Its remarkable to think that Suncor in the 1990s, under
Rick Georges leadership, understood the importance of engagement,
yet the industry as a whole did not appreciate his wisdom. As directors
we have to remember that our responsibility is to the companyand to all
its stakeholders.
David W. Anderson Mining companies scour the globe for viable oppor-

tunities and often find themselves having to operate in politically

unstable environments, facing both lower standards of disclosure and
higher incidence of corruption. How do you deal with this reality?
Hugh Bolton Very carefully! The U.S. Foreign Corrupt Practices Act makes
directors personally liable and open to felony prosecution for any
corrupt practices carried on by the company or its employees. Canadian
regulators have been slower to act, but are now upping their game in this
regard. As directors, our job is oversightwe are entitled to rely on
managementbut that doesnt mean we can just ask a question and
hear management say, Yes, were fine, and think thats sufficient. We have
to ensure effective controls are in place to justify that assurance. These
include a relevant Code of Ethics and Code of Conduct, which try to
ensure people are aware of their obligations and that appropriate procedures
are in place for management to deal with incidents if they occur. We
must assure ourselves that if problems happen, they are reported
immediately and effective measures are instituted to ensure immediate
compliance. This obligation terrifies me.
David W. Anderson Given these risks, what advice do you have for
prospective directors?
Hugh Bolton Be careful in considering board service, even in Canada.
Just because a company is listed here doesnt mean you can be comfortable. As we saw with Sino-Forest, a Canadian listing was used by foreign
Mining & Energy PDAC 2013\\Listed 39

The Directors Chair

investors to raise money in our capital markets for operations in other
country. Its not easy to know whats really going on. Extra caution is
warranted when considering board service for companies operating
in foreign countries. Take time to realize the possible extent of your liability
by doing your own due diligence, including going to the country or
countries in which the company operates to see firsthand the properties
and to understand their culture and regulatory environment.
David W. Anderson Are there specific acts of due diligence that you have
found particularly useful?
Hugh Bolton Yes, I get written permission from the company to go
beyond the standard checklists and talk to the auditors and external
counsel. I ask the auditor about the internal controls, looking for
things like proper recognition of revenue, and get them to take me
through the reporting. Getting a clean bill of health from the engagement
partners of both the audit firm and external counsel I think gives one a due
diligence defence if anything is in fact out of order. When being recruited
to serve on small-cap company boards, investigate the promoters and
check them out as fully as possible. When it comes to board composition, I want to see industry experience and expertise in the mineral the
company is focused on.
David W. Anderson Foreign investors have spent billions of dollars
buying Canadian firms in the mining and energy sectors, and see enough
potential to spend billions more. Should foreigners be treated differently than Canadians when it comes to such investments?
Hugh Bolton Its not a good idea to say to entrepreneurs and owners that
you cant sell your company to others. Our economy would be much
poorer if that were the general rule. Theres nothing wrong with foreign
ownership of assets in the ground. We dont have the capital in our
country for development, so we need foreign investment. However, I do
lament the loss of Canadian control of some of our major mining firms.
Its hard to articulate why, but its a philosophical judgment I would make
for industries that are at the foundation of our national security and
economy. As a country, we apply this type of thinking within airline and
rail industries that are similarly considered foundational. In this industry,
Im in favour of foreign ownership so long as there are reasonable rules
around decision-making that affects operations within Canada. As
with the approval of Nexens takeover, there has to be a compromise on
control of Canadian firms, in terms of who can run the company and
what they can and cant do with the assets.
David W. Anderson Canada is a haven for junior mining companies
seeking capital and larger firms looking to acquire the best prospects.
As a director, how do you bring value to the decision-making process when facing an M&A deal?
Hugh Bolton M&A deals are gut-wrenching ordeals for boards. Its my
job as a director to bring oversight, insight and foresight to the table.
Oversight ensures accountability of management to the purpose and
plan weve set. Insight generates an understanding of the business and
industry milieu in which it operates. Foresight is an ability to peek around
the corner, metaphoricallyits impossible to know the future with
certainty, but with disciplined thought, we can narrow the possibilities.
Applying these three sights generates the specific questions you need
to ask management in doing deals.
David W. Anderson Are there general questions you like to ask of management to decide whether to support a deal?
Hugh Bolton The first question is, Are we on strategy with the proposed
M&A deal? All boards have a plan and strategy to accomplish itdoes
www.listedmag.com

this fit? The second question is, Have we got the financial resources?
In other words, I want to be sure we are not betting the company to do
this deal. The third question is, Do we have the human resources to
integrate the companies? It is the human side of integration where
most companies fail in M&A transactions. I want to know what great
people we are acquiring, because mines dont run themselves. The best
companies at M&A have thought through the question of people integration
thoroughly, as its the most important. The fourth question is, Is there
anyone on the senior management team who isnt 100% behind this
deal? I want to know if the CEO is overriding objections on the
management team or underplaying the risks, because if management
says theres little to no risk, Id vote against it. I probe management to
see if there has been solid debate to bring out the risks and advantages
of doing the deal. Understanding risk is the key to mitigating it.

Im not a mineralogical expert, but like

all effective directors, I speak up and say,I
dont understandand I need to before
giving my approval. One needs courage
to ask dumb questions
David W. Anderson Management will always know more about the
business or a potential deal than the board. What helps directors to
understand risk in context and contribute fully to board discussions?
Hugh Bolton Directors in any industry must really understand the
business theyre in. In the mining industry, its not as simple as buying
an asset and then going in and taking the minerals out of the ground.
There are a lot of problems with the chemistry that can arise. You have
to make sure you have the people who can understand these things.
Im not a mineralogical expert, but like all effective directors, I speak up
and say, I dont understandand I need to before giving my approval.
So one needs courage to ask dumb questions to fill gaps in understanding.
In a similar vein, I like to see a contrarian mind on a board to stimulate
discussion and make sure we really see the full picture.
David W. Anderson The idea that directors must be intimately familiar
with the nature of the business is a strong theme in your thinking. In
practice, how do you accomplish this?
Hugh Bolton On the Teck Resources board, we go and spend days at mine
sites to understand what were dealing with. You cant believe how it
opens your mind in terms of whats actually happening and how essential
this is to understanding the business. This understanding is second
nature to management, so its vital for the board to also have this full
appreciation. In the case of a proposed acquisition, its good to see their
assets, but it is often not possible for a board to do so beforehand. We
ensure that management has seen firsthand any proposed new assets
and reviews with us in detail the documented due diligence. Its a thoughtful, logical process that may allow you to avoid serious surprises.

David W. Anderson, MBA, PhD, ICD.D is president of

The Anderson Governance Group in Toronto, an
independent advisory firm dedicated to assisting boards
and management teams enhance leadership performance.
He advises directors, executives, investors and regulators
based on his international research and practice. E-mail:
david.anderson@taggra.com. Web: www.taggra.com.
Mining & Energy PDAC 2013\\Listed 41