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The Directors Chair

William Etherington

Boards last blind spots: themselves

In The Directors Chair with David W. Anderson: Recruitment may be professionalized, and diversity is taking
hold, but when it comes to accountability, William Etherington says boards still have a ways to go
Photography by Jeff Kirk

As a director and now chairman of the board at Celestica Inc., where hes
sat since 2001, William Etherington personifies continuity of leadership.
Celestica itself started as a spinoff from IBM Canada, where Etherington
was CEO for a number of years, part of a 37-year executive career with that
company. Add to that his six years as chairman of the board of CIBC, ending
in 2009, and other current directorships, and the weight and wisdom behind
his definitive take on contemporary issues in corporate governance is
immediately felt. Here, in conversation with governance and leadership adviser
David W. Anderson, Etherington scrutinizes the role of the chair, shares a
few personal lessons learned, and issues a challenge to his fellow directors to
be accountable; to measure their performance with the same rigour they
apply to those they oversee.

William Etherington
Primary role
Chair, Celestica Inc.
Additional directorships
Onex Corp.
SS&C Technologies Inc.
St. Michaels Hospital
Former chair
CIBC
Former director
AT&T/Allstream; CIBC; Dofasco; IBM South Africa; MDS (now Nordion Inc.); Ontario Hydro; Relizon
Former executive
Chair, President and CEO, IBM World Trade Corp.
SVP and Group Executive, Global Sales and Distribution, IBM Corp.
General Manager, IBM Europe/Middle East/Africa
President and CEO, IBM Canada
Assistant General Manager, IBM Latin America
CFO, IBM Canada
Education
Engineering Science (Electrical), Western University
Honours
Doctor of Laws, Western University

Current age
72
Years of board service
20

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William Etherington

David W. Anderson A board chairs leadership strongly influences

the effectiveness of a board. Youre known as a board chair who
is collaborative with fellow directors, respectful of management and measured in tone and pace. How did you hone your
leadership style?
William Etherington Ive observed leaders my entire professional career and experienced a wide range of leadership styles in the managers
I counted as my bosses and colleagues. At IBM, I learned there is no one
style that is always best; even leadership styles I found objectionable
achieved a measure of success in their own way. The lesson I learned
is that you take what you have and use it to advantage. Appreciate your
core values, skills and natural style and evolve these with training and
experience. Supplement your strengths. In my case, my leadership
style favours collaboration over confrontationwhether as a CEO in
management or a board chair in governance. I let people stand on their
own and prefer to get the best out of them with a carrot when I can.
David W. Anderson I see some leaders take their dominant and

directive style as CEO and apply it as board chair to less effect.

What makes boards less amenable to this style?
William Etherington The board is not a hierarchy; the chair works
for the board. Its different than a CEO. A chair, I believe, has to be
more collaborative than a CEO may choose to be, because as chair
you cant impose your will, as decisions are made by the board as a
whole. Similarly, as chair you cant replace fellow directors, as they
are elected by the shareholders. A chair does have influence over decisions, including who remains on the board through the re-nomination
process, but the exercise of this power requires tact and patience.
Directors expect and deserve respect for the governance role they
have been elected to play. This is why some CEOs are not good chairs.
David W. Anderson Having an effective chair should not be left
to chance. How do you increase the odds of getting the right
person in the role?
William Etherington I take a long-term view on leadership. When
candidates are first being reviewed for nomination to the board, I
ask the question, Could this person be an able committee or board
chair? Committee chairs are a testing ground for the board chair
role. Directors get to view a colleagues leadership style and effectiveness over three to five years running a committeeengaging
fellow directors, working with executives, administrating agendas
and materials, conducting meetings, forging decisions and reporting to the full board. I think a development process ought to be in
place to identify ways directors and committee chairs can refine
their leadership styles and continue learning about the business.
With such an investment in assessment and development from initial nomination to the board to election as chair, a director is well
positioned to contribute substantially as the board leader. As in
any succession, its best for the board to have viable choices. Also,
in the final decision, the chemistry between the chair and CEO
must be a major consideration, as this relationship is critical to the
healthy functioning of the organization.
David W. Anderson The committee chair role is a good testing
ground. One common knock against committee chairs is that
directors not on the committee often dont know what happens
in the committee or the basis of its recommendations. Do com-

mittee chairs and directors need to pay closer attention to the

work of committees?
William Etherington Yes, and I think thats happening. Committee
chairs are learning to share more of the context of their recommendations and directors are not as accepting of committee reports as the
only way of hearing about whats gone on in a committee. Higher accountability and perceived risk mean directors today are not as willing to be unaware of whats happening in other committees. Good
directors wont stay around if committee work remains opaque. More
transparency is required within boards, not just with shareholders
and markets.
David W. Anderson Since you began your board career in the mid1990s, the modern governance era has taken shape. Whats really changed in these last 20 years?
William Etherington Simply put, governance became a permanent focus for investors and the media, precipitating huge, positive change in
how directors think and act. Weve witnessed tremendous progress in
North America in the quality of corporate governance, rooted in clearer
roles for directors and higher performance standards in executing them.
David W. Anderson How has this focus affected how directors do

their work?
William Etherington The sense of responsibility directors have in their

role has risen substantially. External auditors, annual director elections

and threats of class action lawsuits have disciplined boards from the
outside. Internally, directors see the potential of their work to make a
difference through rigorous engagement with management on the direction of the company and metrics to gauge success. This understanding, that directors hold the ultimate responsibility for the fate of their
organization, simply didnt resonate with directors before. It just wasnt
taken seriously. Its a measure of how far things have come that this
seems incredible to us today.
David W. Anderson Theres been a big shift, too, in the seriousness

with which boards think about diversity.

William Etherington Thats right, I think an understanding of the need

for diversity in all dimensions has finally taken hold. Were able to have
mature dialogue about a host of ways in which people differand how
those differences can be leveraged for the good of the company. One way
this is clear is in how boards are far more thoughtful in detailing a broad
range of competencies, skills and perspectives we as directors think may
help us make more informed decisions. Most boards now determine
with some care the diversity of thought and experience needed in their
circumstances and then set out to hire directors to fill those gaps.
David W. Anderson Does this trend toward greater professionalization in the definition of diversity in candidate pools extend to
how directors are actually then chosen?
William Etherington Yes, the methods used to select directors for
nomination have become professionalized. Its common now to use
a search firm to ensure independence in the process, to access pools
of talent beyond the reach of current directors, to break out of the
old boys network and to choose the right candidates to build a board
team. I think this represents an important advance in how we go about
nominating directors. Directors and director candidates themselves
have stepped up their game, coming better prepared to contribute to

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William Etherington

governance-level discussions and decision-making. Theyre taking

advantage of the formal educational opportunities that exist and also
are being far more proactive in learning on their own about their companies, industries, related technologies and stakeholders.
David W. Anderson Youve identified trends that make for stron-

ger boards, but governance still has shortcomings. Where do you

see opportunity for directors to make the biggest difference?
William Etherington Accountability. The full measure of accountability has yet to be understood and demonstrated by boards.
David W. Anderson In practical terms, what does accountability

look like?
William Etherington In simple terms, I think boards need to focus on

three areas of accountability to dramatically increase their effectiveness.

To start, boards need to systematically evaluate their own performance
as well as that of their management teams. Then boards need to deal
effectively with poor performance on the part of themselves and management, to maintain credibility with stakeholders. And finally, boards
need to adopt practices to listen to their shareholders, asking for input
and coming prepared to discuss and implement new processes that improve accountability in ways desired by owners. Say-on-pay is a good
example of boards listening to owners concerns and adopting a process
that gives shareholders a voice in compensation philosophy.
David W. Anderson In taking accountability for their boards own

performance, one challenge for directors would seem to be in

the very make-up of the board itself, with directors often overstaying their most useful years.
William Etherington Many boards and directors dont yet embrace the
full accountability that I think we need to achieve. Its true that some
directors stay beyond the time of their greatest capabilityand fellow
directors are complicit in allowing this to happen. Its a sensitive topic
among directors, precisely because of the self-interest involved. The
reality is that directors dont always put the companys interest ahead
of their own. The case is plain: there is a limit to the effectiveness over
time of any director, as we accept is true in any other role. Few boards
would be satisfied with stagnation in their executive ranks; directors
favour executive rotation to keep the talent pool fresh and varied. Too
often this logic is not applied to boards themselves. The result in some
cases is a greater commitment to staying, thinking oneself irreplaceable, rather than to doing the right thing for the company.
David W. Anderson What does accountability then look like for

individual directors?
William Etherington The typical solution is to set tenure limits to limit

the risk of any one director staying too long. The best solution is for
boards to deal with director performance upfront and not wait for tenure to solve a non-performance issue. This requires a fair and rigorous assessment process. Directors cant be fired in the normal sense;
they dont work for the chair. Unlike a CEO, a board chair or a governance committee chair cant deal with performance issues as directly
or swiftly. Nonetheless, a board can resolve to maintain clear metrics
on director performance, discuss director performance regularly and
act resolutely if a director is not working out. The most obvious means
of managing the boards composition in these situations is not to renominate such a director, ending their time on the board regardless

of the anticipated tenure. We deal with managements performance

through assessment and succession planning, so its hypocritical for a
board not to deal similarly with its own performance.
David W. Anderson Part of board accountability is CEO successionyet boards are routinely criticized for putting it off
until its too late. Why is succession so often mishandled?
William Etherington While most boards do manage the performance
of their management team far better than their own performance,
its true that CEO succession planning is generally not done well
enough. Boards are accountable to shareholders and the broader
stakeholder community for ensuring their succession decisions
provide for both long-term continuity in leadership and the necessary infusion of new thinking to keep the culture innovative. The
fundamental success of the business is at stake in succession. The
difficulty for directorsand where they often fail in their accountabilityis that they often switch their loyalty to the CEO away from
the shareholders and company interests. We see this when boards
fail to make the needed changes in management as the performance
of a company deteriorates. Its all the more difficult for boards to act
when the CEO is also the founder or major shareholder or chair. This
is where a more mature relationship between boards and owners can
help boards be mindful of their accountability and act accordingly.
David W. Anderson How do you think boards can best protect the
advances theyve made in governance and address the accountability deficit youve identified?
William Etherington I believe strongly in the independent director concept and structure as the best way to govern companies and safeguard
the larger interests of our capitalist system. The cross pollination of
ideas thats possible on an independent board can serve as a tremendous
resource to management. Its not just a nice-to-have value-add; in my
experience, companies are more likely to get into trouble when they fail
to leverage the perspectives of independent directors.
Proper independence includes a clear separation of chair and CEO
responsibilities so that governance and management functions are
well defined and respected. My responsibility as chair of a public issuer goes beyond serving my company; I and others in public company
leadership roles have a responsibility to protect the systembecause
its a good system that has served us well. It affords business leaders
access to independent thought and advice and provides stakeholders
a means of oversight of corporate affairs.
Boards are finally getting into a rhythm with shareholders, allowing directors to understand and bring those ownership perspectives
into the boardroom. I think some caution is warranted when considering changing the balance of power among shareholders, directors and
executives, so were sure were making the system better. Any direction espoused by regulators or shareholders has to be tested against the
alternatives. If the price of survival is adaptation, its clearly worth it.

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

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