Module 10

Performance
Management
Week 1
In-Class Problems

Chartered Professional Accountants of Canada, CPA Canada, CPA

are trademarks and/or certification marks of the Chartered Professional Accountants of Canada.

© 2016, Chartered Professional Accountants of Canada. All Rights Reserved.

Module 10 — Performance Management

ICP 1

Analyze the excerpts from the TELUS Corporation 2012 and 2014 annual reports starting on
page 21.

Required:

a) Explain the level of diversity evident across the membership of the board, and explain the
changes you see between the directors in 2012 and in 2014.
b) In what way are the directors compensated? How has this changed recently, and why was
the change made?
c) How does TELUS meet independence requirements?
d) What committees does the TELUS board have? Why is it valuable to readers that the
company report who serves on and chairs the committees?
e) What changes has TELUS made recently to enhance its governance practices?

This exercise may be repeated for any company on the TSX 100. Access SEDAR’s website for
information on additional companies, or consult the website of the company you choose to
analyze.

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Solution to ICP 1

a) In terms of diversity of expertise, board members bring a variety of backgrounds to the

board, including legal, financial, investment and management expertise, and some
members have political affiliations. In 2012, there were 13 directors; there was only one
woman on the board, and the other 12 directors were white males. As of the 2014 report,
there were 15 directors, of which three were women. There was one additional member
who was not a white male. This is a positive change, and TELUS’s diversity goals should
lead to an increased level of diversity in board composition in the coming years.

b) TELUS moved to a flat fee structure for directors’ compensation, rather than compensation
based on meeting attendance. The rationale for the change is that “the Board believes that
a flat fee structure is better aligned with the changing role of directors and is more reflective
of the continuous nature of their commitment during the year than a fee structure based on
attendance at meetings.” TELUS is recognizing that board members are active in their
duties between meetings, which is why the fee structure changed. Annual retainers are a
common approach to director compensation.

c) TELUS states that it complies with the independence definition provisions of the New York
Stock Exchange (NYSE) governance standards. This means it is also compliant with TSX
requirements. There are two non-independent directors: the president/CEO and the
executive chair, who is the former president/CEO. Because the executive chair is not
independent, TELUS appointed an independent lead director. The other 13 directors
appear to be independent based on their biographies. This is supported by the reported
percentages for women and diverse members: TELUS states that more than 20% of
independent directors are women, and more than 30% of independent directors are
“diverse members.” We can see that there are three women and four diverse members, so
mathematically it seems there are 13 independent directors.

d) There are four board committees: the Audit Committee, the Human Resources and
Compensation Committee, the Corporate Governance Committee, and the Pension
Committee. It is valuable for stakeholders to be able to see who serves on which
committees to get a sense of expertise and independence. For example, all board
committees are chaired by external directors, and the audit committee chair is a CPA, FCA.

e) TELUS has recently implemented a number of governance enhancements, such as:

 new diversity goals and policies for both female directors and “diverse members” overall
 moving to flat fee compensation
 issuing its first transparency report describing information requests from law
enforcement and other agencies
 implementing an anti-bribery and corruption policy, which outlines expectations for team
members relating to anti-bribery and corruption matters in Canada and abroad
 updating the online learning course that sets out the standards of trust, respect and
integrity all team members and contractors are expected to follow

Source: Topic 1.1

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ICP 2

The Canadian Securities Administrators (CSA) national instruments include governance

guidelines and requirements for entities that trade securities publicly in the Canadian market.
Read the following two CSA documents online using the links below.

National Policy 58-201: Corporate Governance Guidelines1

National Instrument 52-110: Audit Committees (Read parts 1 to 4.)2

Required:

a) Canadian regulation is often influenced by requirements imposed in the United States.

Within National Policy 58-201, where do you see evidence of such influence? Where is
there an indication that that the CSA strives to ensure that its requirements are specifically
designed for the Canadian market and are not just copies of U.S. regulations?
b) There is a great deal of emphasis on independence in the CSA guidelines and
requirements. Based on your reading of Part 1 of National Instrument 52-110, what types of
situations may cause a director to not be independent?
c) Based on the CSA documents, for what types of decisions is independence most
important? How do you know this?
d) Private companies and not-for-profit organizations are not required to comply with these
CSA requirements, but they may choose to do so. What are the pros and cons of voluntary
compliance?

1
If the link is not working, please try this alternate: https://www.bcsc.bc.ca/Securities_Law/Policies/Policy5/58-
201_Corporate_Governance_Guidelines__NP_/
2
If the link is not working, please try this alternate: https://www.bcsc.bc.ca/Securities_Law/Policies/Policy5/52-
110_Audit_Committees__NI_(1)/

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Solution to ICP 2
a) Paragraph 1.1 discusses the purpose of the policy, which includes being “sensitive to the
realities of the greater numbers of small companies and controlled companies in the
Canadian corporate landscape,” while also taking into account “the impact of corporate
governance developments in the U.S. and around the world.” The CSA is attempting to
balance the need to be in line with global (including U.S.) requirements with tailoring its
guidance specifically to the Canadian business environment, recognizing that Canada has
a large number of smaller public companies and controlled companies (for example,
subsidiaries of international corporations). These smaller companies do not have the same
level of operations or resources as large corporations do, and complying with extensive
regulatory requirements and reporting could become cost-prohibitive.
b) Lack of independence could be caused by any relationship that may be reasonably
expected to interfere with the exercise of a member's independent judgment. More
specifically, the following examples would signify a lack of independence:
 being an employee or executive officer of the organization within the last three years
 being a current partner or employee of the organization’s audit firm, or a former partner
or employee who worked on the audit within the last three years
 receiving more than $75,000 in direct compensation from the organization during any
12-month period within the last three years (other than for service as a director or
committee member)
 being an executive officer of another entity where one of the organization’s current
executive officers serves or served at that same time on the entity's compensation
committee (for example, I would not be independent of Company X if I was the CEO of
Company Y and Company X’s CFO served on Company Y’s compensation committee
— because X’s CFO would be setting my compensation)
 accepting compensation for consulting or advisory work outside of their board role
 having an immediate family member in similar circumstances to those described above
c) Paragraphs 3.1 and 3.2 of National Policy 58-201 recommend that the chair and the
majority of the board be independent. This signals that all decisions require overall
independence. Specifically, National Policy 58-201 and National Instrument 52-110 discuss
the need for all members of the following committees to be independent:
 the audit committee
 the nominating committee
 the compensation committee

This signifies that independence is most important for decisions related to the following:
 recommending, overseeing and compensating the external auditors
 reviewing the financial statements before they are issued

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 identifying individuals qualified to become new board members and recommending

them to the board
 CEO performance evaluation and compensation
 other officer and director compensation
d) Advantages of voluntary compliance include the following:
 Requirements represent best practices.
 Improved governance may result in less fraud risk, better controls and more employee
engagement.
 Organizations can prioritize requirements and implement them over time or choose only
to implement the requirements that seem to be most beneficial (that is, it is not an all-or-
nothing situation).
 Commitment to best practices may result in greater access to funding, better
reputational capital, more customer loyalty and so on.
Disadvantages of voluntary compliance include:
 Governance and monitoring costs may increase.
 Meeting independence requirements may be challenging due to lack of availability of
independent individuals (which may lead to picking individuals simply because they are
independent, even if they aren’t the best choices).
 Partial compliance may set expectations and lead to questions of why not all
requirements are being complied with.
 It may be difficult to convince some board members to put resources toward non-
mandatory governance initiatives.

Source: Topic 1.2

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ICP 3

The need to provide clear and transparent accounting and reporting of a company’s
performance underlies the important governance roles of management accountants, financial
accountants, auditors and board members with financial expertise.

Required:

Discuss some of the key roles and responsibilities undertaken by professional accountants
who work internally and externally to the organization, and explain how these responsibilities
support the organization’s governance activities.

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Solution to ICP 3
The availability of accurate and timely information is essential to effective corporate
governance.

Typically:
 Management accountants advise senior management of the available options in decision-
making; for example, in deciding whether to add, drop or expand a product line,
management accountants will compile and analyze the information and present a business
case for their recommended choice of action.
 Financial accountants prepare accurate reports on the financial performance and viability of
organizations; this includes preparing annual and interim financial statements and
compiling ad-hoc reports to support management’s assertions on the statements.
 Internal and external auditors assess the strength and effectiveness of internal controls and
evaluate the fairness and accuracy of financial statements; for example, the internal
auditors’ evaluation of controls over capital assets is reported to the audit committee. It may
also be used as a starting point for the external auditor’s work.
 Board members oversee the financial management and reporting of the organization; for
example, accountants on the audit committee review the financial statements before they
are released to the public, and they bring any concerns to the board. The board, once
satisfied, approves the release.

Boards of Directors rely heavily on the information provided to them by executive management
and on the audit mechanisms that ensure information accuracy. In both generating and
providing internal data and external validation of those data, the accounting profession plays a
pivotal role. Internally, management accountants and internal auditors generate and confirm
the data necessary for informed business decision-making, ensuring data relevance, accuracy
and completeness. Externally, auditors validate financial information by verifying that financial
reports are presented in accordance with generally accepted accounting principles (GAAP).

Accountants also have important roles to play on the Board of Directors and its committees.
The finance committee oversees the accounting and financial budgeting and reporting issues,
and it is essential that these directors have a high degree of financial acumen. Similarly,
professional accountants often serve on audit committees, ensuring that adequate financial
systems and controls are in place to provide accurate monitoring and accountability of financial
assets and transactions. Irrespective of this, all board members have an obligation to be
financially literate to be able to effectively advise and monitor the management.

Source: Topic 1.2

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ICP 4

In 2005, Dennis Kozlowski, the former CEO of Tyco International, was convicted of a number
of crimes related to accepting $81 million in unauthorized bonuses, arranging for Tyco to pay
for his New York apartment and expensing half of his wife’s $2 million birthday party. The $30
million New York apartment included a $6,000 shower curtain and $15,000 umbrella stands.
Dennis’s wife’s birthday party was held on the island of Sardinia in Italy under the pretext of
being a Tyco International shareholder meeting.

Defending his actions in court, Dennis contended that Tyco International had prospered and
expanded significantly while maintaining profitability under his leadership. He also argued that,
while his compensation package was admittedly very large and complex (it included a salary in
excess of $100 million), this was appropriate based on his performance. He also noted that
Tyco International’s Board of Directors sanctioned his compensation package.

Despite Dennis’s blatant abuse of his power and privileges, the Tyco International board
approved an excessive compensation package and failed to hold him accountable. Several of
Dennis’ friends among the Tyco executives were also receiving exorbitant salaries. It is fairly
obvious that neither Dennis’s behaviour nor that of the board was in the best interests of Tyco
International shareholders and other stakeholders, and that internal and external governance
mechanisms were ignored, ineffective or simply not implemented. This scenario clearly
illustrates the type of self-interested actions that, if not controlled by corporate governance
mechanisms, can emerge as a result of the principal-agent problem.

Required:

a) Describe the monitoring and control governance mechanisms that, if used appropriately,
would have limited Dennis Kozlowski’s excesses.
b) Dennis Kozlowski’s behaviour at Tyco International is an extreme example of the principal-
agent problem. If he had been less blatant in the abuse of his power and privileges, is there
a chance that he would not have been caught?

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Solution to ICP 4
a) The board is responsible for internal monitoring. The most striking characteristic of this
case is the fact that Tyco International’s board allowed and approved the exorbitant
compensation provided to Dennis Kozlowski and his close executives. One of the key roles
of the board is to set executive compensation. The role of the board is to provide oversight
of executive management to ensure that management is acting in accordance with the
interests of the shareholders and other stakeholders. Most boards choose to implement
compensation plans that align the interests of the executives with the interests of the
company. A CEO salary of $100 million is arguably not in the best interests of stakeholders,
as it is a direct drain on company profits. As a straight salary, it is not aligned with the
performance of the company, and it is unlikely that a single individual can add that much
value to a company.

In terms of external monitoring, Tyco International is required to disclose executive salaries

and compensation packages to the securities regulators. This disclosure would open Tyco
up to action by shareholders or other groups with an interest in executive compensation.

The improprieties around expenses and capital, particularly material ones such as the
purchase of Dennis’s $30 million New York apartment, should have caught the attention of
both internal accounting and the external auditors.

The internal and external monitoring functions failed to work in this situation. These
included internal audit, board oversight of performance results and risk areas and external
auditing.
b) If Dennis Kozlowski’s interests and those of the shareholders could have been aligned and
the size of his compensation package rationalized, he could justifiably have received a
significant level of compensation, although not as high as described. Many CEOs earn an
exceptional amount of remuneration because they are seen to possess extraordinary
managerial talent that adds significant value to the companies they lead.

What could never be justified, however, was Dennis’s use of company assets for his
personal pleasure. Expensing costs involved in holding a birthday party for his wife or using
company money to purchase furnishings and accessories for his home and to pay for his
New York apartment are clearly not in compliance with governance practices or tax
regulations.

Source: Topic 1.1

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ICP 5

In 2001, the collapse of Enron Corporation due to a major accounting scandal resulted in, at
that time, the largest corporate bankruptcy in history. During the period of rapid growth that
preceded Enron’s spectacular collapse, the company had developed a comprehensive ethics
policy that was lauded by academics, social advocates and industry bodies. Enron’s ethics
programs were held up in business schools and business forums as an exemplar of the high
standards to which corporations should hold themselves.

Enron’s ethics policy was 60 pages long, and began with the following sentence: “As officers
and employees of Enron Corp., its subsidiaries, and its affiliated companies, we are
responsible for conducting the business affairs of the companies in accordance with all
applicable laws and in a moral and honest manner.” In hindsight, it is clear that no matter how
grandiose, comprehensive and well-intentioned a corporate ethics policy may be, it will not
protect a company from scandal or ethical failure if the management executives do not honour
it in both spirit and action.

Enron’s former chief executive officer and chief operating officer was charged, convicted and,
in 2006, sentenced to 25 years in prison. The former chair and chief executive officer was
convicted of six counts of securities and wire fraud and sentenced to 45 years in custody. He
subsequently died before he could begin serving his time.

Required:

a) Why was Enron so intent on developing an exceptionally robust ethics policy and
supporting programs if the management executives were going to ignore it?
b) How should a company engage all of its employees, including executive management, in
developing, implementing and following a code of ethics? How might this policy be
conveyed to external stakeholders?
c) What is the role of governance in ensuring compliance with corporate codes of ethics?

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Solution to ICP 5
a) The engagement of all company employees in the ethics program provided a point of pride
as well as acknowledgement for the majority of workers that they were employed by a
highly principled company. This was further supported by the recognition and accolades
that Enron’s ethics policy received from the business community and society at large. The
strong reputation for ethical behaviour that this publicity helped foster would inevitably
shield the Enron executive management team from suspicion or criticism, both internally
and externally.
b) For a code of ethics to be effective, it must be embraced and adopted by the corporation.
Codes of ethics are a reflection of a company’s values and, just like mission and vision,
should inform all activities engaged in by the company and its employees. Codes of
conduct such as ethical codes can be communicated to external stakeholders through the
organization’s annual reporting to stakeholders and on its website.
c) Monitoring and control mechanisms are essential in ensuring that a corporation does what
it says it will do. This is as true for codes of ethics as it is for strategy. Good governance
mechanisms allow a company to track its own behaviours and back up its claims of
business performance as well as ethical performance with measurable evidence.

Source: Topic 1.2

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ICP 6

Bill Wisconson is a wealthy construction magnate who owns Wisconson Construction Ltd. He
also serves on the board of a local hospital. The hospital is planning to build a new cancer care
and research wing. The hospital has raised a significant amount of money and has secured
additional government funds; when combined, the funding is sufficient to cover the estimated
costs. The hospital is offering the construction contract out to tender, and Wisconson
Construction Ltd. is planning to bid for the job.

Required:

a) What are Bill’s obligations as a board member?

b) How should the Board of Directors deal with the situation?
c) Suppose Bill does not declare his interest in the tendering process, but John Delaware,
another board member, is aware of the situation. What are John’s obligations as a board
member?

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Solution to ICP 6
a) Bill Wisconson has an obligation to the board to declare the conflict of interest he has as
the owner of a construction company bidding on a contract for the hospital of which he is a
board member. Even if he is convinced that he, himself, will remain impartial and refrain
from allowing his position to influence his own decision-making, the conflict nevertheless
exists and must be declared.
b) The board has a duty to negate any existence or appearance of undue influence on board
decisions by persons with conflicting interests. In this instance, Bill Wisconson should be
excused from any involvement in the decision-making with respect to the selection and
subsequent contracting of a construction company to build the new cancer care and
research wing. If the board believes that the conflict can be adequately mitigated and
managed, and Wisconson Construction is awarded the contract, the conflict of interest
should be disclosed and controls should be in place to mitigate that conflict.
c) Any board member who is aware of a conflict of interest has the duty to disclose it to the
board, whether or not they themselves are party to that conflict. John must therefore alert
the board.

Source: Topic 1.2

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ICP 7

Albatros Ltd. is a manufacturer of cleaning and chemical products. It operates out of an aging
plant just outside a small town in central Ontario. Lately, management has been concerned
about possible leakage of some of the toxic substances used in the manufacturing process. No
evidence of a leak has been found, but the equipment used in the manufacturing operation is
old and in constant need of maintenance.

Required:

a) How should management approach this problem? What is the board’s responsibility?
b) What are the reputational consequences of not taking action? Identify one other
consequence Albatros will most likely face if a spill is proved to be caused by inadequate
equipment maintenance.
c) What type(s) of beyond-compliance environmental policies should be implemented?
d) What are some of the constraints the company may face in deciding what actions to take?

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Solution to ICP 7
a) Albatros’s management has taken the first step by recognizing that there is a problem.
Improving the environmental performance and safety of its operations should be made a
priority. Policies need to be updated, equipment needs to be updated or fully overhauled
and better safety systems need to be installed. The board needs to oversee that
management is taking appropriate action in recognizing and addressing the risks in a timely
manner.
b) If a leak is found or a spill results from failure of the aging manufacturing facility, the
company will face public criticism for harming the environment and placing the health and
safety of the local population and its own employees at risk. This is likely to result in a
public backlash, unflattering press and losses in revenues and customers. Another
consequence Albatros will likely face, if it is found guilty of inadequate equipment
maintenance, is the high risk of legal action, as the damaged parties will most likely seek
compensation.
c) Wherever possible, the firm should first take advantage of win-win environmental policies,
which aim to reduce damaging the environment while increasing company profitability. By
upgrading its equipment, the company may improve energy efficiency, thus reducing
greenhouse gas emissions while increasing the rate of production. Organizations can
report on these win-win environmental policies, which should have the effect of increasing
their reputational capital.

Anticipatory beyond-compliance behaviour allows the company to avoid the risk of not
meeting minimum standards due to changes in regulations. It also provides the company
with protection against accidents, such as leaks and spills and the associated costs of
cleaning them up. Improving environmental performance is also the right thing to do; it is a
good citizenship measure.
d) Albatros may face financial constraints in terms of its ability to cover the costs of upgrading
its operations. The company may lack the human resources with the technical expertise to
upgrade the facility or to operate a more technology-intensive manufacturing environment.
The additional costs involved in upgrading manufacturing processes to an environmentally
responsible level may make the company’s products uncompetitive in the marketplace.
Albatros will have to weigh short-term costs against long-term benefits, recognizing that the
impact of a leak occurring could be disastrous for both the community and the company.
Long-term stakeholder value and company sustainability require that Albatros take action in
the short term, even if such actions reduce short-term performance.

Source: Topic 1.3

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ICP 8

In June 2011, Muddy Waters, LLC, an investment firm actively engaged in the short selling of
securities, accused Canadian forestry firm Sino-Forest Corp. of misrepresenting the size and
value of its mainland China forestry assets. The president of Muddy Waters described Sino-
Forest, which was then Canada’s largest forestry company, as a giant Ponzi scheme. Sino-
Forest had raised over $3 billion through equity and debt markets to fund its expanding
operations.

Sino-Forest’s share price had dropped 72% to $1.38 by the end of August, 2011. The
company continued to insist that the accusations made by Muddy Waters were unfounded.

Sino-Forest’s inability to prove that these accusations were unfounded represents a classic
example of a corporate governance failure. A company with strong monitoring governance
mechanisms could have validated the contested assets and transactions and easily proved the
accusations made by Muddy Waters to be false. Assets such as forests should be easy to
validate with ownership titles and/or usage rights supported by appropriate legal
documentation. Instead, Sino-Forest was forced to launch its own internal investigation
(through internal audit) to satisfy itself that its forestry assets in China were accurately stated.

The launch of Sino-Forest’s internal investigation in turn alerted the Royal Canadian Mounted
Police (RCMP) and the Ontario Securities Commission (OSC), prompting them to launch their
own inquiries. A committee made up of Sino-Forest’s directors and members of a major
auditing firm spent over five months and $35 million inspecting and evaluating Sino-Forest’s
business practices. The committee produced an inconclusive 111-page report that raised more
questions regarding the functioning of Sino-Forest’s business model and the way in which the
company generated its primary revenues.

Sino-Forest’s lack of transparency and inability to disclose the details of the relationships
between its suppliers, its intermediaries, Chinese governmental organizations and offshore
entities are examples of a significant failure in governance. Senior management at Sino-Forest
continued to profess that the unique and distinct characteristics of Chinese business practices
were responsible for the lack of transparency in most of its informal business relationships and
the resulting transactions. The management of the company claimed that the informal
business structures made verifying the ownership of the forestry properties and resources
almost impossible.

Required:

a) What is the role of the accounting function as support to the internal audit function?
b) What is the role of the external auditor in this case?
c) What is (or should be) the role of the Sino-Forest Board of Directors in this case?

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Solution to ICP 8

a) The accounting function within Sino-Forest should be able to provide documentary

evidence to support the production of financial and management accounting information for
the company. In the case of Sino-Forest, where the company’s primary business is the
management of forestry assets in China, it would seem that the accounting function should
have access to documentation that would support the ownership of or rights to use the
forestry assets that the company was managing. The fact that the company was neither
able to produce documentary evidence of the existence of the forestry assets under
management and Sino-Forest’s ownership or rights of usage nor able to prove their
physical existence, in order to refute the claims of the short-selling firm, rightly generated
suspicion among investors and regulators.
b) The role of the external auditor is to offer an opinion as to whether or not the financial
statements are prepared and presented according to generally accepted accounting
principles. It is not the role of the external auditor to detect fraud or to validate the veracity
of the supporting documentation. However, as the external auditor must obtain sufficient,
appropriate audit evidence to support the opinion that the financial statements are not
materially misstated, the external auditor would also have to perform tests to attest the
accuracy and existence (that is, the veracity) of supporting documentation. Of course, if
accounting anomalies are detected, the auditor will point them out to the client. Because
the management of forestry assets in China was the primary business of Sino-Forest, it is
the external auditor’s responsibility to test to ensure that the company had systems and
processes in place to verify that the forestry assets under the company’s management
were accurately recorded and reflected in the financial statements.
c) While it is not the role of the board to interfere in the operations of the company, good
governance practice does require the board to ensure that appropriate monitoring
mechanisms are in place to ensure that the company is in compliance with the law and not
misrepresenting itself to its stakeholders.

Source: Topics 1.1 and 1.2

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ICP 9

The relationship between business and the environment is complex. Corporations are not only
responsible for working within national and regional regulations and community standards,
they are also often faced with significant historical issues that are too complex or expensive to
deal with when they arise. One such case is the legacy of environmental contamination left on
Marinduque, a small island in the Philippines, by the large Canadian mining company Placer
Dome. Canada’s largest gold-mining firm, Barrick Gold Corporation, acquired Placer Dome in
2006 and, with it, the environmental crisis on Marinduque.

More than 30 years of mining operations on Marinduque has resulted in a legacy of severely
contaminated groundwater and the dumping of approximately 200 million tons of mine waste
into Calancan Bay. Over 80 square kilometres of waste from mining operations has destroyed
coral beds and severely damaged fish habitats. Toxic waste from the mines flows into the
Boac and Mogpog rivers to this day whenever it rains. A greater commitment and sense of
responsibility to the environment could have helped to prevent this problem in the first place.
Today, standards and regulations have changed, and much more is known now about the
effects of human activity on the natural environment.

If Placer Dome had proactively taken responsibility during the period when it was mining on
Marinduque instead of waiting for legislation and government regulation to catch up,
remediation would not be necessary now. Placer Dome is often blamed for being morally blind
or negligent, but it is possible that ignorance or indifference to the problem were to blame for
its belated recognition. For many companies that have been operating for a significant period
of time, the traditional solution to pollution was dilution. The contamination in Marinduque is the
result of compounded ethical failures by a number of stakeholders, from governments and
senior managers to shareholders and community leaders. The environmental problems were
not addressed because these stakeholders did not recognize the magnitude of the
environmental impact or believe that it was their responsibility to do anything about it. Even
what appear to be minor environmental problems can accumulate and become large problems
for corporations over time.

Required:

a) Barrick Gold must comply with current legislation and standards in conducting its current
affairs, but addressing legacy issues such as the environmental degradation and
contamination on Marinduque is both complex and possibly prohibitively expensive. From a
corporate social responsibility standpoint, what should Barrick Gold do?
b) Describe the relationships among good governance, corporate social responsibility and
responsible environmental performance.

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Solution to ICP 9

a) Barrick Gold should be transparent: admit the problem and its magnitude and articulate a
plan with timelines for addressing the problem. As long as people and the environment are
adversely affected by the legacy issue, it will continue to damage the company’s reputation.
Lessening that damage in measurable ways and reporting on progress is essential.
b) For a company to be sure it is acting in a socially responsible manner and operating in a
way that optimizes its environmental performance, it must have good governance systems
and mechanisms in place. Increasingly, firms are including commitments to social
responsibility and environmental stewardship in their mission and vision statements. This
inclusion ensures that social and environmental responsibility become an integral part of
company strategy.

The monitoring and control aspects of governance play a crucial role in ascertaining
whether or not a company is, in fact, operating in a responsible manner. Performance
measurement is a monitoring mechanism that provides information and evidence of the
level of social and environmental performance actually occurring within an organization,
providing decision makers with the data they need to make changes or improvements. This
information also allows the company to report accurately to its stakeholders on its progress
in these areas. Control mechanisms can be used to encourage managers to improve the
social and environmental performance of a company. Incentive-based compensation that at
least partially ties remuneration to environmental and/or social performance can align
management’s interests with the company’s environmental and social strategic goals. From
an external control basis, the reputation of a company is often heavily dependent on its
level of social and environmental performance. This reputation can reflect directly on the
executive management and subsequently on their value in the market for executive
employment.

Source: Topic 1.3

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TELUS Corporation information

The following pages are excerpts from the TELUS 2012 Annual Report3 and the TELUS 2014
Annual Report4. Use the information about TELUS in this document to answer the
requirements in ICP 1.

You should be able to answer the ICP 1 questions using only the information in these excerpts.

3
TELUS Corporation, Putting You First: 2012 Annual Report
(about.telus.com/investors/annualreport2012/files/pdf/en/ar.pdf, 2012).
4
TELUS Corporation, Each and Every Day: 2014 Annual Report (ar.telus.com/files/pdf/en/ar.pdf, 2014).

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