Survival of capitalism at stake, expert warns

By John Partridge, The Globe and Mail, 15 May 1997

TORONTO --Excessive pay for chief executive officers has become the "mad cow disease of North American business" and, if left unchecked, it could bring an unwelcome intrusion by government, a corporate governance expert contends.

"It moves from boardroom to boardroom infecting directors whose actions frequently defy any notion of good judgment or common sense," Richard Finlay, chairman of the Toronto- based Centre for Public and Corporate Governance, said yesterday. "Multimillion-dollar compensation packages are awarded whether companies are doing well ... or falling into bankruptcy."

In an apocalyptic speech to a financial services conference in Toronto, Mr. Finlay warned that the survival of capitalism itself could be at stake.

The danger is that "business excess" could lead to "excessive intrusion" by government, he said, "and that we must avoid it at all costs."

Mr. Finlay said that the lowest-paid CEO among the five biggest Canadian banks in 1996 -- John Cleghorn of Royal Bank of Canada, who received a total of $2.57 million -- made more than the combined salaries of the Prime Minister, the provincial premiers, the Governor of the Bank of Canada, the Chief Justice of Canada and the heads of the Ontario, Quebec, Alberta and British Columbia securities commissions.

Also at the conference, Robert Donaldson, a partner in blue chip law firm Heenan Blaikie, argued that banks and other public companies should be required to disclose the number and nature of all the proposals that shareholders submit for votes at annual meetings but that rarely see the light of day.

Traditionally, Mr. Donaldson said, the first response of any company that receives a proposal is to look for technical or substantive reasons to reject such proposals, "to ensure that management will not be embarrassed."

Forcing companies to disclose the proposals and how they dealt with them and why would help improve communication among shareholders and make annual meetings more useful.

"Why shouldn't shareholders know?" he asked, especially given that "management controls the agenda."