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Governance gets tested in rough waters

There are few things as sacred as hockey in Canada, and yet the all-powerful, hallowed institution of Hockey Canada, the institution that controls virtually every major aspect of ice hockey in Canada, has done irreparable damage to itself and the broader reputation of Canadian hockey because…of bad governance. As we write this, a Parliamentary Committee is continuing its hearing into how Hockey Canada mishandled alleged sexual assaults by players and allegedly used public money and player registration fees to help pay out settlements in 21 sexual misconduct cases. The money was allegedly coming from its "National Equity Fund”. And no, the meetings that were held to make these multi-million-dollar payout decisions were not documented.

The principles of good governance in non-profits are similar to the principles in public companies. And to be sure, some poorly governed organizations and businesses can succeed and float merrily along when things are going well and the waters are calm, just as Hockey Canada did for many years, but they will invariably start to sink, or at least take on water, in stormy seas.

When analyzing and discussing governance factors in the world of ESG, there is a lot of focus on concrete metrics like board diversity, board independence, executive compensation, and share structures. And to be sure, these things are important and are evaluated by Honeytree in our investment decision making process. Hockey Canada would have been well served by a more diverse board. Until recently, the Board had no women, save one between 2013 and 2015, and no ethnic or racial diversity.

But there are deeper and more fundamental aspects to good governance. Indeed, the major social, environmental, and economic challenges facing us today require companies to raise their governance game. The seas are now always choppy. To succeed, governance must go beyond standard good risk management practices or even achieving thresholds on ESG metrics. It must deliver on more than shareholder value. It must embrace social and environmental responsibilities as a way of achieving sustainable growth and broad-based positive stakeholder impact. This is what is referred to as integrated corporate governance or stakeholder governance. This is explained in great detail in a 2020 World Economic Forum, White Paper.

Governance, through this lens, is about how companies align strategy and capital allocation with drivers of long-term value creation. It is about how companies evaluate and manage the impact, risks and opportunities across their stakeholders, including customers, employees, supply chain providers, communities, by embracing the role they play in driving the bottom line. As we’ve said before, stakeholder-oriented companies understand that the positive impact they make on their stakeholders is what drives their long-term performance.

Now, we don’t really expect Hockey Canada to fully embrace an integrated governance perspective nor to see themselves as drivers of long-term value (though they should) but we certainly expect the companies we invest in to do this.


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