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The Directors Chair

Mike Wilson

Out of the fray, still in the fire

In The Directors Chair with David W. Anderson: He had a long executive career, culminating in a decade as
president and CEO of Agrium. Now Mike Wilson is bringing it as a non-executive director on four boards
Photography by Colin Way

If you need any testimony to Mike Wilsons knowledge, experience, boardroom savvy and the high esteem in which hes held by his peers, consider
that within a year of retiring as president and CEO of Agrium Inc. at the
end of 2013, Wilson was appointed to three blue-chip boards to go with
a fourth, Celestica, where hes sat since 2011. To no ones surprise, hes made
the transition seamlessly. Here, in conversation with governance and
leadership adviser David Anderson, Wilson provides some penetrating
glimpses into his thinking. Their dialogue touches on key strategic issues,
the most important lessons Wilsons learned in dealing with shareholder
activists, and how he views his role at the table. Among the revelations:
as much as activists were one of his biggest challenges as a CEO, their approach
served to crystallize his thinking around the necessity of directors to
ask foundational questions about strategy and risk.

Mike Wilson
Current corporate directorships
Air Canada, Celestica Inc., Finning International Inc., Suncor Energy Inc.
Former leadership roles
President and CEO, Agrium Inc.; Chair, Canpotex Ltd.; President, Methanex Corp.
Community leadership
Chair, Calgary Prostate Cancer Centre
Education
P.Eng (Chemical), University of Waterloo
Current age
64
Years of board service
15

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The Directors Chair

Mike Wilson

David Anderson After decades of executive leadership, most

recently as CEO of Agrium, you now serve on the board of

four large public companies: Air Canada, Celestica, Finning
International and Suncor. How have you found the transition?
Mike Wilson I thought I would miss wrestling the alligators, but I
dont. Being a CEO was rewarding, but its a tough and lonely job. As a
director, I get to focus on what I like most: thinking strategically about
the challenges facing companies. I like contributing my views on strategy and risk at the board level to secure long-term success. Its not easy
juggling my commitments to these boards and the two other priorities
in my lifemy family and my land preservation initiativesbut I want
to spend my time doing these things that are meaningful to me.
David Anderson Given the time demands and performance pres-

sures on directors today, is serving on four large corporate

boards too many?
Mike Wilson Four corporate boards is pushing the limit; I think three
boards is the sweet spot for most people, if you plan for 35-40 days a year
per board, assuming the business isnt struggling. But for me, Ive made
the choice to spend the time required because I like being a director. I
like the intellectual stimulation. In fact, the boards I choose to serve on
are ones that oversee businesses that I havent worked in before. Ive chosen to be a director of these four specific companies because I genuinely
enjoy the challenge and am able to contribute my business judgment.
David Anderson Boards often want directors with experience in

their industry. How do you bring value to businesses in which

youve not had direct experience?
Mike Wilson I bring an understanding of business models and the
fundamental questions of strategy and risk that keep the focus on the
longer-term viability of the corporation. Its essential that a good proportion of the directors have direct industry experience, but part of
board diversity is having other industry experience and outsider views
represented. Im conscious of my role in this regard.
David Anderson You have a disciplined way of thinking about
business by asking some fundamental questions about strategy
and risk. How did that come about?
Mike Wilson I won a proxy battle at Agrium with shareholder activists who wanted to strip our working capital by 50% and return that
excess capital to shareholders. This approach would not have been
right for the long-term value of the business, and I made that case successfully to our shareholders. That experience crystallized my thinking. I learned that while activists dont always have their facts right,
they do think about business at a foundational level. Shareholder
activists are asking the questions that any executive team and board
ought to already have asked and answered for themselves.
David Anderson Did that experience give you an insight that

helps you as a director provide better governance?

terest in mind, we have a coherent, tested strategy thats right for our
businesss long-term success.
David Anderson What are the fundamental business questions

you examine to gauge the long-term viability of a business?

Mike Wilson There are three questions that a board should be able to

answer if it is doing its job to ensure the medium- to long-term viability of the corporation, regardless of whether a shareholder activist is
at your door: (1) Is the CEO and the executive team delivering results?
(2) Is the strategy per use of cash appropriate? and, (3) Is the company
well structured, in terms of value-chain integration, to deliver value
over the business cycle?
Having thought through these questionsand having good answers
to themallowed us to convince Agriums shareholders that stripping
out working capital, cutting our budget for maintenance and stopping
our investments in growth would have left us in a weaker position over

Activists dont always have their facts

right, but they do think about business
at a foundational level. Theyre asking
the questions that any executive team
and board ought to have already asked
and answered for themselves.
the long run, even if it would have freed up capital to return to shareholders in the short term. The reality is you can make poor business
decisions by making certain numbers look good to short-term shareholders. Activists might be on to something when they come calling,
but if they have different answers than you to these questions, it may
be because they have a different investment time horizon, are using
different performance metrics, or have chosen a different comparator
group of companies.
David Anderson Lets explore these three core business ques-

tions you use to evaluate a corporation. What do you look for

to determine if the CEO and the executive team are delivering
results?
Mike Wilson Foremost, I think about tone and culture: is the CEO providing the leadership to get this rightand can I see evidence of that
in how people behave? Next I look at the key performance indicators
(KPIs) relevant to the business: does the executive team have the right
KPIs, aligned with strategy, to measure themselves? Lastly, I want to see
relative industry performance data: how is management doing versus
their industry peers? It may be that management has increased corporate value by 10% but their peers have done so by 20%. If so, what are we
missing? Its these relative industry measures and KPIs that are tracked
by shareholder activists; they usually dont touch on tone and culture.

Mike Wilson Yes, the insight I had was that our disagreement over

business strategy arose from having different basic business objectives and interests at the heart of what we were trying to accomplish.
As a director, I now participate in the governance-level discussion on
business strategy and make sure we understand and make appropriate
choices for our own business before any activist forces the questions
on us. And if an activist does come with questions and a particular in-

David Anderson Your second question addresses the appropriateness of the use of cash. How do you think of cash as a director?
Mike Wilson I want to know what the CEO is doing with the cash the
business is generating. I hold the view that cash should be used first
and foremost to sustain the companys assets, its brand in the market
and its businessand then reward shareholders with a dividend. Once

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Mike Wilson

a company has sufficient cash to take care of these basics, cash ought
to be used to grow the company, accretively. Only after available cash
has been used serving these priorities should the board return excess
cash through increased dividends and share buybacks. Activists favour
this last priority for cash, the return of capital, and often seek to lower
working capital and stop growth initiatives to fund it. The boards role
here is to ensure the company isnt jeopardized in the medium- to longterm by undermining maintenance or by over-leveraging, ensuring the
appropriate use of cash across these three options. In some situations,
when KPIs are not keeping pace with the industry, its possible the executive team is not using cash appropriately. The board needs to understand this and manage it, not wait for someone to call it out.
David Anderson Your third question for boards to test their business has to do with company structure. How should a company
structure itself to deliver value?
Mike Wilson The question gets at the concept of business diversification and integration across the value chain. Should the company be
diversified? If the company has a diversified portfolio of businesses,
is it the right portfolio and should it be split up? The important point
is for the board to look through the business cycle and form a view as
to whether the company has the right structure to deliver value over
the medium to long term. To illustrate this, at one point in my tenure at
Agrium, almost everyone urged us to break up the company because
one section was hot and wed get a higher valuation. Two years later,
they were happy we had a diversified business, as it gave us a better
cash position and strength relative to peers at the low end of the business cycle to take advantage of opportunities. If you cant find significant advantage over the business cycle from value-chain integration,
then the company should not be diversified. A board has to take that
longer view and respond appropriately. There will always be a temptation to go for the short-term bump. But if the shareholders have confidence in the board and management, they will support your long-term
strategy. The key lies in being able to provide good answers to these
questions and not being caught flat-footed.
David Anderson Are there warning signs for boards when they
might be caught flat-footed?
Mike Wilson The biggest sign is a lack of open dialogue between the
CEO and the board on these issues. The CEO should be very open in
sharing concerns on performance and risk and in reporting performance relative to peers. You know in a board meeting if theres an open
dialogue or not. Its important that the board not be surprised. This
goes both ways: the board needs to know what the CEO is thinking
and the CEO needs to know the boards thinking on strategy, structure,
quality of the executive team and of course on the adequacy of results.
David Anderson Shareholders want greater transparency, too.
What do you think of the trend toward greater involvement on
the part of shareholders in the mandate of the board to govern?
Mike Wilson In the same way that a board shouldnt cross the line
into managements role, shareholders shouldnt cross the line into
the boards role. If a board feels it needs to manage the company, then
it should get a new CEO. I think its the same for shareholders and a
board. If shareholders feel they need to govern by telling the board
what it should do, then they need a new board. For some reason,
theres a reluctance to draw this conclusion. Instead, well-meaning

governance institutions like the Institute of Corporate Directors and

the Canadian Coalition for Good Governance propose ever more intrusive mechanisms for shareholders to run pieces of the boards mandate. Im concerned that were on a trajectory that started by taking
away the boards mandate in executive compensation and more recently in director nomination and could lead to shareholder votes on
strategy and the management of the executive team. These are all roles
of the board. Where does it end?
David Anderson Like boards, shareholders would say theyre

taking their responsibilities more seriously and asserting their

legitimate power to influence and in some cases control corporations. Can this be done in a way that respects a robust board
mandate?
Mike Wilson Shareholders do have power and a legitimate role and it
should be exercised collectively as the full set of owners and in juris-

Shareholders are taking on more of the

boards mandate yet still expect the board
to function. I dont want to serve on
boards when thats the case. Tell me you
dont like my performance and give me
a chance to fix it, or tell me to leave.
dictions of ownership. Directors are in charge of nominations for the
reason that they are able to nominate based on a clear understanding
of skills and experience gaps on the board. It should not be the case that
a subset of owners with 5% of the company can have an outsized influence in appointing 25% of the directors when they disagree with the
boards direction.
I think we need a global solution to this. Lets have a vote of the
shareholders on their overall confidence in the board to carry out its
mandate and do away with all the other piecemeal interventions. The
convention should be that if a majority of shareholders dont have confidence in the board, then the board chair sits down with top shareholders and comes up with a board-driven plan for change. If a second
vote of confidence is lost, then a new board is required. At that point,
form a committee of the top 10 or 20 shareholders to nominate a full set
of directors and start again.
This is preferable to the current path were on in which shareholders
are taking on more of the boards mandate and still expect the board to
function. I dont want to serve on boards when thats the case. Tell me
you dont like my performance and give me a chance to fix it, or tell me
to leave. Just dont ask me to stay and then take away my responsibility
to do part of my job. Im convinced our current path is a net negative to
the enterprise. Its certainly not the best way to govern corporations.
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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