Governance experts blast lack of 'skin in the game' in boardrooms

Most of Canada's largest publicly-traded companies have at least one director who hasn't personally invested in the company they help to oversee, according to a BNN Bloomberg analysis.

Most of Canada's largest publicly-traded companies have at least one director who hasn't personally invested in the company they help to oversee, according to a BNN Bloomberg analysis.

More than 80 per cent of all companies in the S&P/TSX 60 Index, the basket of 60 large-cap firms that is designed to reflect the S&P/TSX Composite Index’s sector weightings, have at least one current director on their board who hasn't made a personal investment in the company’s common shares, based on a review of the most recent information circulars provided to shareholders ahead of annual general meetings.

While there are no rules that require directors to buy stakes in companies they oversee, some governance experts believe doing so better aligns them with the long-term interests of the corporation and its shareholders. Many companies have ownership requirements for their directors to achieve by a certain date, but often compensate those directors with stock awards — typically referred to as restricted or deferred stock units (DSUs) — instead of a cash salary.

That lack of director investment is not unique to Canada. It was recently highlighted by Tesla Inc. Chief Executive Officer Elon Musk, the world's richest person, in a tweet where he criticized Twitter Inc.'s directors for their minimal ownership of the company's stock.

Musk's criticism comes as he pursues a potential US$43-billion takeover of the social media platform.

In Canada, the broad lack of personal investments by directors should not be overlooked by investors eyeing large Canadian companies, experts say.