Silicon Valley North #49 November, 2002

The Way I See It… by Michael C. Volker

Boardroom Governance practices should be voluntary, not dictated

(Optional compliance standards may be a better option to more rules and regulations.)

Confidence and trust in corporate America is at an all-time low. In his quest to restore this trust and prevent white-collar malfeasance in the U.S., George Bush signed into law the Sarbanes-Oxley Act this past July.

This Act calls for sweeping reforms to fight corporate and accounting fraud by imposing new penalties and a variety of higher standards of corporate governance. It’s amazing that the U.S. moved as quickly as it did in introducing such legislation. (It’s ironic that they don’t have the same knee-jerk reaction to violence by introducing gun control legislation!)

Although this Act applies mainly to public companies that trade in the U.S., it is of interest to Canadian technology companies that aspire to be listed on a major stock exchange such as Nasdaq. The Act requires companies to provide more timely disclosure, certification of financial information by senior officers, more independent directors, independent audit committees, more regulatory policing and so forth. The whole idea is to improve the quality and timeliness of corporate reporting.

Canadian securities regulators are debating whether the American measures, or some aspects of them, should be adopted here. Doing so would certainly make it more expensive and, in the case of junior public companies, far more difficult for companies to operate. It would also run counter to what’s been happening in some Canadian jurisdictions.

The British Columbia Securities Commission used to report to the Minister of Finance. When Gordon Campbell became Premier last year, he moved quickly on his promise to streamline the regulatory environment. The Commission now reports to the Minister of Competition, Science and Enterprise and its mandate has shifted from being a watchdog to one of making it easier for companies to do business in B.C. Hence, it’s understandable that the Commission’s chair, Doug Hyndman does not want to simply adopt the new U.S. rules for B.C. firms.

This isn’t a one-size-fits-all situation. Although it may make sense for emerging companies to play by the same rules as the big boys, it may not be achievable in practice. For example, attracting and compensating dedicated board members is becoming more difficult.

It all comes down to quality. In much the same way that a small company aspires to have quality products, it takes time, training, processes and systems to achieve certain quality standards. That’s why quality standards such as the ISO-9000 series have been devised. Companies have recognized that, by adopting such standards, customers will have more faith in their products.

So, why not use a similar approach in the corporate boardroom? Instead of telling companies what they must do, why not set certain standards that they can voluntarily choose from? They could state that they are either compliant with certain standards or they could even go so far as to be certified to be compliant by an independent body. This would be very useful to investors when assessing corporate values. It would even be possible to define standards that surpass the mandated Sarbanes-Oxley requirements, just like “Six Sigma” is in total quality management. A Canadian technology company that meets such a standard, could be seen by American investors as a better bet than its U.S. competitor.

What I like about such an approach is that all companies – regardless of how big or small, public or private, can decide what’s best for them. Those that want to achieve higher quality levels can do so and identify themselves as having done so. It may be a great way for companies to attract venture capital investment long before they go public.

The way I see it, the degree to which a company wishes to comply should be a matter of choice. If a company wants to run a sloppy operation, let it. On the other hand, companies that want to achieve excellence above and beyond a prescribed code of conduct will be recognized as such!

Michael Volker is a high technology entrepreneur and director of Simon Fraser University’s Industry Liaison Office. He oversees Vancouver’s Angel Technology Network and is Chair of the BC Advanced Systems Institute and past-Chair of the Vancouver Enterprise Forum. He may be reached at mike@volker.org.