Canadian Boards Report

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canadian-boards-cover.jpgCanada boasts one of the most technologically advanced economies in the world, with high-tech exports leading the way. “Made in Canada” is a competitive label and the nation’s strong historic ties to Europe makes for healthy chemical, machinery, transport equipment, computer electronics and mining exports. Canada also has unique access to Asia-Pacific markets through its geographic location, immigration links and actions for reducing trade barriers. Canada is truly a global economy and it’s attracting companies around the world to do business in and with Canada. Since 1996, foreign direct investment in Canada grew over 128 percent to $415.6 billion at the end of 2005.

Despite Canada’s many advantages, companies still need strong boards to guide them. In fact, the focus on boards of directors in all sectors has never been stronger, yet there is little research to help companies develop best practices for attracting, retaining, rewarding and drawing the most value from their boards. Many boards hold tremendous power within the corporation to help steer it in a profitable direction through strategy and executive recruiting approvals, yet there remain mysteries surrounding the appropriate intervals of meetings, compensation, and diversity of the boards’ members.

The Entrepreneurial Boards Composition and Compensation Survey: The Canada Report was designed to identify trends in boards of directors. We surveyed 150 CEOs, venture capitalists, vice presidents of human resources and board directors from various industries – more than 18 in total – with a special focus on small software and technology companies. A majority of responding companies had average annual revenues of less than US$10 million and had been in operation between five years and 10 years. Most are privately held.

Our goal with this report is to compare and contrast the practices of Canadian companies and U.S. companies to identify national trends, as well as areas where Canada’s technology companies should consider making adjustments to their boards of directors in the areas of size, composition and compensation strategies.

Key Findings:

The following summary offers key findings from each section of the Entrepreneurial Boards Composition and Compensation Survey: The Canada Report:

Board Composition Comparison

Canadian companies have more independent outsiders on their boards. They count more investors and more venture capitalists on their boards. This is good news for Canadian companies but not good enough as 25% independents is still very low.

Board Size

There is more variability in the size of boards in U.S. companies versus Canadian ones. Canadian corporations report between five and eight members, while U.S. companies report between three and nine board directors. Having more variability in the number of board members may be good as it reflects a wide variety of needs. However, three board members seems too few at the low end for U.S. companies.

Proportion of Board with Empty Seats

About 25 percent of U.S. corporations report empty seats on the board, whereas nearly 27 percent of Canadian corporations report empty board seats. This is a very marginal advantage to the U.S. The fact that 1/4 to 1/3 of board seats are empty is not a good situation for either side of the boarder.

Board and Committee Meeting Fees

Board and committee meeting fees are rare. When board meeting fees are paid, then both Canadian and US companies pay $1,000 per meeting. However, U.S. companies reported paying board directors as much as US$500 per committee meeting. Canadian companies, by contrast, reported paying directors as much as US$1,000 for similar meetings.

Compensation Packages More Generous in Canada

More Canadian companies pay their board members both cash and equity (45% in Canada vs. 24% in the US), and fewer Canadian companies pay their board members no compensation (14% in Canada vs. 24% in the US). 37% of US Companies pay nothing versus 24% of Canadian companies. Note that this figure is somewhat lower as many of the board members are venture capitalists or other significant investors that would not get paid additional equity to participate. Similarly, equity packages are more generous in Canada. Canadian companies award their directors equity upon joining a board 47 % of the time compared to only 32% in the U.S. 24% of the Canadian companies pay no equity versus 37% of US companies. Equity structures are also somewhat simpler in Canada.


Vell Executive Search suggests the following approaches for entrepreneurial firms:

1. Improve Board Composition

Consider having more independent board members to introduce an external perspective to the business:

a)  Add angel investors, especially those who have had success as entrepreneurs.

b)  Consider adding current or retired executives from your customer group, supplier group or key channel partners. They will add a unique perspective to your company and help you in a strategic way.

c)  Maintain a diversity of skill sets and industry experience on your board. This offers you a well-rounded perspective on the opportunities and challenges your company faces.

d)  Ensure that the skill sets on your board match your company strategy and complement the skill sets on the management team and the board.

e)  Pay close attention to the candidate’s overall industry experience and credentials.

2. Fill empty seats on the board

Unfortunately, 27% of board seats are empty. This presents a unique opportunity to fill these seats with strategic talent. Empty board seats devalue overall production of the board and rob your company of the chance to draw from the wealth of experience directors can offer.

3. Seek to grow your board to about six to eight members

Too many members can breed confusion; too few can leave important perspectives buried.

4. Utilize the Board

Hold more board meetings in fast paced industries than in more traditional industries.

5. Aggressively recruit senior board members for the strategy you are pursuing

Define your ideal board candidate and recruit them. Experienced board directors will often agree to serve for stock options, rather than large cash-based compensation packages.

6. Align Incentives at the Board Level

Make equity compensation part of the package in order to attract and retain the interest of top-level executives. Only 50% of our survey respondents offer stock options/RSUs or some other type of equity compensation.

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