Matt (Voiceover)
Welcome back to Sound-Up Governance. This week features the first ever in-person unedited interview segment. I packed up a bunch of gear and set up in my friend's basement to have an unscripted chat about corporate governance, guitars and gigging. The session went back and forth between guitar noodling and truly deep dive governance nerdiness. The friend in question? None other than Kevan Cowan, the brand new chair of the Ontario Securities Commission and past President of the Toronto Stock Exchange and TSX Venture Exchange and former CEO of Capital Markets Authority Implementation Organization, which was an attempt to establish a pan-Canadian securities regulator. Kev and I have been friends for years and actually met not through our significantly overlapping corporate governance lives, but through music. More on that a bit later. To get us started, and for the bulk of this episode, here's a particularly fun and nerdy segment of our conversation.
Matt
I'm interested in general, in, I'll just put it out there, my current working wording of my definition of good corporate governance is "the act of intentionally creating effective conditions for making decisions in an incorporated entity," period. Without talking about rules, without talking about boards, without talking about any of that stuff. And I feel like that's, first of all, it's a bit of a rejection of my past, because I was part of the machine that really emphasized the equivalence, which I think is a false equivalence, between governance and compliance. I think that again, they're related, but it's not the same thing. Compliance can help to create guardrails for governance, but it's different from governance. I'm curious, the extent to which... what's the right way to put this? I'm curious the extent to which the institutions that you've kind of grown up through and now you're still involved with, how interested are they in the stuff that actually happens inside the organizations versus making sure that they're reporting accurately and making sure that they're following the law and making sure that the standards are up to date and so on? Is there in addition to that an interest in actually what happens in the room?
Kevan Cowan
That's an interesting question. And there's so much bundled up in what you said, yeah, no, no, it's good. It's, and I don't want to take us down a road of semantics. Like just to backtrack through your your lead up in your question a little bit. I think because you inserted the word "good" before governance, I could accept your definition. And by the way, I think you're a much better an expert on these things than I am. I tend to think of governance as just how decisions are made.
Matt
(whispering) Hey, me too!
Kevan Cowan
And then when you say "good governance" then I do like how you've expanded the definition to say, you know, all of the conditions leading to effective or optimized decision making. So I think I'm with you.
Matt
And I'm going to push back a little bit, because that's how I originally thought of it. But then I realized it's really about the effective conditions, not the effective decision. Because effective decision implies, and you could tell me if you disagree, implies that we have some idea what the result is going to be. And that's one of the things about a decision is you don't know what's going to happen afterward. If you do, you wouldn't have to make a decision.
Kevan Cowan
Yeah, that's a very fair point. And I think you're putting an even finer, more granular lens on this than I was. So the way you explained it that way, I certainly I certainly agree with you. I think I was just looking at the other way around that, you know, whether a decision's right or wrong, you can say that based on the facts and the information at the time, it was a good or a reasonable decision. And so I tend to think of that as optimizing the decision in the condition.
Matt
I agree completely.
Kevan Cowan
Yeah. So, you know, with all of that now, in terms of asking about reaching into the boardroom, I don't think that, you know, my view would be that organizations, whether it's a stock exchange or some other form of regulator, it's really about the conditions. It's not about going into the boardroom and understanding what's happening in there. Now, inevitably, some decisions, you know, if there's litigation or an application to the Commission, or to the tribunal, of course that type of issue that was in the boardroom might get in front of an agency, whether it's the Stock Exchange, or securities commission or other regulator. But as a starting position, that's not really what's happening.
Matt
So is there anyone out there who is, and the answer that I'm guessing is no, but maybe a more important question who could or should I'd be more interested in that piece? The, you know, the actual conditions inside the room? Is there anyone who could or should? Or is? And I'll just again, I'm interested in it.
Kevan Cowan
Okay, so maybe I need to break this down a little bit. Like like regulators are certainly interested in some of the conditions that form the foundation for the platform on which decisions are made. For example, separation of chair and CEO, diversity, people with financial literacy, Audit Committee independence. So all of those things, regulators of all sorts are interested in making sure those conditions, but once those conditions are in place, what's happening in that, on that platform, or in that room, I think is really, you know, nobody's reaching into that. But maybe I've misunderstood
Matt
No, you're, you're in the bullseye right now. So I'm going to ask, because I'm really interested in this, I'm reflecting back on what I had really embraced for a long time. And the separation of chair and CEO is a great example where,
Kevan Cowan
Well, and I'm a product of that, because, you know, it's it's a great piece of irony that the Securities Commission was one of the very last institutions to separate chair and CEO. And I'm, of course now chair, but not CEO. We have a great CEO in Grant Vingoe who runs the organization, and, you know, credit to the current government, frankly, for finally pushing ahead with this long-overdue change.
Matt
Yeah, but I'm also interested. So obviously, the biggest impact on you for that change is that you probably wouldn't have taken on the job if it was combined, because it's just too it's a lot of work, right. As far as I know, you're not looking for, another full-time job.
Kevan Cowan
I think at all points in all of our careers, you know, we're sort of suited for a certain role. And, you know, we have a great management team, for example, at the Ontario Securities Commission, so...
Matt
So I understand on paper, and in theory, the idea that separating the chair and the CEO roles in any random given organization should manage one element of conflict of interest. "Should," maybe doesn't in some cases, and certainly doesn't manage many, many, many, many other potential conflicts of interest. I'm starting to feel and I'm interested in your reaction, I'm starting to feel like I might have over exaggerated the importance of things like that. Of "Oh, you know what, it's true in all cases, that we should separate the chair and CEO, because that's better for corporate governance." I'm not sure that I believe that anymore. What do you think?
Kevan Cowan
Well, I think I think as a general rule, it is the right thing. And it was overdue. And I think in the last 10 years, we've really come a long way to rectifying that. You know, could you argue that there's certain situations, either specifically, or generally that that's not the case? Yeah, sure. Possibly. I mean, first of all, let's knock out private companies that are majority owned by, you know, one family or one person, I don't think that's what we're talking about. Now, having said that, a lot of private companies may choose to have that, and then they probably should choose to have that third party, you know, perspective on things that isn't quite as aligned and conflicted the way the owners are. In the public realm, I think maybe there's some exceptions. I can't think of what they are, but off the top my head, but
Matt
I can only think about walking into a room. And maybe the most common example, where I start to doubt how much these rules have a real world impact is the example where sure they're separated on paper...
Kevan Cowan
Right, but Matt sorry we need to unbundle that because I think we're conflating two different issues.
Matt
Maybe you're right.
Kevan Cowan
I think one is, are there situations where you'd be better off without it? And, you know, the second is, is it a panacea? It's absolutely not a panacea, it's one tool in the toolbox.
Matt
Right. And I think part of what I'm starting to realize, because I spent so much time on the outside gathering data and, and extrapolating from the data to imagine what might be happening in the real world. And the more time I spend in boardrooms, the more I realize that a lot of the conventions that I thought probably applied in the real world don't really. The idiosyncrasies among boardrooms are basically infinite. And most of what I was measuring, and this is an admission is I thought I was measuring governance, what I was measuring was disclosure. And I really think those two things are quite different. And a disclosure that we've separated the chair and CEO roles and now and in fact it's separated doesn't actually change much in the real world. And I've just I'm harping on one weird example.
Kevan Cowan
Yeah, well, okay, a bunch of things done bundle there as well. First of all, an earlier you referred to sort of compliance and governance being different and now disclosure and governance being different. It never even occurred to me those were the same thing, right. Like they're to me entirely discrete.
Matt
It did to me. I was wrong for a long time. Yeah.
Kevan Cowan
I mean, they're part of the bigger picture that helped So, you know, in terms of bringing all these things to bear, you know, for an optimized situation, but I do see them as very, very different. So if you think of the separation of the chair and CEO, you know, disclosing that doesn't really get you very much. It lets the investors know at least you've taken the step. But now you're right, you're into the dynamics of, you know, is there true separation? Is there independence? Do you have a personality that pushes back on group think? Do you have a personality that presents alternative views between the board and management? And funny, you know, that, to me, is probably one of the biggest lessons of governance, and I'm probably, you know, getting off on a little bit of a tangent here, but
Matt
You're going exactly exactly where I want you to go.
Kevan Cowan
I've, I've, I've been in situations where there's been a very vigorous discussion, and you might have one or two outliers, you don't get a unanimous board vote, you get one or two people who vote against it. And then I've had the person call me after the meeting and say, you know, "should I resign?" I say, "Are you kidding me?" The most valuable thing that could possibly have happened is that we had opposing viewpoints for a whole variety of reasons, not the least of which is the people who voted in favor of something had to test themselves, against opposition, on their adherence to the decision. And there's nothing more important than that.
Matt
Yeah. Okay. So you're, these are... I'm sure it wouldn't surprise you to know that there's still a lot of boards out there that think that the objective is agreement. They define consensus as we all vote for.
Kevan Cowan
To me, the fundamental rule of an organization, you know, in most cases, at least, that I can think of, would be you have the vigorous debate. Opposition and lack of consensus during the discussion probably leads to a higher quality decision. Once you leave the room, you're all behind it. Right? What happens in the boardroom stays there. You have the conditions to get the best decision you can in the circumstances based on the facts and data that you have. You leave the room and you all pull together.
Matt
Yeah, I so you're describing something that takes a very special group of people in my experience. So this is a conversation we could go real deep into, so maybe let's try not to. But what's the... and maybe we can answer this from both sides of the table. Or maybe it's the same for both board and management. But I'm kind of getting really interested in understanding what's the difference between let's just take the chair to be specific. What's the difference between a chair who's just doing the job and someone who's knocking it out of the park?
Kevan Cowan
Well, I think I think fundamentally, one of the biggest issues would be you know, is this is the chair, you know, directing the process of directing the decision? I think the answer is and should be directing the process. Having said that, the Chair will often be a person who's very engaged in the organization for obvious reasons, and at a minimum, may want to make sure that things aren't overlooked. So you know, I think a good chair won't direct the outcome. But will direct the process in a way that you know, all the important things are considered. And if group think is happening, and a consensus is building too quickly, where there are I mean, sometimes consensus is obvious, but where there are things that haven't been discussed, I think a chair will insert those into the discussion to make sure they're at least addressed.
Matt
I have a working analogy for a board chair that I'd like your reaction to. So the the old school one is a good board chairs is like an orchestra conductor, have you heard that one? I've been in an orchestra. I don't, I don't buy it. I don't want my board chair to be the person in the front and center of the stage, the only person in the room everyone knows their name, they get there in the spotlight, they get the standing ovation, they get called Maestro. This is not what I want in a board chair. Here's my working analogy. And I know it's not perfect. So instead of picking out what's not perfect, I want to know I want a standing ovation. So imagine you arrive at a dinner party and the food is... well before we get to that, the lighting is nice, glass of wine in your hand, an introduction to some people that maybe you didn't know before with a conversation prompt thatgets things moving. The dinner and wine pairing is nice, there's tension, but it's managed well. You come away with a deeper relationship with a bunch of people and having learned a lot and it felt almost like magic and you go home and you're just like, "wow, you know, that was amazing." And the dinner host did a lot of work before and during and after to create those conditions where everybody could thrive and learn and participate and so on. I kind of like that as a as a board chair and a great board chair analogy. What do you think?
Kevan Cowan
I completely agree and there's a few things I'd I might add to it. But as a general comment, definitely agree and certainly versus the orchestra conductor where it's just purely process right? You're not just managing the process, you're creating the conditions for good decision making. The one thing I'd add is it often requires the board chair to work very closely with management. And that's the one element. So, in planning, all of the conditions of that beautiful dinner party you described, there was, you know, there's management involvement as well.
Matt
Okay, so is the manager, let's, let's come up with, let's take the analogy further. Is the CEO, the chef, or the, the entertainment or the... who's the CEO at the at the dinner party?
Kevan Cowan
Yeah, good question. I'm not sure I, you know, I could see elements of chef. I don't see entertainer, but I actually can't think of, you know,
Matt
This might be one of the main flaws in my analogy.
Kevan Cowan
Yeah, I mean, not host I mean, there's elements of all of those things. But you know, you know, as we always say, it's the CEO's, the board's most important role is to hire that hire and fire the CEO...
Matt
(whispering) I don't like like that at all.
Kevan Cowan
Okay, well, we can debate that. And then then, you know, the CEO's, obviously, is to run the organization. So
Matt
Here's the reason I don't like it. I don't like it from the CEO's perspective. Imagine your boss said to you, you know, "the most important thing I do is hire and fire you."
Kevan Cowan
Okay, is that a communications issue or a substance issue?
Matt
I think it's a substance issue, because I believe that it's going to be very rare for a board to hire the absolute perfect person, out of all the billions of people in the world, we haven't selected the perfect one, we've done the best we can to find someone who's good. And then it becomes the most important part of our job, I think, is to make sure that that person can thrive.
Kevan Cowan
Has conditions for success.
Matt
Right. Yeah. So that's it's not hiring and firing, that's the most important job is what happens in between, I think.
Kevan Cowan
Well, maybe maybe we have to make a bit of a distinction there between, you know, sort of the the most important decision making authority that the board has versus the most important task or role that they have. I would argue that that would accommodate both things were saying and, you know, I certainly wasn't intending that to be complete. No, but in terms of authority...
Matt
Right, and maybe in terms of the way that the board's authority is most typically expressed in a modern publicly listed company is, you know...
Kevan Cowan
But absolutely, I mean, and start with the conditions for success, I think one of the key ingredients in that is, is a, you know, a good healthy relationship between the CEO and the board chair. That's, that's critically important. And I think that feeds right into what you were saying about, you know, helping set up the conditions for success, because nobody's perfect. I agree.
Matt
Okay, so where can people like us who are working in this space, and I have very strong opinions about this, so and I can share them, but I'm trying not to, I'm trying to hold my opinions lightly. Because they're new, and I like them a lot. But that that puts me at risk of latching on to them and fighting for them instead of being open minded. So for people like us and all the other people who come at the quote, unquote, industry of corporate governance, from various angles as chairs and CEOs and board members and advisors, and everybody, what are the things in your mind that need the most work urgently?
Kevan Cowan
Okay, extrapolate a bit.
Matt
So if we're thinking about good governance, again, as the act of intentionally creating effective conditions, that's kind of where the act stops, right? The decision happens afterwards. So the good governance part is actively and intentionally creating effective conditions for decisions to happen. Where are the biggest vulnerabilities right now in organizations, and especially in the listed company world where you're mostly playing?
Kevan Cowan
Yeah, I don't, I'm not sure that those those fundamental issues have changed very much. So if you think about what most of the, you know, there's lots of really good education and governance, sorry education and information about governance out there, and I think people are hitting on on the right things. You know, it's, it's being informed, it's keeping up with the, the industry, it's understanding of the role of the board. It's, you know, it's recognizing and resisting group think, like, you know, I'm just hitting three or four things from the long litany of things that the you know, that the education is out there. But I'm, you know, if you think about specifically in industry, I mean, those, to me are the foundational things. And if I understand where you're going, you know, we're living at an incredible time of innovation and disruption. Technology is moving faster and faster and it's moving fast for decades, but it's moving even faster. And for, you know, board members to stay up with that is difficult. I think it's it's always a challenge to get ahead of things as opposed to reacting to them. I think we should all try and, you know, we have to all try and strive to understand the context and what's happening. So that we're ready for an issue when it comes and not scrambling to catch up and react to it. But probably innovation and disruption is one of the toughest things and everything from, for example, in this area from financial products, through to technological innovation, right? Turning industry upside down.
Matt
So I'm thinking of two things. I'll do them one at a time. One is, at the previous episode of this podcast, my guest was and you haven't heard it yet, because it's not out at the moment that we're recording this, my previous, my previous guest was an AI. And I had a conversation with this AI about corporate governance, including asking it, in its opinion,
Kevan Cowan
That's mind bending, by the way
Matt
How boards might best use AI to their advantage in the deployment of good governance. And its advice was, AI is really good at some at certain things like managing big amounts of data, like automating certain processes that don't really require human intervention and really bad at a lot of other things like judgment and strategic decision making, and so on. And it didn't use these words, but the subtext to it, at least to me process through my brain was, in theory, technology could be used to take the bullshit off the plate of directors and get them focusing their time and efforts and intelligence on the stuff that they can really do and add value. Does that sound practical, especially through the lens of this sort of quasi regulation? Or is that a little bit scary?
Kevan Cowan
Well, I actually, I don't know that I'm qualified to actually answer your question. I will tell you it sounds fantastic. You know, if the objective can be to help... any tool available to help directors focus on what really needs to be focused on as opposed to wading through all of the stuff to try and find that kernel, if AI can somehow help focus that that would be fabulous. I don't know enough about AI. And I can't wait to hear the podcast to know what's actually practical or doable there. But managing data is a huge issue. Right.
Matt
Right. And there's we're still, I think, in a lot of organizations stuck on the question of, "how are we going to keep up with change?" And that's an important question. But what if we were free to have a little bit more brain space to say, what would it take for us to be awesome in the future instead of how are we going to keep up with Right,
Kevan Cowan
Right, yeah, it's getting ahead as opposed to reacting, you know, proacting rather than reacting. Right? Yeah. And any tools that are available to help with that, especially around understanding and managing data would be hugely helpful.
Matt
Yeah. And the and the the patterns that may indicate risks that we wouldn't be able to see, but that technology might...
Matt (Voiceover)
Man, it is such a pleasure and privilege to chat with Kev. And one of the most important takeaways of the conversation is, here's this guy who's had his hand on the levers that control many of the important rules and regulations around the compliance side of corporate governance. You'd think he'd be out here reinforcing the importance of rule following and box ticking. But no, even Kev Cowan, the chair of the OSC is reminding us that the people, the process, and the conditions are what matters most, as long as we're also following the rules, of course. Especially for any listeners in a listed company environment, I hope you find this as interesting and refreshing as I do. You'll hear more from Kev soon, including about his deeply rich musical life, which, as I said, is how we met.
Matt
So how we met. Who tells the story because I think we're gonna have the same story from different angles?
Kevan Cowan
Well, I think I'd like to tell it because I'm going to tell it in a way that will say some things that you wouldn't say about yourself. So I live in the Beaches and I went out for my, one of my favorite nights of the year is to go out walk Queen Street when it's closed and listen to all the bands and I came down to Queen Street from our house, and there were several bands playing. But through through all of the din of that about two or three blocks away, I heard the sound of a bass guitar, and a bass guitar playing that riveted me. And it was like Stevie Ray Vaughan sorry, it was like BB King. describing the first time he heard Stevie Ray Vaughan it was just like somebody had found exactly the right tuning on the radio and it just everything slammed in. And so I just followed the sound down the street and came up to the band and I stood right in front of the bass player. The band was great. But I was captivated by the bass player the playing, the sound and everything. And it was it was like the first time I saw Aerosmith. I was a guitar player, but I didn't watch Joe Perry. I was so captivated by Steve Tyler. So I'm captivated by this bass player, so the set ends and I go over to go on the mailing list. And I sign up on the clipboard to get my name on the mailing list for the band. And I hear a voice over my shoulder saying, "Oh, do you work at the TSX?" And I turned around and it's Matt Fullbrook, the bass player. And it turns out, I had no idea Matt was in the governance business and knew Eleanor Fritz, who I worked with at the TSX. And that's how we met.
Matt
And I'm so I'm just going to take the picket up where you stopped and take it a few more steps. So when we realized that we both knew Eleanor, Kev says, "Oh yeah! She's on my team!" And then takes out his phone and calls her and leaves a message. And this is a Saturday. Like five minutes later, Eleanor's calling me. She says, "Why is my boss's boss's boss calling me on a Saturday talking about you?"
Sound-Up Governance (ep14) - Even the regulators think corporate governance is about people (feat. Kevan Cowan)