Corporate chief executives and the securities industry should strive for a more balanced focus between near-term profits and long-term returns in the interest of better corporate governance, says Paul Tellier, president and chief executive officer of CN Railway. He made the remark today during a speech to the Empire Club of Canada.

Corporate governance would also benefit, says Tellier, if chairs of boards of directors removed under-performing directors and institutional investors made corporate integrity a key test for investment. He acknowledged that the production of quarterly financial results is sound discipline for corporate managers, but said, “The obsession with managing earnings per share makes it more difficult to make decisions that will yield results only in the mid- to long-term. Executives need a great deal of integrity and fortitude not to succumb to the temptation of being short-term oriented.”

The same applies to the securities industry, says Tellier, which tends “to focus on short-term quick-growth opportunities, sometimes to the detriment of stable, but less glamorous enterprises. The model some analysts use could be broader and more focused on the corporate strategy the enterprise is pursuing. If the market is to restore investor confidence, it must be able to discern long-term value. The top-rated analysts already do that.”

Tellier also argued that corporate boards must take a more activist approach. Boards should not allow the chief executive to dominate them, he says, and
they must insist on dialogue and discussion in place of endless management presentations.

Finally, they must get tougher on under-performing directors. “Removing a non-performing director is an extremely important but also very difficult and delicate task. Shareholders have the right to demand the highest levels of performance from their directors. And the chairs of Canada’s corporate boards must become more aggressive in inviting under-performers to step down.”