Lessons Learned from the Recession: What Directors Need to Know

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There are many positive signs that Canada is climbing out of the recession—but is emerging into a changed world. Challenging situations offer even experienced directors opportunities to learn; as the economic roller coaster of the past two years finally slows down, corporate boards and their directors have learned to approach issues in a different, more measured and cautious way.

How the recession has affected corporate governance among directors was the topic of a recent PricewaterhouseCoopers (PwC) Directors’ Briefing seminar, Lessons learned from the recession. At the briefing, David Planques, national leader of PwC’s Corporate Advisory & Restructuring group was joined by Bill Braithwaite, a senior partner at Stikeman Elliott and a member of the firm’s Partnership Board and Executive Committee, and Warren Seyffert, a director of various public and private corporations including Teck Resources, Allstate Insurance Company of Canada and The Kensington Health Centre. The panel shared insights on how the recession has affected the way boards in Canada are doing business.

The briefing, moderated by Kristian Knibutat, PwC’s Deals practice leader, began with a discussion about the business judgment rule, and how the changing landscape has affected the way boards of directors approach decision making, record keeping, financing, and risk.

Business judgment rule after the recession

The business judgment rule is basically a description of how the directors’ responsibilities are expected to be upheld. At its most basic, the concept is that a board of directors will be afforded deference by a court if it makes decisions with careful consideration and a reasonable amount of information.

According to Bill Braithwaite, one of the most significant developments since the recession has been the clear and unambiguous affirmation of the business judgment rule as part of the legal landscape in Canada, as established by a recent Supreme Court of Canada ruling.

“Under that rule, as long as directors act prudently and diligently, are reasonably informed and the decision they reach is reasonable, the courts will not second guess them on matters of business judgment,” said Braithwaite.

In addition, boards of directors need to earn the benefit of the business judgment rule by ensuring that a proper process is followed and that the information they are using is verifiable and legitimate. Braithwaite believes it is the responsibility of the directors to ensure that enough time and information are available to make decisions.

“If your decision is so off the mark that it’s beyond the range of reasonability, courts won’t give you the benefit of the business judgment rule,” Braithwaite cautioned.

Indeed, in the wake of the recession, many boards are revisiting how they need to behave to ensure they have enough information to make reasonable business judgments. Warren Seyffert noted that narrowing down the vast amounts of information available is a new challenge, citing increasing amounts of data, facts and noise. He placed the responsibility on directors, saying they need to educate themselves and ensure they have accumulated enough information upon which to guide their business decisions appropriately.

To help support the concept of reasonable and informed decision making and provide evidence, boards should keep formalized minutes of confidential meetings and once they are approved, maintain them as the official record.


One of the more challenging business judgments that boards have been dealing with through the economic crisis is the issue of financing.

Throughout the recession, many companies found themselves rather unexpectedly in distress, struggling with debt and payments—and very limited credit available. Many companies found alternative options including refinancing and selling down equity, but facing the prospect of a CCAA filing was daunting, and in some cases, became a reality.

A key learning was that the mere suggestion of a CCAA filing created leverage for boards that needed to bolster negotiations with stakeholders, unions and suppliers.

“The threat of a CCAA filing was enough to scare a lot of people back to the negotiating table, allowing the formulation of a consensual restructuring and avoiding a filing altogether,” said David Planques.

While making the decision to file is certainly a difficult time for any organization and its board, Planques noted that going into a CCAA filing may actually reduce the risk for the director.

“When you’re in a CCAA filing as a director, there’s a court-appointed monitor who’s watching pretty much every significant event that takes place,” said Planques. “There is court approval on every significant event, and multiple stakeholder advisors, whether they be for the bond holders or the secured creditors. It’s very difficult to not act prudently, with so many people vetting every single move that the company is making.”


In the current climate, disclosure has become increasingly important for shareholder relations. As the ‘say on pay’ debates continue, and the instances of shareholder activism increase, boards are becoming more open to frank dialogue with shareholders.

According to the panel, boards have a responsibility to sell their shareholders on their decisions—being proactive and explaining why and how the decisions were made are keys to gaining shareholder support.

“I don’t know why there is resistance in some companies to meet with these shareholders groups,” says Seyffert. “The worst that can happen is they will voice their concerns and you won’t agree with them. [But] sometimes you can say ‘Well, how about if we do this or try this’?”


Although the market and economy are beginning to recover, many organizations are still hanging on to the risk aversion they developed during the downturn. While it’s prudent for boards to be somewhat cautious, a growing number of companies have designated independent risk management committees within boards. While the directors supervise the committees, it frees the board to focus on the overall business, rather than only addressing the current risks.

The key, noted Warren Seyffert, is finding a balance between the entrepreneurial spirit and the potential risks. Post-recession, companies are more open to finding alternative means to mitigate their risk—evaluating impacts, exploring partnerships and ultimately accepting the risks they are confident taking.

For more information

Following the briefing, the panel of speakers participated in a Strategy Talks podcast called Lessons Learned From the Recession: What Directors Need to Know - episode 30. For more information, please listen to the recording or read the transcript (www.pwc.com/ca/lessons).

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