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MANA 695O - Corporate Governance - Loblaw Case
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MANA 695O - Corporate Governance - Loblaw Case

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This case was presented in the summer of 2010 for the Corporate Governance course at JMSB. Presented a case on Loblaw company to recommend to the Concordia University Pension Fund to either invest or …

This case was presented in the summer of 2010 for the Corporate Governance course at JMSB. Presented a case on Loblaw company to recommend to the Concordia University Pension Fund to either invest or not invest in Loblaw.

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  • At the time of the release of the management proxy circular, the board had nominated 13 individuals who are currently directors with Loblaw Companies. The average number of years that a director is on the board is 5.4 years. Of the 13 directors, 7 are independent and 6 are non-independent (which is acceptable due to the “Controlled Company” status of the company). The boards experience is relatively diverse ranging from Retail, Professional Sports, Banking, and Technology. Finally, with the exception of Galen G. Weston, all the nominees have extensive executive management experience in corporations other than Loblaw and Weston. They have all held the CEO, President, Executive Vice President, or Chair positions at various corporations.
  • At the time of the release of the management proxy circular, the board had nominated 13 individuals who are currently directors with Loblaw Companies. The average number of years that a director is on the board is 5.4 years. Of the 13 directors, 7 are independent and 6 are non-independent (which is acceptable due to the “Controlled Company” status of the company). The boards experience is relatively diverse ranging from Retail, Professional Sports, Banking, and Technology. Finally, with the exception of Galen G. Weston, all the nominees have extensive executive management experience in corporations other than Loblaw and Weston. They have all held the CEO, President, Executive Vice President, or Chair positions at various corporations.
  • Galen Jr. has worked full time at Loblaw for the past eight years and had been most recently senior vice-president of corporate development. Prior to that, he was vice-president of operations for the No Frills division (Olijnyk, 2006). Now 37 years old with 4 years at the helm of the Loblaw board, Galen Jr.’s tally of experience still pales in comparison to that of any other nominee on the board currently. Galen Jr. is supported by the experience of Allan Leighton (Deputy Chair and President) and Anthony Graham. Mr. Leighton is strategically placed to guide and mentor Galen Jr. This is considered to be a plus for the company considering that Mr. Leighton was once a President and CEO of Wal-Mart (EU division), Loblaw’s strongest competitor.

Transcript

  • 1. Loblaw Companies Ltd.
    A Recommendation for the Concordia Pension Fund
    Mark Bundang
    Zachary Elias
    David Mascitto
    Eric Wand
    Lei Wang
  • 2. Loblaws: A History
    Loblaw started in 1919 by Theodore Pringle Loblaw
    Grew to 80 stores
    George Weston Limited acquired Loblaw in 1947
    Incorporated Loblaw Companies in 1956
    Maintains 63% control of the company
    Family-owned “Controlled Company”
    Succession of control from father to son
  • 3. Loblaws: Current Status
    Over 1000 stores across Canada and the United States
    Over 30B in sales per year
    Controls a Financial Institution (PC Financial)
    140,000 employees
    Voted one of Canada’s Top 100 Employers
    Top 10 Companies to Work For
    One of Canada’s Greenest Employers in 2010
  • 4. Strategic Outlook
    Loblaw Companies Ltd is committed to a strategy developed under three core themes: Simplify, Innovate and Grow.
    Weston: to be the best provider of bakery solutions and fresh dairy products to its customers.
    Loblaws: to be the best in one-stop shopping for everyday household needs for Canadian consumers
  • 5. Financial Outlook
    • Key Indicators
    • 6. Cash Flow
  • Financial Outlook (cont’d)
    • Loblaws & Weston
    • 7. Share identical risks?
    • 8. “Internal Control over Financial Reporting”
    • 9. “Enterprise Risks and Risk Management”
    • 10. Share identical Responsibility-auditor?
    • 11. “Management’s Statement of Responsibility for Financial Reporting”
    • 12. “Independent Auditor’s report”
  • Board Composition
    Stephen E.
    Bachand
    Paul M.
    Beeston
    Gordon A.M.
    Currie
    Anthony S.
    Fell
    Anthony R.
    Graham
    John S.
    Lacey
    Allan L.
    Leighton
    Nancy H.O.
    Lockhart
    Pierre
    Michaud
    Thomas
    O'Neill
    Karen
    Radford
    Galen G.
    Weston
    John D.
    Wetmore
  • 13. Board Composition
    13 nominees (and current directors)
    11 men + 2 women
    7 independents + 6 non-independents
    Diverse experience
    Retail, professional sports, banking, technology
    All have extensive executive management experience in corporations other than Loblaw and Weston (except Galen Jr.)
  • 14. Executive Chairman
    Deputy Chair and President
    Allan L. Leighton
    Executive Chairman position created specifically for Galen Jr. 4 years ago.
    Galen Jr.’s experience pales in comparison to rest of board.
    Mr. Leighton is strategically placed to guide and mentor Galen Jr.
    Galen G. Weston
  • 15. Typical Director Profile
  • 16. Loblaw Interlocking Overview
    Public Board Interlocking is minimal
    5 of 13 are interlocked with BCE or Weston
    Interlocking may not be black & white
    Alan Leighton is Deputy Chairman of Loblaw and Weston
    Gordon Currie is Exec. Vice President and Chief Legal Officer at Loblaw and Weston
  • 17. Public Board Interlocking
  • 18. Committee Membership
  • 19. Governance Committee
    5 of 13 directors sit on board (incl. Chair)
    Responsible to oversee compensation
    Evaluate director performance
    “It’s like grading your own midterm” – Professor Riven
  • 20. Executive Committee
  • 21. Executive Committee
    Maintains a basic charter
    Hold key positions at Loblaw and Weston
    Deputy Chairman
    Executive Chairman
    Engages when ``it is not practicable for the full board to meet``
    No meeting in 2009
  • 22. Audit Committee
    Made up entirely of independent directors
    Members are financially literate
    Oversee financial reporting, internal controls, disclosure controls, etc.
    Must approve of any non-audit services provided by external auditors
    Comply with applicable securities law rules
  • 23. Financial Compensation
    Compensation is determined by Corporate Governance Committee
    Directors can
    Opt for Deferred Share Units (DSU) as compensation
    Choose the amount of DSUs they will receive
    All but one Director receive DSUs--with varying proportions (ex. 100%, 50%, 86%)
    DSU demonstrate a commitment to the long-term success of the company
  • 24. CCGG Guidelines: Disclosure Practices
    Section B.1 – Director selection and orientation:
    Missing the skills matrix of its director talents
    Missing an attendance list for orientation and continuing education programs
    Section B.2 – Director background
    Missing each director's "area of expertise" in the biographies
  • 25. Disclosure Practices (cont’d)
    Section B.3 – Director share ownership guidelines and continual reinvestment
    Missing year-over-year change in share or DSU ownership for each director
    Section B.4 – Director compensation / reinvestment programs and option plans
    Loblaw's met with all the disclosure standards
  • 26. Shareholder Relations
    Approximately 40% of the company is owned by external shareholders.
    Commendable Shareholder Relations for the “Minority”
    Excellent Communication
    Timely Reports
    Webcasts of Earnings Reports and Quarterly Statements
    Strict set of rules in its “Disclosure Policy”
  • 27. Environmental Footprint
  • 28. Recommendation
    Based on the financials and the corporate governance of Loblaw Companies Ltd.:
    Buy!
    Risks:
    Galen Jr. is young and inexperienced, but has surrounded himself with strong board members and leaders.
  • 29. Questions?
  • 30. Non-Public Board Conflict of Interest
  • 31. Loblaw Pros vs. Cons
  • 32. Closing Thoughts
    Loblaw is fairly transparent to board and committee membership
    Successfully leverages of NP 58-201
    New Director Orientation
    Continuous Training
    Board Nominations
    Succession Planning
    “Don`t just look at board independence and size of a board... Look at the quality of the directors” – Shropshire, C.
  • 33. Shrinking Environmental Impact
    Leadership in Energy and Environmental Design (LEED) Loblaws Superstores
    Sustainable Site Development
    Water / Energy Efficiency (Solar, Wind power)
    Materials Selection
    Indoor Environmental Quality
    First to establish “bag-less” service
    Plastic bags are bio-degradeable
  • 34. Green Is Good Business
    PC Organics!
    Save your health (at a healthy price premium)
    No More Plastic Bags!
    Unless you pay 5 cents for each one
    Less Packaging!
    Lower manufacturing costs, but you pay the same price
    PC G.R.E.E.N! (44 products)
    Save the environment and feel so good about it.
    Margins are so tight that a 50M savings equals 5B in sales!