Canada-U.S. relations: The impact in the boardroom (Disruptive forces series)

Former U.S. Ambassador Gordon Giffin shares thoughts on the potential for business disruption arising out of the relationship between Canada and the United States, and how directors overseeing Canada’s corporations may address the uncertainties.

In May 2018, CPA Canada held forums in Calgary and Toronto with Ambassador Gordon Giffin to discuss the impact of Canada – U.S. relations in the boardroom.

Ambassador Gordon Giffin addressing the audience in CalgaryGiffin served as U.S. ambassador to Canada from 1997 to 2001, during which time he managed the Canada – U.S. trading relationship and U.S. collaboration with Canada on global issues. Born in the U.S., Giffin spent most of his childhood in Canada. He currently leads the global public policy group for Dentons US LLP and is co-leader of the firm’s energy group. He also serves on several boards in both Canada and the U.S.

Giffin noted that although we are neighbours and allies, today Canada and the U.S. have a significant disparity of perspective and different approaches to business. In the U.S., the first order of business is economic policy, followed closely by physical security. In Canada, the first order of business is social policy. Anticipating that business disruption will arise out of the political and policy disruption of the U.S. administration’s approach of fully utilizing its leverage to prioritize U.S. economic growth, Giffin shared thoughts about how directors overseeing Canada’s corporations may address the uncertainties.

Add public policy expertise to your board

Giffin strongly advocates that public company boards should add public policy skills and experience to their board skills matrix. Until recently, political risk was considered mainly in the context of foreign country operations, but he indicated we now have significant “public policy risk” within North America. Giffin added that he does not believe political stripe or jurisdiction are central when recruiting for your board — it is about judgment, experience and having a respected voice in the political realm.

Consider how trade policy will affect deployment of capital

CPA Canada’s Gigi Dawe addressing the audience

The U.S. is Canada’s biggest trade partner and Canada is the number one customer for the exports of 35 U.S. states. While clearly an important trade relationship for both countries, Giffin states that NAFTA gave Canada access to an economy 10 times the size of our own, and the current U.S. administration is implementing dramatic changes to rebalance the trade deal and keep U.S. funds at home. This will present challenges for infrastructure growth in Canada and will likely impede growth of Canadian business.

Giffin observes that many boards were unprepared for changes in trade policy and submitted they could have been more prepared. He suggests that boards would be well advised to spend more time strategically considering what different political leadership could potentially mean for their companies, and in particular, that the public policy risks associated with the binary choices in U.S. elections should be regularly assessed as part of a Canadian company’s corporate risk analysis. This applies both to companies with trans-border business and to those without — as investors’ capital decisions will be impacted by the choices resulting from these assessments. Investors have the option to invest elsewhere.

Engage in policy dialogue

Hugh Bolton asks a question while Thomas O’Neill  and Bill McFarland look on.

U.S. companies are generally better than Canadian companies at influencing public policy. Giffin suggested this may be due to historical differences pertaining to stronger entrenched private interest rights in U.S. law. Dealing with government as a profession (distinct from lobbying) simply isn’t approached the same way in Canada. He suggests Canadian corporate leaders need to get more involved in policy discussions and advocate for their business interests.

The automotive sector has taken this approach, with industry leaders playing a role in the policy dialogue around the integrated parts supply chain between Canada and the U.S. Another area ripe for industry leaders to play a larger role in policy discussion is climate change. Climate change policy is viewed very differently by Canada and the U.S., as well as among various regions of Canada. Giffin recommends that the Canadian energy industry could take on a larger role educating the public, explaining their business and policy positions.

Giffin also highlights the importance of the relationships between premiers and governors, and of having a voice at the provincial/state level. Canadian premiers engage regularly with state governors in their regions. This is significant, as governors wield substantial influence in the U.S., often becoming cabinet secretaries, senators, or occasionally rising to the office of president.

Networking reception at the Calgary Petroleum Club.

Considering public policy issues, participating actively as business leaders in the policy dialogue and having public policy expertise on your board is prudent according to Giffin. Directors have a duty to assess risk and make judgments about appropriate capital allocation for growth and development of the business. Ignoring political dynamics in the current context may put directors at risk of their fiduciary duties.