Expert says 'I feel sorry for the board' as Nalcor governance scrutinized
Guy Holburn says weak Nalcor board may have hindered its ability to provide oversight
An expert in energy regulation and governance testified Monday that Nalcor Energy's board of directors was woefully under-strength during a critical period, and it likely hindered the board's ability to provide adequate oversight in the lead-up to a massive public project.
"I think this would lead to some questions as to the ability of a board to effectively challenge management and act in a capacity of providing informed, expert oversight and providing that forum for sober second thought," Guy Holburn told the Muskrat Falls public inquiry during public hearings in Happy Valley-Goose Bay.
Holburn is a professor at the University of Western Ontario and was hired by the inquiry to carry out a review of best practices for governing Crown corporations like Nalcor.
Based on Holburn's report and testimony, Nalcor's governance model fell well short of modern standards, especially as it relates to board strength, compensation and experience.
Not following best practice
While being cross-examined by Geoff Budden, lawyer for the Muskrat Falls Concerned Citizens' Coalition, Holburn stated multiple times that Nalcor was not following best practices.
Four former members of the Nalcor board testified in October about the challenges they encountered during their time with Nalcor.
They revealed how they pleaded with government for additional board members, including those with specialized skills and experience.
They testified about working between 80 and 100 hours per month, and sometimes having to call into meetings by telephone from as far away at California so meetings could proceed with a quorum.
"Generally the time commitments for a board director would be considerably less than that," Holburn said of the time commitments.
"That seems a very high amount to expect of a board director."
And board members typically earned between $2,000 to $5,000 annually, which surprised Holburn.
From the organizations that I'm aware of, levels of compensation are many orders of magnitude larger than that.- Guy Holburn
"From the organizations that I'm aware of, levels of compensation are many orders of magnitude larger than that. In addition, the board size is larger, typically around 10 members or so. And the work requirements would be considerably less," he said.
The board members also complained about delays — in some cases up to nine months — in having their board membership re-instated by government once their terms expired.
At least two of the board members continued attending meetings on a volunteer basis, and one even served on the audit committee while waiting to have his membership renewed.
Holburn said an effective board should have a membership of between eight and 12 directors, but evidence shows the board was hobbling along with as few as four members, including former CEO Ed Martin, in the months leading up to the sanctioning of Muskrat Falls in late 2012.
When presented with this information by Budden, Holburn replied: "I feel sorry for the board. It's an extraordinary stress put on a board when you have three independent members."
Typically, a board committee is composed of three members, so to have a board shrink to such a low number "is an extraordinary demand being made of the board members," he said.
All this was taking place as Nalcor was reaching and approving critical milestones on a project that was sanctioned at a capital cost of $6.2 billion, with the expectation that electricity ratepayers in Newfoundland would backstop the entire cost if necessary.
Capital costs have since soared to more than $10 billion, with all-in costs nearing $13 billion, and an inquiry now well underway to try and find out why things have gone so wrong.
The provincial government, through the public utilities board, is also scrambling to find way to prevent electricity rates from doubling within a few years, once Muskrat reaches full commercial power.