Comments on the hiring of Phil Arrata as Mountain Equipment Co-op CEO from a candidate in the 2019 Board of Directors election Steve Jones Follow May 10, 2019 · Unlisted

Please remember to vote in the MEC election. Voting is open from now until May 23rd. If you vote early, you have more chances at winning a $250 gift card.

One of the most important responsibilities of a board is to hire the CEO. On May 9th, 2019 the Chair of the Mountain Equipment Board announced that Phil Arrata had been appointed as the next CEO.

You can read that announcement here:

I’d like to start by congratulating Mr. Arrata and I wish him all the best in his new role.

I do think that the way that his hiring has been handled by the Board has highlighted an opportunity for three improvements to governance policies and procedures which I outline below.

1) Update Rule 16.01

Rule 16.01 states in part: “A person may not become an employee, supplier, or contractor of the Co-operative within one year after ceasing to hold office as a director.”

One of the purposes of having a restricted period is to ensure a reasonable level of separation between the current board and the former director. In my opinion, one year is not a long enough period of time and that should be increased. Eight of the nine current directors that were responsible for the decision to hire Mr. Arrata as CEO had served with Mr. Arrata on the board as recently as June of 2018. This case is illustrative of how little turnover there is in such a short period of time.

Secondly, the term “become an employee” is vague. Mr. Arrata has been appointed as the new CEO before his one-year restriction period is over but his employment start date is after the restricted period. I think that this practice significantly erodes the purpose of a restricted period. It means that someone could be “appointed” the day after they cease being a director. I suggest that the rule should be changed to indicate that a former director may not accept a job offer from the co-op or enter into an employment agreement with the co-op until the restricted period has passed.

2) Disclosure of CEO compensation

This is a simple change that I have been requesting for years. MEC does not provide transparency into CEO compensation beyond the “ratio of the CEO’s total compensation to average employee compensation”. Most shareholder-owned organizations of this size disclose precise CEO compensation to their shareholders. Examples include publicly traded companies, BC credit unions, crown corporations and even REI.

I believe it would be a good practice for the co-op to begin disclosing CEO compensation. I believe this is particularly relevant given the relationship between Mr. Arrata and many members of the Board, and Mr. Arrata’s recent role as the Chair of the Finance and Audit Committee. These types of complications increase the importance of transparency to enable the members to hold the board accountable for compensation decisions.

3) A general need for increased transparency and member consultation

To fill this position, the co-op had enlisted the services of Egon Zehnder which is global executive search firm. I believe the pool of potential candidates would have been very large and included well qualified business leaders from across the country as well as a list of internal candidates from the management team.

In January, I inquired if members could see the job posting and was told “The position hasn’t been posted”. I found this to be a weird thing to keep confidential. Isn’t it reasonable for members to know what characteristics and experience the board was looking for in the next CEO?

I was hoping the job posting would help to shine a light on the following types of questions:

- Was the board willing to hire a first-time CEO?

- How much weight was being placed on experience at MEC vs experience outside of MEC?

- Were they looking for someone with co-op experience?

- How much emphasis was being placed on the management of relationships with unionized workforces?

Unfortunately, members never received any information about what the board was looking for in a CEO and I think that is disappointing.

Conclusion

I’m passionate about increasing transparency and getting governance right because everything else flows from that. I’d be very grateful for your vote.

Happy Hiking,

Steve