The Board of Directors is responsible for our stewardship, ensuring that we are creating long-term value for our shareholders. Our Board of Directors is also responsible for developing our approach to corporate governance issues and is committed to ensuring that a healthy governance culture exists at Constellation.
Read more about our Board and the responsibilities of our Board Committees in our 2023 Management Information Circular (MIC).
Board Composition, Diversity & Director Independence
The Board of Directors currently has thirteen members and two observers (Larry Cunningham and Dexter Salna). Directors are elected by Constellation shareholders annually and, unless re-elected, retire from office at the end of the next annual general meeting of our shareholders.
As of May 2023, thirty eight percent (five of thirteen members) of the Constellation Board of Directors are women. None of the current Board members identify as part of a visible minority group.
We do not have a formal written policy on the representation of women on the Board or in senior management, and we have not adopted specific targets with respect to such representation. The Compensation, Nominating and Human Resources (CNHR) Committee of the Board recommends candidates for the Board of Directors, based on, among other things, their wisdom, long-term orientation, shareholder alignment, belief in the motivational power of autonomy and decentralization, experience with successful capital allocation, diversity, age, and track record of exercising sound judgment.
The majority of our Board - seven of the thirteen current Board members - are considered to be independent directors under the applicable regulations. Five Directors are not considered independent because they are currently executive officers of Constellation and one (John Billowits) because he was an executive officer of Constellation within the last three years.
While having a large number of non-independent Directors is now considered unusual, we believe it significantly increases the ability of the Board to fulfil its responsibilities to our shareholders. Our independent Directors have dedicated many, many years of their careers to managing, building and acquiring vertical market software companies. Finding Directors with that level of deep executive-level experience within vertical market software businesses is a rarity. That experience – in capital allocation, Constellation best practices, and talent development - in combination with the fact that much of their net worth is invested in Constellation shares, results in Directors that are capable of providing exceptional insight and value to the decision-making of the Constellation Board, and that are fully aligned with the interests of our shareholders.
Majority Director Election Policy
In 2009, the Board of Directors adopted a majority director election policy. The Policy requires that the form of proxy for the vote at a shareholder meeting where directors are to be elected will provide for separate voting for each director nominee. The Policy requires that any nominee for a director who receives a greater number of votes “withheld” than votes “for” his or her election must immediately resign from the Board following the shareholders meeting.
The Board of Directors will consider relevant circumstances surrounding a nominee’s failure to obtain a majority vote and will, in the absence of compelling circumstances, accept the resignation as soon as appropriate, consistent with an orderly transition. The Board will disclose the decision, via press release, announcing the resignation of the director or explaining the reasons justifying the decision not to accept the resignation. It is expected any resignation will be accepted by the Board within 90 days of the meeting at which such director was found not to have the confidence of the shareholders. Subject to applicable law, if a resignation is accepted, the Board may (i) leave the vacancy unfilled until the next annual general meeting of shareholders; (ii) fill the vacancy through the appointment of a new director whom the Board considers to merit the confidence of shareholders; (iii) call a special meeting of shareholders at which there will be presented a management slate to fill the vacant position or positions; or (iv) reduce the size of the Board.
Separation Of Board Chair From President Role
In November of 2021, the Board appointed John Billowits, a current Director and former Chief Executive Officer of Constellation's Vela operating group, as the Chair of the Board of Directors of the Company. Mr. Billowits is not considered independent under the applicable regulations as he was an executive officer of Constellation within the last three years.
Mark Leonard continues in his current position as the President of Constellation.
Our Perspective On Board Term Limits
The Board of Constellation believes that when you limit Director terms, you limit their opportunity to learn. We look at the Director role from both a monitoring and coaching perspective, and believe that to add value as a coach requires many years of intentional and deliberate study of a company.
For most Directors, learning about vertical market software and Constellation’s particular approach to VMS is a long journey. In a given year, our Directors spend about 30 hours in board meetings and many more hours in preparation. For an especially engaged Director, committees, special projects, and extra-curricular Constellation related activities might drive their time spent directly on Board-related activities up to 200 hours per year. Applying the 10,000-hour rule would mean that the average Director would need 50 years of service on the Board to offer expert level coaching and to have the deep context to be able to nurture Constellation’s management, employees and incumbents.
Most Directors, and in particular those who serve on multiple public company boards, don’t have the time, appetite or incentive to invest 10,000 hours to make the entire journey from a monitoring/governing role to a coaching/nurturing role and as a result, the default role for most public company boards is to act as policemen, not mentors. We believe that monitoring is a necessary part of our Directors’ responsibilities, but is not sufficient. Coaching and talent nurturing are the places where our Directors can make a truly significant contribution to the long term success of Constellation.
As a result, we believe that limiting Director terms to 10 years is not in the best interest of Constellation or our long-term oriented shareholders.
Securities Blackout Periods
Our blackout periods apply to all Constellation employees as well as to our Directors and apply to all transactions, buy or sell, of securities/shares of Constellation Software Inc., Topicus.com Inc., Lumine Group Inc. and Constellation’s Debentures. No trading is allowed from the fifteenth (15th) day of the last month in a financial quarter to three (3) days after the public release of our financial results.
Our primary objective is to attract and retain highly skilled executives required for our success and to reward and retain executives who create long-term value for our shareholders. The CNHR Committee is responsible for making recommendations to the Board of Directors with respect to the establishment of a compensation plan for our executive officers. Our executive compensation consists of base salary and annual incentive compensation.
Executive officers are required to invest 75% of their after-tax incentive bonus into Common Shares (or in the case of executive officers of Topicus.com Inc, subordinate voting shares of Topicus.com Inc). The shares are held in escrow for a minimum average period of four years. Once in every five-year period, executive officers may choose to receive their bonus entirely in cash. Constellation does not have a policy that restricts the purchase by its executive officers, directors or other employees of financial instruments (such as prepaid variable forward contracts, equity swaps, collars or units of exchange funds) designed to hedge or offset a decrease in the market value of shares which have been granted as compensation or which are held by executive Officers, directors or employees.
Total compensation for each executive officer is designed to be competitive and is reviewed annually by the CNHR Committee and adjusted accordingly. The compensation for the executives is determined based on the experience of the CNHR members and an internal comparison across the Constellation’s operating groups and business units giving consideration to the size of the business unit and the performance metrics which we deem important, namely return on invested capital and revenue growth.
Mr. Leonard continues to voluntarily waive his entitlement to receive a salary and a bonus.
“One of the results of this compensation change is that I get to side-step the agent-principal problem. My compensation for being president is now tied solely to my current ownership of CSI shares. In essence, I'm your partner in CSI, not your employee. I like the feel of the partner relationship a whole lot better.”
– Mark Leonard, President
Additional information regarding Mr. Leonard’s compensation was included in a Letter to Shareholders filed on SEDAR on April 6, 2015 and is also available on our website (2014 Letter to Shareholders).
Reporting directly to the Audit Committee, our internal audit group is a combination of Constellation head office and operating groups resources. The group, utilizing the COSO 2013 framework, works to ensure that there are adequate internal controls over financial reporting in support of the NI 52-109 certification as well as compliance with our policies.
Cybersecurity and Data Privacy
The Board reviews and evaluates, on a quarterly basis, a data security report prepared by the Corporation’s General Counsel. In addition, the Audit Committee receives quarterly updates and reports from management.
The specific measures related to our cybersecurity and data privacy are delivered through the operating groups and their respective business units. The operating groups and business units use a combination of measures to regularly improve and update their cybersecurity and data privacy posture.
All operating groups have established security policies and employee training, including phishing awareness, and all incorporate advanced threat detection and remediation (EDR), vulnerability scanning and multi-factor authentication.
Operating groups with business units that operate in high-risk industries including healthcare, finance, education, and government have also implemented more restrictive policies and access controls to further restrict access to and movement of sensitive information. In addition, they also periodically conduct third party audits and penetration tests against the NIST Cybersecurity Framework or equivalent guidelines. Some businesses have also decided to establish compliance certifications including ISO 27001, HITRUST, PCI DSS and/or SOC-2.
We are committed to implementing appropriate data protection standards, including ensuring that we only collect and process user data consistent with its stated purpose, to notifying our data subjects in a timely manner in case of policy changes or data breach and obtaining user data through lawful and transparent means, with explicit consent where required. In all cases, data privacy controls comply with industry and regional requirements such as PCI DSS, PIPEDA, GDPR and HIPAA.
Our internal audit group assesses key cybersecurity controls based on the respective programs developed across the operating groups as well as governance related to our overall cybersecurity programs.
The policy is designed to explain how possible misconduct can be reported, and how Constellation will protect people who raise such a concern. It applies to all current and former employees who are part of the Constellation group of companies, our contractors, and their respective family members.
Constellation encourages employees, everyone who works with Constellation, and those affected by our businesses to raise concerns about any actions, decisions or situations that may be illegal or might be considered improper, such as a misconduct concern or a concern about an improper state of affairs or circumstances, any safety issues, or any suspected breach of our Code of Conduct.
Constellation’s goal is to foster an open, transparent and safe working environment. We encourage people to speak up if anyone sees possible misconduct or other improper situations. Doing so helps Constellation to identify and address issues promptly and improve how we do business.
Code of Conduct
We have implemented a Code of Conduct at each of our operating groups. All business affairs of Constellation must be conducted in compliance with all applicable laws, rules and regulations and in accordance with the highest standards of honesty, integrity and ethical behavior, in all the jurisdictions in which Constellation does business.
Our Code of Conduct conforms with both the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights.
The Code of Conduct sets out our commitment to conducting business in a professional and ethical manner and specifically addresses the following:
- Compliance with Law: including financial reporting, insider trading, protection of personal information and anti-bribery and anti-corruption
- Conflicts of Interest
- Use of Company Property
- Fair Competition
- Reporting Violations of the Code
- Disciplinary Action Related to the Code
In accordance with our Code of Conduct, Constellation takes a zero tolerance approach to bribery and corruption in all the jurisdictions in which Constellation does business and is committed to implementing and enforcing effective systems to counter bribery and corruption.
The Board reviews and evaluates, on a quarterly basis, any reported violations of our Code of Conduct. In addition, our internal audit group assesses and reports to the Audit Committee, as part of their ongoing mandate, any material risks or violations identified.
Annually our operating groups require written acknowledgment of compliance with the Code of Conduct by all employees and in addition, certain of our business, sales and accounting leaders are required to complete specified training related to anti-bribery and anti-corruption best practices.
All employees who have knowledge of a potential, suspected, or known violation of the Code of Conduct have an obligation to report this information and can do so directly to the operating group management or by using our Whistleblower service. We do not permit retaliation of any kind against good faith reports of violations or any other illegal or unethical conduct.