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Governance and Ethics

 

Practices and Leadership

RBC's dynamic approach to corporate governance is responsive to the changing regulatory environment and anticipates best practices. Our governance structure determines the fundamental relationships among the members of the Board of Directors, management, shareholders and other stakeholders. It defines the framework in which ethical values are established and the context in which corporate strategies and objectives are set. The strength of our governance starts at the top with an independent Chairman and experienced and well-informed directors, who give priority to strategic planning, ensure that standards exist to promote ethical behaviour throughout the organization, and drive continuous improvement in governance practices.

Practices

Our governance policies and practices support the ability of directors to supervise management and enhance long-term shareholder value. Over the past few years RBC has adopted many significant and leading governance practices:

  • Directors are required to tender their resignations following the Annual Meeting if they fail to receive majority shareholder support.

  • Our comprehensive Director Independence Policy has continued to evolve in response to best practices and regulatory refinements. Fourteen of the 15 directors currently serving are independent.

  • Meetings of independent directors are held following each regularly scheduled board meeting.

  • A minimum share ownership requirement of $500,000 for directors ensures strong alignment of their interests with those of shareholders.

  • Increased minimum share ownership requirements for executive officers further align management and shareholder interests. The President and CEO must have shareholdings worth at least eight times the last three years' average base salary. This requirement extends for two years into retirement. The standard for other members of Group Executive is six times the last three years' average base salary, except the Head of Capital Markets, who must hold shares worth at least two times the last three years' average salary plus bonus. These requirements extend for one year into retirement.

  • A Performance Deferred Share Program strengthens the alignment of the interests of management with shareholders by tying senior management's rewards to the performance of RBC relative to a North American peer group of competing financial institutions.

  • The number of stock option grants awarded to management was reduced by approximately 70% since 2003.

  • All members of every committee of the Board of Directors are independent: the Audit Committee, Human Resources Committee, Corporate Governance and Public Policy Committee, and Conduct Review and Risk Policy Committee.

  • For the Audit Committee, more stringent independence criteria apply to members; four individuals have been designated as audit committee financial experts and a policy limiting the service of our Audit Committee members on the audit committees of other companies was adopted in 2004.

  • The Audit, Human Resources, and Corporate Governance and Public Policy committees have sole authority to retain and approve the fees of independent, external advisors. The Human Resources Committee retains an independent compensation consultant.

Leadership

The measures described above build on our previous governance initiatives, which include, among many others:

  • Ensuring independent leadership of the Board of Directors by being first among our peer companies to separate the positions of Chairman and CEO in 2001

  • Establishing board and director evaluation procedures, with written peer reviews to complement the peer assessment practice of one-on-one interviews with the Chairman. In addition, each Board committee assesses its own effectiveness annually

  • Adopting a policy limiting interlocking directorships of board members in 2002

  • Permanently discontinuing grants under the Director Stock Option Plan in 2002

  • Being among the first major Canadian companies to expense stock options in financial statements, which we have done since 2003

  • Providing a continuous education program for directors so they remain knowledgeable and informed about the ever-changing business and regulatory environment and the specialized and complex aspects of finance and our business operations.

Director Suitability

The Corporate Governance and Public Policy Committee of the Board of Directors is composed solely of independent directors. The Committee determines criteria for selecting and assessing potential and current directors and acts as the nominating committee responsible for recommending to the board individuals qualified to become board members.

The board derives its strength from the background, diversity, qualities, skills and experience of its members. Directors are elected by the shareholders at each Annual Meeting to serve for a term expiring on the date of the next Annual Meeting. Every year, the Committee reviews the credentials and performance of candidates proposed for election to the board and assesses their competencies and skills against those that the Committee considers the board, as a whole, should possess. In doing so, it considers the qualification of each candidate under applicable laws, regulations and rules and the skills, diversity, geographies and areas of expertise already represented on the board.

Based on its assessment of the existing strengths of the board and the changing needs of the organization, the Committee determines the competencies, skills and personal qualities it should seek in new board members to add value to the organization. The Committee considers all qualified candidates identified by members of the Board of Directors, by management and by shareholders and maintains an evergreen list of potential candidates for the board.

The Committee reviews biographical information and the results of background checks and internal and external due diligence reviews, appraising the integrity and suitability of candidates in accordance with procedures established by the Committee and RBC's Assessment of Responsible Persons Policy. This Policy reflects the principles and expectations of Guideline E-17 "Background Checks on Directors and Senior Managers of Federally Regulated Entities" of the Office of the Superintendent of Financial Institutions.

With a view to assessing their ability to represent the interests of shareholders effectively, candidates are also evaluated on such qualities as business judgment, independence, business or professional expertise, international experience and residency and familiarity with geographic regions relevant to our strategic priorities.

This assessment involves exercise of the Committee's independent judgment. The Committee uses the same process for evaluating all potential candidates, including those recommended by shareholders. In this context, the Committee considers whether the candidate:

  • has demonstrated, in personal and professional dealings, integrity, high ethical standards and commitment to the values expressed in our Code of Conduct;

  • is likely to take an independent approach and to provide a balanced perspective;

  • has specific skills, expertise or experience that would complement those already represented on the board;

  • is financially literate and able to read financial statements and other indices for evaluating corporate performance;

  • has a history of achievements that demonstrates the ability to perform at the highest level and that reflects high standards for themselves and others;

  • has a background that includes business, government, professional, non-profit or other experience that is indicative of sound judgment and the ability to provide thoughtful advice;

  • recognizes the strengths of diversity;

  • possesses knowledge and appreciation of public issues and exhibits familiarity with international, as well as national and local affairs; and

  • has sufficient time and energy to devote to the performance of duties as a member of the Board of Directors, having regard to positions the candidate holds in other organizations and other business and personal commitments.

On this basis, the Committee makes recommendations to the board regarding potential director candidates.

Disclosure

In keeping with our goals of continuously improving governance and providing greater transparency and simplicity in our communications, we have enhanced disclosure in our Management Proxy Circular in recent years, including:

  • More detail on the compensation paid to individual directors and their share ownership

  • Easy-to-read, three-year overviews of named executive officers' compensation

  • Aggregate compensation of top executives as a percentage of market capitalization and a percentage of net income after-tax

  • Description of how the President and CEO's compensation aligns with corporate performance

  • Details of comparator companies used for benchmarking of both corporate performance and executive pay

  • Increased disclosure regarding executive pensions and the value of retirement plans for top executives.

For more information, see rbc.com/governance, our 2008 Annual Report and our Management Proxy Circular.


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10/13/2009 09:18:37