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.
