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Corporate Governance with a Case Study of Royal Bank of Canada

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Corporate Governance with a Case Study of Royal Bank of Canada

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Corporate Governance with a Case Study of Royal Bank of Canada

  1. 1. Corporate Governance
  2. 2. Today’s Objectives  Corporate Governance  The Role of Board of Directors  Financial Reporting And The Audit Committee  Case Study
  3. 3. What is Corporate Governance? Corporate Governance broadly refers to the mechanisms, processes and relations by which corporations are controlled and directed.
  4. 4. Governance Structure Governance structures identify the distribution of rights and responsibilities among different participants in the corporation and includes the rules and procedures for making decisions in corporate affairs.
  5. 5. Governance Mechanism  Monitoring the actions  Monitoring the policies  Decisions of corporation and their agents
  6. 6. The Role Of Boards Of Directors The original purpose of a board of directors was to have a group, independent from management, looking out for the interests of shareholders who were not involved in the day-to-day management of the organization.
  7. 7. The Role Of Boards Of Directors However, it didn’t always work that way. Board members often enjoyed a cozy relationship with managers in which each took care of the other.
  8. 8. The Role Of Boards Of Directors The “quid pro quo” arrangement has changed. The Sarbanes-Oxley Act puts greater demands on board members of publicly traded companies in the United States to do what they were empowered and expected to do. To help boards do this better, researchers at the Corporate Governance Center at Kennesaw State University developed 13 governance principles for U.S. public companies.
  9. 9. Financial Reporting And The Audit Committee In addition to expanding the role of boards of directors, the Sarbanes- Oxley Act also called for more disclosure and transparency of corporate financial information.
  10. 10. Financial Reporting And The Audit Committee Senior managers in the United States are now required to certify their companies’ financial results. Such changes have led to better information— that is, information that is more accurate and reflective of a company’s financial condition. In fulfilling their financial reporting responsibilities, managers might want to follow the principles also developed by the researchers at the Corporate Governance Center at Kennesaw State University.
  11. 11. Case Study Royal Bank of Canada
  12. 12. Royal Bank of Canada - Origin 1864 Merchants Bank Head Quarter Halifax, Nova Scotia
  13. 13. Royal Bank of Canada Operations in 5 sectors  RBC Banking (51% of Net Income)  RBC Insurance  RBC Capital Markets  RBC Investments  RBC Global Services
  14. 14. Royal Bank of Canada Market Capitalisation (2003) C$ 41.6 bn Asset Base (2003) C$ 413 bn ($ 1.0 = C$ 1.31108) Head Quarter Toronto Fortune Global 500 Rank (2003) 337 Forbes Global 2000 Rank (2003) 80
  15. 15. Royal Bank of Canada 26th November 2003 Overall Award of Excellence for Corporate Reporting a CICA Top Scores in  Annual Reporting  Corporate Governance Disclosure  Electronic Disclosure  Sustainable Development Reporting
  16. 16. Royal Bank of Canada August 2003 Second Best Board in Canada by Canadian Business Magazine *2001 Rank #1 Out of the 19 directors standing for election, only one director represented the bank’s management.
  17. 17. Royal Bank of Canada 2001 RBC launched a Subsidiary Governance Office (SGO) in order to enhance governance practices in its subsidiaries. It installed sophisticated software that allowed quick and easy access to up-to-date information on all parts of its global network.
  18. 18. Royal Bank of Canada RBC’s directors had to hold at least $100,000 in stock and had to stand for re-election every year. Any re-pricing of the stock options was not approved The Board published the attendance of each director at the Board and Committee meetings. The Bank also scored high grades on the independence of its directors.
  19. 19. Royal Bank of Canada – Board of Directors 1 Independent Chairman 2 Executive Directors 16 Independent Directors 4 Committees (consisting only of independent directors) The Corporate Governance and Public Policy Committee (CGPC) had developed standards of independence with respect to US’s NYSE Corporate Governance listing Standards.
  20. 20. Royal Bank of Canada – Board Composition RBC did not permit more than two Board members from the management. The President and Chief Executive Officer (CEO) of the bank The Bank complied with provisions of the Canadian Bank Act and the TSX Guidelines in election of directors The CGPC recommended the candidates suitable for nomination to the Board and continuously reviewed the composition and mandates of all the committees.
  21. 21. Royal Bank of Canada – Board Responsibilities  Succession  Evaluation of Management Performance  Review and execution of major business decisions  Review and approval of corporate financial goals and operational plans  Identification of risks  Supervision of communications and public disclosure  Assessment of the effectiveness of the internal controls and management information system
  22. 22. Royal Bank of Canada – Board Committees Committees of the Board consisted solely of independent and unrelated directors. The Board delegated specific tasks to two committees:  Audit Committee 1 Chairman 5 independent directors  Conduct Review and Risk Policy Committee (CRPC) 1 Chairman 5 Members – reviewed the credits to the directors
  23. 23. Any Query?
  24. 24. Thank You 

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