Corporate Governance with a Case Study of Royal Bank of Canada

Corporate

Governance

Today’s Objectives

Corporate Governance

The Role of Board of Directors

Financial Reporting And The Audit Committee

Case Study

What is Corporate Governance?

Corporate Governance broadly refers to the mechanisms, processes and relations by which corporations are controlled and directed.

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.

Governance Mechanism

Monitoring the actions

Monitoring the policies

Decisions of corporation and their agents

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.

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.

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.

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.

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.

Case StudyRoyal Bank of Canada

Royal Bank of Canada - Origin

1864

Merchants Bank

Head Quarter

Halifax, Nova Scotia

Royal Bank of Canada

Operations in 5 sectors

RBC Banking (51% of Net Income)

RBC Insurance

RBC Capital Markets

RBC Investments

RBC Global Services

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

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

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.

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.

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.

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.

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.

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

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

Any Query?

Thank You