2. Today’s Objectives
Corporate Governance
The Role of Board of Directors
Financial Reporting And The Audit Committee
Case Study
3. What is Corporate Governance?
Corporate Governance broadly refers to the mechanisms, processes
and relations by which corporations are controlled and directed.
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.
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. 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. 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. 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. 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.
12. Royal Bank of Canada - Origin
1864
Merchants Bank
Head Quarter
Halifax, Nova Scotia
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. 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. 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. 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. 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. 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. 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. 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. 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. 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
