Is it possible that other Canadian companies might have resorted to bribes to gain access to foreign markets and contracts? If one looks at the global footprints of Canadian companies, especially those in the resource sectors, and compares these footprints with the countries in the bottom third of Transparency International’s corruption index, it would appear that we have not heard the end of such allegations.

But even if one or more Canadian companies has violated Canadian laws, so what? If bribes are necessary to gain access to foreign markets - they are a cost of doing business, akin to marketing costs and lobbying - why should we care? More importantly, why should there be any laws to deter Canadian companies from engaging in such practices outside of Canada? Isn’t corruption a problem for other countries to solve?

The obvious response is that we must set minimal ethical standards for Canadian companies. We cannot allow companies to engage in a race to the bottom in order to win business. At some point, unethical behaviour does not justify additional sales and jobs. After all, we are Canadians and we must stand for something.

But before I stand up and start singing “O Canada” in both official languages, let me turn to free trade agreements. With the World Trade Organization multilateral trade negotiations going nowhere, Canada is pursuing as many bilateral free trade agreements as possible. Among these is a trade agreement with China.

The last time I checked, gaining access to the Chinese market trumped any concerns for weak labour laws and the absence of many individual and collective freedoms and rights. It appears that in our pursuit of free trade with as many countries as possible, the Canadian Government is content to ignore human rights issues, as well as endemic corruption, in order to open up opportunities for Canadian companies. And Canadians seem to ignore these issues as well as long as they can get lower prices in return. I d not see Canadians marching in the streets objecting to negotiating trade agreements with certain countries and willingly accepting higher prices in turn.

So what is the difference between a Canadian company, and I am not referring to any Canadian company, paying bribes to gain access to a market and the Canadian Government accepting limited freedoms and the general absence of human rights in order to help Canadian companies gain access to a market?

Are we willing to stand for something and accept the resulting sacrifices? Do we as Canadians actually stand for anything  other than our own selfish interests? If so, let us debate what it is we stand for and what this implies for our external relations and laws.

Or are we just hypocrites? If so, let’s admit to this and do away with any laws that impede the ability of Canadian companies to compete.

The opinions expressed in this blog are personal and do not reflect the views of either Global Brief or the Glendon School of Public and International Affairs.

While I am not a fan of the oil sands, my advice to Mr. Mulcair is that he should revisit his position and get his facts right.

First of all, the Canadian dollar has acted like a petro-currency for the past 12 years. Since 2000 there has been a significant positive correlation between the value of the Canadian dollar relative to the US dollar and crude oil prices. When crude oil prices have risen, so too has the value of the Canadian dollar. As for cause and effect, it is clear that the value of the Canadian dollar does not drive oil prices.

This correlation also should destroy the myth that a strong Canadian dollar during the past five years is indicative of investor confidence in the stability of the Canadian economy, the strength of the financial regulatory system, and the fiscal prudence of the Canadian Government. When crude oil prices rise, indeed, when commodity prices rise, investors move into Canada to acquire resource assets. Canada is viewed externally as a resource economy, and investor sentiment, and with this, the value of the Canadian dollar move in line with commodity prices.

Higher oil prices have attracted increasing investment in the oil sands, but it has been the higher oil prices that have driven the value of the Canadian dollar.

Second, the belief that the sharp appreciation of the Canadian dollar since 2002 has destroyed the competitiveness of the manufacturing sector displays economic knowledge that does not extend beyond a typical Economics 101 course. (Unfortunately, what we teach in Econ 101 is not that much different from what we teach in very advanced graduate courses in economic theory - economists do not understand competition either.)

There is more to competitiveness than costs. Creativity, ingenuity and the willingness to take risks are much more critical. The manufacturing sector in Canada has been in decline because of a major gap in the creative talents and the desire to take risks among our business leaders in this sector.

Outside of the resource sector, and to a lesser degree real estate and Quebec Inc., risk taking is a lost art in Canada. And most large and mid-sized Canadian manufacturing companies are run by bureaucrats content with their market positions and receptive to the demands of their boards to lay low and avoid risks. The appreciation of the Canadian dollar cannot explain the disappearance of a Canadian presence in the steel industry.

If the Dutch suffered from a similar problem - the absence of entrepreneurship and innovation - than Canada does indeed suffer from the Dutch disease. But I suspect that we suffered from this disease long before the Dutch did.

It is easy to blame the oil sands for the weak performance of the manufacturing sector. But the blame should be placed directly at the feet of Canadian business and the business schools that supposedly train these people.

The opinions expressed in this blog are personal and do not reflect the views of either Global Brief or the Glendon School of Public and International Affairs.

I suspect that the typical planning horizon in this industry is somewhat longer than that of a day trader, but not that much longer. When oil prices rise, massive new investments in the oil sands are announced. When oil prices collapse, investment plans are put on hold. Why this type of behaviour when what matters are future prices and demand? Short-term fluctuations should not have much impact on investment decisions unless future values are extrapolated from the most recent changes, which does appear to be the case.

I commented in an earlier blog on the implications for the oil sands and two proposed pipelines of an article written by Larry Solomon in the Financial Post. In that article, Mr. Solomon claimed that the US would become self sufficient in oil within this decade and that China had the potential to become self sufficient within 10 to 15 years. Interestingly, North Dakota has surpassed Alaska as the second largest producer of oil among all of the states. It is conceivable that North Dakota may one day pass Texas as the largest producer. The source of oil in North Dakota is shale.

If Solomon is right, then the US and Chinese markets for Canadian oil sands disappear within a relatively short period of time, at least well within a 20-year investment time horizon. So why are companies eager to invest tens of billions of dollars in pipelines and oil sands?

In an article in Monday’s Financial Post, Claudia Cattaneo wrote about declining oil prices. She noted: “The Canadian Association of Petroleum Producers is expected to make public Tuesday oil production forecast that will point to a continuation of aggressive growth, both from conventional oil and oil sands projects.” Obviously this Association, a mouthpiece for the oil industry, does not look at oil prices and ignores the fact that increased levels of production have nowhere to go without new pipelines. And even with new pipelines, there may be no markets for the projected increased levels of production.

Crude oil prices have dropped sharply in the past month, and it is conceivable that absent any turmoil in the Middle East they could continue to decline, although obviously not in a straight line. Indeed, I believe that it is more likely that crude oil prices will average closer to $70 a barrel over the remainder of this decade than they will average near $100 a barrel. If I am right, new oil sands projects become uneconomic. As Ms. Cattaneo pointed out: “According to the Canadian Energy Research Institute’s March supply cost analysis, the cost of producing oil from an integrated mining project adds up to $89.62 a barrel, making them uneconomic at today’s oil price.”

Thus, given the uncertainties about future oil prices and demand, does it make any sense to proceed with either the Northern Gateway or Keystone pipelines? My fear is that even if we can resolve the very important First Nations and environmental issues, the Canadian taxpayer will end up on the hook for these white elephants later this decade. Can we still spell “Mirabel”?

The opinions expressed in this blog do not reflect the views of either Global Brief or the Glendon School of Public and International Affairs.

According to Taylor: “an unpredictable economic policy…is the main cause of the persistent high unemployment and our feeble recovery from recession” in the United States. His solution is a “reform strategy built on more predictable, rules-based fiscal, monetary and regulatory policies”.

To his credit, Taylor does admit that rules are critical for the functioning of an economy. However, rarely, if ever, do economists discuss the rules underlying the whimsy of their economic models. We develop our models in a vacuum with no specific rules set out.

But admitting that we need rules is not the same as describing what the rules should be. Herein Taylor starts down the path of irrelevance and absurdity. What are the minimal set of rules necessary for an economy to function well and for a country to avoid the march to serfdom? Obviously Taylor has his own set of rules in mind.

What happens though when there are differences of opinion? Undoubtedly, Paul Krugman has a different set of rules in mind. Who is right? How are differences to be arbitrated? Where does public opinion enter into the picture?

Taylor does not address these questions because he believes that he is right, and thus, only a fool, unworthy of any opinions, would question his authority and views backed up by years of “scholarship”. At a minimum, he should set out his preferred set of rules and participate in the inevitable debate, a debate that includes the general public. No one has a monopoly on good ideas!

Further, in arguing in favour of fixed rules, Taylor is implicitly suggesting: Once the “right” rules (his) are in place, there is no need to change them. They should become fixed in stone for the ages, unless, of course, new research by either him or his disciples indicate that some change is warranted. Basically, there is no role for government and politicians in his world, other than adhering to and enforcing the rules.

Taylor criticizes the Dodd-Frank financial reforms as an example of the unpredictable policies that are contributing to the ongoing economic malaise in the United States. But once upon a time, Glass-Steagall prevailed for decades as the regulatory basis for the financial industry in the United States. Was this “predictable” regulation acceptable to Taylor? It should have been since it was a fixed rule.

However, it is highly unlikely that Taylor favoured Glass-Steagall. No, Taylor wants rules that limit the scope of government, and rules that conform to his economic views. In other words, rules can be changed, but only according to the analysis presented by himself and/or his disciples. Yes, academic freedom is an oxymoron.

It requires a remarkable degree of arrogance to believe that one is capable of defining the “right” set of rules for all time, and that one’s wisdom is so great, that future events can never justify changing the rules because of one’s omniscience.

Moreover, by eliminating any role for politicians and governments, a country following Taylor’s advice is already in a state of serfdom. Taylor, like his hero Friedrich Hayek, believes in elitism, where a small group of self-selected individuals with supposed superior intellects selects what is and will be in the best interests of all people. The common man is simply too stupid to know what is in his best interests. And it is dangerous to allow such inferior people to select leaders who can change rules. They can be bought by the false promises of demagogues.

Perhaps, but these risks are worth taking for the sake of democracy and freedom. I always will take my chances with the common man than with the “superior” intellect. To do otherwise would be absurd!

Taylor ignores the history of the 19th century and first third of the 20th century where government inaction resulted in prolonged and deep recessions/depressions. The “natural” adjustment process espoused by Hayek and others in the neo-Austrian School of Economics never worked well. John Maynard Keynes recognized this reality - too bad modern day critics of Keynes haven’t done so.

Fortunately for the U.S. and the world, Taylor was not the Chair of the Federal Reserve in 2008. For if he had been, the U.S. and most of the world would now be mired in a depression with unemployment rates comparable to those in Spain and Greece.

The opinions expressed in this blog do not reflect the views of either Global Brief or the Glendon School of International and Public Affairs.

He added: “With the world awash in oil and gas and Western nations no longer dependent on energy exporting countries of the Middle East, the countries of the Middle East will revert to being exotic and backward curiosities in the eyes of Westerners, as they have been through most of the last 500 years. Accelerating the diminution in status will be a likely collapse in oil prices.”

Assuming Solomon is right, he does not address three important issues. First, since he is relishing the day when the oil exporting countries of the Middle East, and in particular Saudi Arabia, become insignificant players on the world stage as their oil revenues evaporate, then he should be leading the movement to establish substantial carbon taxes in North America and Europe. These taxes would hasten the collapse of oil prices and the decline of the oil exporting countries, including Venezuela and Russia, and encourage the more rapid development of shale oil technologies and alternative energy technologies. Yet I suspect that he is not a fan of carbon taxes.

Second, why do oil prices exceed US$100 per barrel today? Obviously speculators have played a role in driving oil prices to their current levels, levels in excess of what can be supported by the underlying demand and supply fundamentals. Yet, Solomon does not propose introducing regulations and/or taxes to limit the role and power of speculators.

Finally, given the scenario he describes, building the Keystone and Northern Gateway pipelines does not make any business or economic sense. Indeed, expanding production in the oil sands of Alberta looks like a losing proposition as well. No one will need or want this oil. These are obvious corollaries from his shale oil projections.

For example, Solomon noted: “China, another major importer, may also become an exporter, given that it has the world’s second-largest store of shale oil.”

So who will get stuck with the costs of the bad investments in the pipelines and oil sands?  The Canadian taxpayer of course. Yet I suspect that Solomon supports the two pipeline projects even though this would be inconsistent with his view of the future of the oil industry.

Solomon may prove to be right, and for this reason Canada should be very reluctant to approve pipeline projects that are doomed to fail.

The opinions expressed in this blog are personal and do not reflect the views of either Global Brief or the Glendon School of Public and International Affairs.

I believe they do, but only if they do one or more of the following, and all will require a fundamental change in their modus operandi.

Unions need to work with employers to find ways to continually improve productivity and quality. This will necessitate that unions move away from an “us versus them” mindset to one where they recognize that the future of their members depends critically on collaboration and the ultimate success of their employers.

Pension funds collectively hold major stakes in all public companies in Canada. The pension funds, by and large, are found in unionized companies. Yet, unions have not used the potential clout of their pension funds to get involved in the governance of public companies. Unions seem to prefer to complain about the inequities in executive compensation. Worse yet, they have chosen to stand on the sidelines as incompetent executives have driven companies into the ground or into the hands of foreign investors.

Unions should get involved in corporate governance. They should insist on board representation, and they should select competent people to represent them on boards. Only in this way will they be able to play a role in the selection and compensation of executives, and in overseeing the strategies of these executives.

Greater union involvement  can only improve current corporate governance practices and outcomes. Perhaps if the steel workers union had become involved in the boards of the major Canadian steel companies, we might still have had one or more independent, Canadian steel companies around today.

Finally, unions should become more politically engaged, and not in the sense of working harder to support the NDP. They should focus light on labour practices in other parts of the world, on environmental practices, and on the ubiquity of corruption.

There is nothing wrong with the federal government negotiating bilateral free trade agreements all over the world as the Doha Round of multilateral trade negotiations continues to be stalled. But do Canadians want to open access to our market and resources to countries that violate rights and subject workers to horrific working conditions? In many countries, the working environments resemble slavery.

Are Canadians so desperate for lower prices that they are willing to look the other way when it comes to labour market conditions and the environment?

And do we really want Canadian companies to compete in countries where corruption is rampant?

These are important issues  that will define the Canadian character, and hence they must be seriously and openly debated. Unions should play a key role in starting the debate and ensuring that the debate is open and focused.

The opinions expressed in this blog are personal and do not reflect the views of either Global Brief or the Glendon School of Public and International Affairs.

I preface my answer with the following three observations.

First, unless Air Canada (AC) is able to start up and grow two low-cost subsidiaries - one for the North American market and the other for long-haul international markets, AC is doomed. The company will end up in bankruptcy, and will exit a much smaller, and much less important airline on the world stage. Of course, there is no assurance, even if AC does create these two subs, that it will succeed in becoming a major global hub airline. But I can be quite unequivocal regarding the downside of AC not being able to create these subs.

Second, does it matter if AC succeeds in becoming a major global hub airline? Yes it does!

Many studies have highlighted the significant economic benefits to a region and country from having a major hub airline. AC offers the only possibility for Canada to have such an airline. If AC fails, Canada’s productivity problem will be worse, and the competitiveness of Canadian-based companies will continue to deteriorate.

Finally, while I can sympathize with AC’s employees and the concessions they have made over the past decade, unfortunately, they have to yet to realize that the competitive landscape has changed drastically. Since deregulation of the airline industry, airlines have been under continuous pressure to reduce their costs. These pressures will continue. AC’s employees have not yet made sufficiently large concessions to improve AC’s competitive position, and the world they face is one where they will continue to have to make concessions. In the meantime, they should take a close look at the plight of their counterparts with the major US legacy airlines to see the future.

Now, what needs to be done?

There are two easy starting points for the federal government. The government should remove all legal and regulatory shackles on AC. For example, the Air Canada Participation Act mandated that AC have its headquarters in Montreal and maintenance operations in Montreal and Winnipeg. This was and continues to be an absurd piece of legislation that only served to pander to regional political interests.

And now we have the farce of clowns in Quebec City threatening to sue Ottawa and AC because of the collapse of Aveos -  a former division of AC and AC’s major maintenance provider.

Aveos failed for two reasons - wage rates were about 50% too high, and productivity levels were about 60% too low. There are important lessons here for AC’s employees.

Nevertheless, Quebec City wants someone else to pay the price to support uncompetitive jobs, Instead of recognizing that the unfortunate demise of Aveos actually will be beneficial to AC - the company will be able to reduce its heavy maintenance costs by 30% to 40% - and thus increase the possibility that more jobs will not be lost at AC, the clowns in Quebec City continue the delusion that AC is subject to the whims of politicians, no matter how stupid they might be.

The government also should deal with ground rents and the Air Travellers Security Tax, both of which increase the costs of air travel within and from Canada.

The remaining two are more difficult. The federal labour law was developed for a different era. It was not developed, nor has it been changed, to deal with global markets and increasing international competition. The law was intended to assist labour share in all productivity gains. Today’s reality is that productivity growth has to increase and all of the gains are passed on to consumers.

Thus, the law needs to be overhauled to give management of companies such as AC much more flexibility in dealing with employee compensation and work rules, and to give management the ability to unilaterally and quickly create new subsidiaries.

The airline industry should be recognized once and for all as an essential service, so the right to strike has to go. The arbitration system has to change as well. Final offer arbitration should be mandatory in order to remove as much discretion as possible from arbitrators. Going forward, three people should be randomly selected to serve as arbitrators in disputes. These people should have business acumen and understand competition. (I believe that three people randomly selected off the street will make better decisions than our current crop of appointed arbitrators.)

Then there are the defined benefit plans. There are two major problems with these plans. The first originated with a terrible decision by the judge in the Dominion Stores case. He concluded that the pension assets belong to employers, and hence any surplus could be extracted by employers. Setting aside the fact that the pension assets belong to employees, he failed to recognize that the realized returns on investment could exceed in some years the underlying assumptions in these plans, hence generating what might appear to be surpluses in some of those years. These so-called surpluses were needed to compensate for those years when the realized returns fell short.

Thus if “surpluses” are skimmed off, the inevitable shortfalls in other years are exacerbated. This problem is compounded further by the unrealistic assumptions made by actuaries. They consistently have overestimated the potential returns on the pension fund assets, thus ensuring systemic underfunding and deficits. Both employees and employers as a result have contributed too little every year.

The federal government should bring together the actuaries, who made a lot of money acting as advisors and consultants, employees and employers and force each group to absorb 25% of the deficiency, with the government picking up the remaining 25%.

These are the starting points.

The opinions expressed in this blog are personal and do not reflect the view of either Global Brief or the Glendon School of Public and International Affairs.

I start with Leo de Bever, the CEO of the Alberta Investment Management Corporation, one of the largest public sector pension funds in Canada. Leo should become the poster boy for term limits for corporate directors, and the exclusion of individuals with full-time jobs from the boards of directors of companies. His intelligence and experience unfortunately were insufficient to keep the First Leaside Group of Companies from imploding. Being a director should be a very time-intensive job, and directors should never become too attached to companies on whose boards they sit.

Then there is the gang of “independent” directors at SNC Lavalin. They are spending millions of dollars of the shareholders’ money to investigate $35 million in bribes allegedly paid by one of SNC Lavalin’s senior people in Libya. Did it ever occur to any of these directors to ask senior management how the company was able to generate hundreds of millions of dollars in contracts in Libya? Did any of them ever look at the Transparency International corruption index and ask why the company was even in Libya?

If they had checked the index, they would have found Libya tied for 146 place (out of 178) - tied with such illustrious and honorable countries as Haiti, Cameroon, Iran, Nepal and Paraguay, and just a notch above the Central African Republic, Guinea-Bissau, Laos, Tajikistan, Guinea and Venezuela. If they had ever checked this list, they might have asked senior management the right questions. I wonder in how many other countries in the bottom 25% of the corruption index SNC Lavalin operates?

So why are they spending other people’s money to verify that bribes most likely were paid? To protect themselves when the company is sued. Amazing how directors can become focused on important governance issues when their own money might be at stake.

Finally, there is Dean Martin, aka Roger Martin the Dean of the Rotman School of Business at the University of Toronto (by the way, one of my alma maters). Dean Martin is not a fan of stock options. As I have argued before, there is nothing wrong with options as long as the exercise prices are indexed to a portfolio of the shares of the companies comprising the comparator groups for compensation purposes. Indeed, I would go even further and suggest that if the compensation package offered to senior officers of a company is intended to place their compensation among the top 25% of the comparator group for example, the exercise price should be indexed to the top 25% of the share prices of the comparator group. Indexing most likely would have eliminated the egregious awards cashed in by senior officers at many companies.

Obviously, my solution was too simple for a governance guru. Instead, RIM, where Martin has been a director for several years, moved away from stock potions to restricted share units (RSUs) for the co-CEOs of the company. RSUs are even more advantageous for senior officers because they retain some value even when the share price falls below the price when they are initially granted. When this happens in the case of options, the options lose all value. If stock options with no indexing of the exercise price are a bad idea, then RSUs are an even worse idea.

Moreover, did the co-CEOs, who each own 26+ million shares really need annual bonuses and RSU grants to motivate them? Every $1 move in RIM’s share price impacted their respective wealth by over $26 million.

Before the co-CEOs finally agreed to step down, they apparently offered to stay in their positions for an annual salary of $1. Obviously, no additional incentives were required.

The opinions expressed in this blog are personal and do not reflect the views of either Global Brief or the Glendon School of Public and International Affairs

Before I look at the compensation practices, I will set out my views and recommendations. I also add two caveats before I start. First, I am only picking on RBC because of convenience as I pointed out in my previous blog. I am sure that I would have similar criticisms for most other companies and their executive compensation practices. Second, no company is likely to ever adopt my recommendations because they set too high standards, and their adoption would expose the myth that all CEOs are exceptionally talented individuals. Ironically, senior executives who pride themselves on being risk takers, are anything but when it comes to their own compensation.

My proposals are quite simple and are motivated by two objectives - simplicity and reward for above average, relative performance.

All senior executives should be given fixed term contracts, preferably three to five years. Renewal would not be guaranteed. At the end of the contract term, the contract would either not be renewed, and in this case there would be no need for severance payments. Or a new contract would be offered. In this latter case, the company might have to bid for the services of the CEO or other senior executives. If there were competing bids, the Board would have to decide whether they should enter the contest, and if so, how large a re-signing bonus to offer. If a re-signing bonus were needed, it should be payable in two equal installments: the first upon re-signing; the second at the end of the contract, with payment conditional on the company outperforming (in terms of profit growth and/or increase in market value) its comparator group (i.e. the company’s performance would have to be in the top 25%).

Annual bonuses should be linked to the base salary and the relative performance of the company. No bonus would be payable unless the company outperformed its comparator group. If the company were in the top 40% in terms of performance, a bonus could be paid equal to 20% of the base salary. The bonus could increase as a multiple of the base salary by for example 20% for every 5% higher ranking. But an annual bonus should be paid out in equal installments over three years. The future installments would be payable only if the company outperformed its comparator group; that is, if the company’s performance placed it in the top 50%. Otherwise, the CEO would lose that year’s installment, and of course earn no bonus for that year as well.

Finally, at the signing of the first contract, and only this one time, the CEO should be granted stock options equal to 1% to 2% of the company’s outstanding shares. The options would vest after 10 years. The exercise price should be linked to an index of the share prices of the company’s comparator group. This would ensure that the options only would have value when the company’s share price rose by more than the average of the comparator group. CEOs should not benefit from a rising tide.

With my proposals, executive compensation should operate on autopilot with little input needed by the Board and their consultants after the signing of the contract.

How do the RBC compensation practices stack up? Badly!

First, there are no fixed term contracts - a serious mistake. Second annual bonuses are almost automatic regardless of the Bank’s relative performance. Moreover, there is wide scope for the Board to tinker with the annual awards. In other words, the fudge factor is very large.

By the way, the Board faced a dilemma in the latest fiscal year because the consolidated profit fell far short of the continuing operations profit. The consolidated profit included substantial one-time losses stemming largely from the sale of the Bank’s US regional retail operations. There should have been no dilemma. Consolidated profits are the only profit numbers that matter. One-time write-offs indicate that profits in previous years were over-stated, and it is conceivable as a result that larger bonuses were paid in the past - bonuses that in retrospect were not deserved.

Finally, the Board awarded the CEO and other senior executives performance deferred share units and stock options every year. Three serious mistakes here: Stock options are intended to encourage long-term performance, and thus a one-time grant is all that is needed. Second, the exercise prices are not indexed; Thus, even when the Bank under-performs its comparator group, the options might have considerable value.

Third, the so-called performance deferred share units are a total farce. They are not needed at all. These units, which in the case of RBC also are awarded dividend equivalents, have value for executives receiving them even when the Bank’s share price declines. Options would have no value whatsoever is such circumstances, even with no indexing of the exercise price.

How much money would Gord Nixon have made during his tenure to date as CEO with my compensation proposal? Not much more than his base salary each year, and he would have been rewarded for relative under-performance by not having his first contract renewed. He must truly be thankful to his Board and their compensation consultants.

The opinions expressed in this blog are personal and do not reflect the views of either Global Brief or the Glendon School of Public and International Affairs.

My wife happens to be a shareholder of the Royal Bank of Canada (RBC), and she recently received the “Management Proxy Circular”. For curiosity I leafed through to see how this bank’s board compares to the suggestions I have made for reforming corporate governance. Let me point out that if I conducted the same exercise with any of the other Canadian banks, I likely would find similar results. Thus, I am not picking on the RBC; rather, it happens to be very convenient for me to undertake a casual analysis of the bank’s board and selection process.

To begin with, the board is not randomly selected. Like all companies, there is a nominating committee of the board with this responsibility. Unfortunately, this selection process tends to reinforce the adage: “birds of a feather flock together”. In other words, such committees search for members that will be “compatible”. Critics need not apply.

Next, there are 16 members of the board. This is a mistake for two reasons. Too many people; seven or, in some cases, nine should be the optimal number.

Moreover, boards should have an odd number of members to ensure that there will be a majority vote on every issue. A split vote could be very destructive. Of course, there is no assurance that even with an odd number of directors there will be a majority vote. it is possible that on some occasions one director might choose to be a “fence sitter”.

Another serious problem with the RBC board is that the CEO is a member. At the university we would never contemplate allowing a grad student defending her/his dissertation to be a member of her/his examination committee. The CEO is a hired hand, and thus s/he should not be on the board that is responsible for her/his hiring, compensation and monitoring.

Another flaw with the RBC board is that each member is required to own at least $500,000 of shares in the company. I have recommended random selection and term limits because directors are ultimately responsible to all investors in the equity markets. That is, directors have a fiduciary responsibility to the equity markets in general, and not shareholders in a specific company.

I now turn to the individuals who have been nominated to see if any meet my criteria, other than random selection. Director 1 does not pass the test because he has been on the board for over 10 years (the term limit test), and he also is a director of four other companies. (The order for the directors follows the order in which they are presented in the circular.) Directors 2, 6, 7, 11, 12, 14 and 16 also do not meet the term limit test. Directors 2, 5 and 11 are members of too many boards.

Director 3 does not meet the test because he is the CEO of a major company. Directors 7, 8, 9, 12, 13 14 and 15 have senior full-time positions elsewhere; so they do not meet this test. Director 10 is the CEO of the RBC — no more needs to be said.

If you are counting, we are left with one candidate, director 4, who satisfies my criteria.

Undoubtedly, these people are solid individuals. But there are many other solid individuals who could do as good, if not better, a job as a director of the RBC.

The opinions expressed in this blog are personal and do not reflect the views of either Global Brief or the Glendon School of Public and International Affairs.