I have written several times in the past about corporate governance. On several of the occasions I have set out my suggestions for reforming corporate governance, starting with the selection of directors. Among the suggestions I have made have been the following: random selection of directors; term limits (seven years); no senior executive, including the CEO, should be on the board; directors should be limited to three boards in total; and the compensation should be entirely in cash — no shares or options.

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.