The sudden resignation of longtime Royal Bank of Canada director Joao Pedro Reinhard, who faces a drug-related charge, should mitigate “reputational contagion” at Canada’s largest bank, corporate governance experts say.
It is thought Reinhard, a completely independent director since 2000 at RBC, was inspired to resign.
RBC disclosed the resignation Thursday. Hours later, Bloomberg News published a study saying the 70-year-old had been charged with cocaine-related offences in Canada in February.
The Financial Post subsequently verified that Reinhard, who lives in Key Biscayne, Fla., is faced with importing cocaine underneath the Controlled Drugs and Substances Act. He was launched on bail.
In a statement, Royal Bank said the problem is “between the authorities and Mr. Reinhard,” and declined to describe when RBC officials learned of the criminal drug charge.
The allegations against Reinhard haven’t been tested or proven in court.
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Richard Leblanc, an affiliate professor of law, governance and ethics at York University, said information mill a good idea to move quickly such circumstances, instead of wait for serious allegations to play in a court of law or public opinion.
Waiting may cause ongoing distraction, and also the possibility of constant repeating the allegations to lead to “reputational contagion” past the individual director, Leblanc said.
This is especially true within an era of popular social networking, he added.
“Good boards are taking integrity and reputation checks seriously not just in the retention stage but additionally with an ongoing basis,” Leblanc said, noting many boards have adopted codes of conduct for directors with strict reputational and integrity clauses, similar to morals clauses for athletes.
“You may even have letters of resignation signed once the director occurs towards the board, to avoid disputes and entrenchment, and make it simpler to compel director resignation for integrity or behavioral breaches,” he said.
Claire Holland, a spokesperson for RBC, said the bank has pre-screening procedures and criminal background checks in place for directors, as mandated by the federal banking regulator, the Office of the Superintendent of Financial Institutions.
“Attestations made so as to are reconfirmed on paper on an annual basis, she said, adding that assessments are updated between specified intervals “if RBC learns of fabric adverse details about a director.”
‘You can even have letters of resignation signed when the director comes on to the board, to prevent disputes and entrenchment’
Carol Hansell, a partner at Hansell LLP, a law firm specializing in corporate governance, said she could not speak specifically about the case at RBC. But she said hello is not unusual for a few weeks to pass between an allegation of improper conduct and definitive action with a board of directors.
“Giving a person time to take whatever action they have to [take] to ensure this can be a matter that is not going to disappear, I don’t think that’s unreasonable,” Hansell said.
In addition, “it takes more than a moment for that organization to become thoughtful concerning how to deal with things.”
When confronted with accusations of conduct with a director or perhaps an executive that is inconsistent with the franchise or reputation of the organization, Hansell said boards must weigh whether the alleged conduct compromises ale the person to complete their job. A company should also look beyond board function to “reputation management,” she added.
Financial Post
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