Director’s quick resignation after drug charge should help RBC dodge damage: experts

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 asked to resign.

RBC disclosed the resignation Thursday. Hours later, Bloomberg News published a report 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 under the Controlled Drugs and Substances Act. He was released on bail.

In a statement, Royal Bank said the matter is “between the authorities and Mr. Reinhard,” and declined to explain when RBC officials learned of the criminal drug charge.

The allegations against Reinhard have not been tested or proven in the court.

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Richard Leblanc, an associate professor of law, governance and ethics at York University, said information mill a good idea to move quickly in such circumstances, instead of wait for serious allegations to play out in a court of law or public opinion.

Waiting may cause ongoing distraction, and the potential for constant repetition of the allegations to lead to “reputational contagion” beyond the individual director, Leblanc said.

This is particularly true in an era of popular social networking, he added.

“Good boards take integrity and reputation checks very seriously not only at the retention stage but additionally on 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 easier to compel director resignation for integrity or behavioral breaches,” he explained.

Claire Holland, a spokesperson for RBC, said the financial institution has pre-screening procedures and background checks in place for directors, as mandated through the federal banking regulator, the Office from the Superintendent of monetary Institutions.

“Attestations made through this process are reconfirmed in writing 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 may even have letters of resignation signed once the director occurs to the board, to avoid disputes and entrenchment’

Carol Hansell, a partner at Hansell LLP, a law firm focusing on corporate governance, said she could not speak specifically concerning the case at RBC. But she said it isn’t unusual for a couple of weeks to pass through between an allegation of improper conduct and definitive action by a board of directors.

“Giving a person time to take whatever action they have to [take] to ensure this is a matter that isn’t going to disappear, I don’t think that’s unreasonable,” Hansell said.

In addition, “it takes greater than a moment for that organization to become thoughtful about how to deal with things.”

When confronted with accusations of conduct by a director or an executive that is inconsistent with the franchise or reputation of the business, Hansell said boards must weigh if the alleged conduct compromises ale the individual to complete their job. A business should also look beyond board function to “reputation management,” she added.

Financial Post

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