by Paul Deegan  

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Paul Deegan: Dismissal of Royal Bank CFO is no run-of-the-mill firing Back to video

When corporations have bad news to deliver, they often put it out late on a Friday.   

That’s exactly what Royal Bank of Canada, the country’s largest company by market capitalization, did  when it announced “changes to its executive team” in a press release that landed this past Friday at 6 p.m. ET.  

Below the innocuous headline, the release declared that the bank’s now former chief financial officer had allegedly engaged in “an undisclosed close personal relationship with another employee,” that the employee received “preferential treatment … including promotion and compensation increases” and that two individuals had been terminated as a result.  

Though RBC did not elaborate on the nature of the relationship, in any large organization you can find countless examples of “close relationships” between employees, often in the form of office romances.  

But other organizations considering how to address such potential conflicts should exercise caution when looking to apply this example, which involves a rare set of circumstances.  

First, RBC notes that “allegations” were made, leading the company to launch an internal review, while engaging outside legal counsel. The person or persons who made the allegations have no doubt been closely watching how the bank is handling the issue, and could potentially go public if it was not addressed to their satisfaction.  

Allegations can come from anywhere: from an angry and aggrieved party — a spouse, an ex-lover, or an employee who feels they were passed over for a promotion or increase in compensation — or from someone who is simply appalled by the misuse of corporate assets and/or behaviour. And the more senior you are — the bigger the target on your back.  

Second, the allegations were not just about the personal relationship, but also the preferential treatment that apparently followed. Any favouritism when it comes to promotions or compensation increases is a clear misuse of corporate assets. 

Third, the senior employee in this relationship was not just any executive, she was a named executive officer — the chief financial officer, at that. According to the company’s latest management proxy circular, she was paid more than $4 million last year and any severance or post-employment compensation will have to be reported in next year’s proxy circular, on display for all to see.   

That she was chief financial officer — an official who must be squeaky clean when it comes to financial management, especially at a very large systemically important financial institution — complicates things even further. The sudden departure of a CFO who had only been in the role since November 2021 would have begged questions about financial integrity and propriety.   

RBC was clearly sensitive to this particular potential interpretation and made a point of stating: “The investigation found no evidence of conduct by the former CFO or the other employee with respect to the bank’s previously issued financial statements, RBC’s strategy or its financial or business performance.”  

Fourth, the behaviour was in clear violation of RBC’s code of conduct, which demands the disclosure of close personal relationships and prohibits anyone in such a relationship from having “the ability to impact the compensation, work, or promotion prospects” of the other individual — the precise scenario the bank says transpired in this case.  

RBC was left with three options. First, sever the employees without cause and allow them to escape quietly with their dignity and their compensation intact. Second, sever them with cause, but keep the reasoning behind the firing hush-hush. Third, be transparent with stakeholders and make an example of the parties involved.   

RBC opted for a variation of the third option. That option — which comes with personal and family privacy implications — makes people like me uncomfortable, but the unique facts in this situation likely forced RBC’s hand and strong public response.  

The bank should be commended for not putting up with human resource and financial shenanigans in the C-suite and for exercising proper discretion in not revealing the identity of the other party in the relationship, who was not a named executive.   

The personal relationship at RBC was not the first of its kind, nor will it be the last. Corporations must terminate employees who confer benefits, including promotions, opportunities and compensation increases, when they have conflicts of interest, but they must also exercise great caution in how they deal with such situations.  

As for employees everywhere, RBC’s code of donduct offers some wise words: “There is no substitute for good judgment and common sense.”  

Paul Deegan is chief executive of Deegan Public Strategies