RBC Global Asset Management Inc. (RBC GAM) is the primary investment adviser of the RBC ETFs (the "ETFs"). In this role, RBC GAM has an obligation to act in the best interests of the ETFs. This responsibility includes exercising the voting rights attached to securities held by the ETFs. It is the policy of RBC GAM to exercise the voting rights of the ETFs in accordance with the best interests of the ETFs.
The exercise of voting rights requires the ongoing review of the corporate governance and performance of management of an issuer and the consideration of the potential impact of a vote on the value of the securities of the issuer held by the ETFs. In order to discharge its obligations under this policy, RBC GAM accesses and utilizes research on management performance and corporate governance issues, drawn from portfolio manager and analyst due diligence, information provided by leading independent research firms and involvement in organizations such as the Canadian Coalition for Good Governance. As part of the governance regime for the ETFs, RBC GAM also seeks the advice of its Board of Governors, all of the members of which are independent of Royal Bank of Canada and its associates and affiliates, including RBC GAM.
The executive team of RBC GAM is responsible for the oversight and implementation of the Proxy Voting Guidelines.
Use of Proxy Voting Guidelines
A decision to invest in an issuer is based in part on a portfolio manager's analysis of the performance of management and the corporate governance of the issuer. Since a decision to invest is generally an endorsement of management of the issuer, RBC GAM will generally vote with management on routine matters. However, since a portfolio manager must be focused on shareholder value on an ongoing basis, it is the responsibility of the portfolio manager to be aware of the potential investment implications of any issue on which securityholders are asked to vote.
RBC GAM has retained Institutional Shareholder Services ("ISS"), a subsidiary of MSCI Inc., a leading, independent firm with expertise in global proxy voting and corporate governance issues, to augment its internal processes. In conjunction with ISS, RBC GAM has established custom Proxy Voting Guidelines which apply to the ETFs and other funds managed by RBC GAM. The Guidelines indicate the principles of corporate governance which the ETFs will generally support through the exercise of proxy votes.
While RBC GAM will generally vote the ETFs' proxies strictly in accordance with its Proxy Voting Guidelines, there may be circumstances where it believes it is in the best interests of an ETF to vote differently than the manner contemplated by the Guidelines. The ultimate decision as to the manner in which the ETFs' proxies will be voted rests with RBC GAM.
Special Conflict of Interest Provisions
RBC GAM is a subsidiary of Royal Bank of Canada. Some of the ETFs hold common shares of the Royal Bank. There is the potential for a conflict of interest between the interests of the ETFs and the interests of RBC Global Asset Management Inc. or its employees in connection with the exercise of voting rights of the ETFs attached to the Royal Bank shares. There is also the potential for a conflict of interest in connection with the exercise of the ETFs' voting rights attached to the shares of another issuer, where the outcome of the vote may directly impact the price of Royal Bank shares.
In order to balance the interests of the ETFs in exercising proxies with the desire to avoid the perception of a conflict of interest, RBC Global Asset Management Inc. has instituted procedures to help ensure that an ETF's proxy is voted:
- in accordance with the business judgment of the portfolio manager, uninfluenced by considerations other than the best interests of the ETF;
- free from any influence by the Royal Bank of Canada and without taking into account any consideration relevant to Royal Bank or any of its associates or affiliates.
The procedures for voting Royal Bank proxies, and for other issuers' proxies where there may be a conflict of interest, include escalation of the issue to the Board of Governors for its review and recommendation, although the responsibility for deciding how to vote the ETFs' proxies and for exercising the vote remains with RBC GAM.
Proxy Voting Administration
Due to the volume and diversity of securities held by the ETFs, RBC GAM has retained ISS to provide administrative services to the ETFs as a proxy voting agent. RBC GAM has adopted proxy voting procedures to ensure that the ETFs' proxies are in fact voted by ISS in accordance with this Proxy Voting Policy. The Chief Investment Officer of RBC GAM is responsible for overseeing the implementation of the proxy voting procedures.
Proxy Voting Guidelines
Issuers' proxies most frequently contain proposals to elect corporate directors, to appoint external auditors and set their compensation, to adopt or amend management compensation plans, and to amend the capitalization of the company. These guidelines summarize the corporate governance principles which the ETFs will generally support through the exercise of votes on these issues. Other issues, including those business issues specific to the issuer or those raised by shareholders of the issuer, are addressed on a case-by-case basis with a focus on the potential impact of the vote on shareholder value. Please refer to the Proxy Voting Guidelines for more details.