Canadian Imperial Bank of Commerce’s coming leadership shuffle spotlights the need for boards of directors to devote more resources to the crucial task of succession planning, governance experts say.
Despite the obvious need to line up replacements for existing executives, succession plans for chief executives are too often neglected, leading to situations like the one at CIBC, where CEO Gerry McCaughey has announced he is retiring with no clear successor in place.
CEO succession is “the most important job of the board … it’s screaming for attention,” said Richard Leblanc, a York University professor who has served as an external adviser to boards, including CIBC’s. The trouble is, “there’s a real disconnect between how important this is and what boards do about it.”
The problem is compounded at CIBC because the bank has a history of succession conflicts, such as the rivalry between Al Flood and Paul Cantor in the early 1990s. “They have a legacy of this notion of horse races, which is high risk because it could lead to departures, depending on which horse actually succeeds,” Mr. Leblanc said.
CIBC recently appeared to be on the upswing as the fruits of Mr. McCaughey’s master plan, which involved de-risking the bank and revamping Canadian personal and commercial banking, started to bloom. Yet the uncertainty about who will be named the next CEO runs the risk of once again making the bank a “cocktail party joke,” as it has been after previous horse races and major blunders such as a $2.4-billion (U.S.) legal settlement, according to Beverly Behan, a New York-based governance consultant who has advised over 125 boards, including Bank of Montreal.
CIBC board chair Charles Sirois said he is “confused [as to] why people are creating all kinds of speculation,” because “this board is fully ready to identify the next successor and will do it fully by not only looking internally but [also] externally.”
While the announcement of Mr. McCaughey’s departure caused confusion, Mr. Sirois said the board wanted to give shareholders full information. “We thought that it was very good governance that we give a good heads up on that,” he said.
CIBC’s case stands in stark contrast to its rivals. Canada’s three largest banks also recently announced CEO transitions, but Royal Bank of Canada, Toronto-Dominion Bank and Bank of Nova Scotia each named a successor in the same press release in which they announced the CEO retirement.
Canadian banks have not always immediately named a successor when a CEO steps down – for instance, when CEO Peter Godsoe announced his resignation from Bank of Nova Scotia in December, 2002. However, Rick Waugh was named as the next president within a month, signifying he was the heir.
There are no clear leading candidates at CIBC. Chief operating officer Richard Nesbitt was widely viewed by outsiders to be the front-runner, but bank sources have long said he wouldn’t get the top job, and just last month he announced his own resignation.
Among the top executives who are left, Canadian banking head David Williamson hasn’t had much time to prove himself, wealth management head Victor Dodig lacks senior management experience in other parts of the business and chief risk officer Laura Dottori-Attanasio is new to her role and arguably tied to Mr. Nesbitt, multiple bank sources said. Senior executive vice-president Jim Prentice confirmed Monday he will leave the bank to run for the leadership of Alberta’s Progressive Conservatives.
Ms. Behan said CIBC can redeem itself by immediately naming clear criteria for McCaughey’s successor and involving senior executives in the process to temper the horse race. The next step is to conduct due diligence on the candidates, including interviews, strategy presentations and professional executive assessments. “This is where most Canadian boards (and frankly most boards in the U.S. as well) simply haven’t stepped up to what I think shareholders deserve,” she wrote in an e-mail.
Mr. Sirois said the board has been doing such work for years, despite the speculation on Bay Street. “Maybe you cannot identify the successor yet,” he said, “but I can guarantee to you that we have an identified process.”
Editor's note: An earlier online version of this story contained incorrect information. This version has been corrected.