Dodig focuses on stability as new era dawns at CIBC

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Canadian Imperial Bank of Commerce's new chief executive has unveiled an executive team focused on continuity, despite one notable departure.

Victor Dodig, who took over as CEO on Monday, largely avoided fears of a management shakeout, most notably with the announcement that David Williamson, who runs retail and business banking, is staying on board. That division accounts for roughly 70 per cent of CIBC's profit and Mr. Williamson had been seen as a candidate for the CEO post. His decision to stay signalled Mr. Dodig's commitment to sticking with the course set by Mr. Williamson.

However, Mr. Dodig announced that chief operating officer Richard Nesbitt, who originally planned to retire in October, 2015, is leaving now.

As the dust settled on the changes, executives privately indicated that a calm has come over the management team – something they have not seen in some time. Communication was lacking amongst executives under former CEO Gerry McCaughey, according to two people familiar with the bank, and one executive stressed that Mr. McCaughey preferred not to receive e-mails from his own team or to have papers left on his desk.

Mr. Dodig, by contrast, is viewed as a more affable man than Mr. McCaughey or Mr. Nesbitt. The former CEO was brainy, while Mr. Nesbitt was also considered intelligent but gruff. Combined, the character traits arguably did not suit a bank dependent on soft-touch businesses such as retail banking and wealth management for future growth. Mr. McCaughey has declined to comment on his departure since April, when he announced he was retiring. Mr. Nesbitt could not be reached.

Both men have won praise for transforming the bank from one that was heavily exposed to big capital markets bets during the financial crisis into one that makes its money from more traditional businesses, such as lending. Because of their work, Mr. Dodig inherits an organization that is widely viewed to have cleaned up its act.

But CIBC still has a long way to go before it is once again viewed as a dominant domestic bank. The lender was once Canada's second largest, yet its retail banking market share has plummeted over the past few decades. Its wealth management operation is also rather small relative to rivals – a fact that is often overlooked because of the long-lasting power of the Wood Gundy name, which CIBC acquired in 1988.

Mr. Dodig will have to grapple with the bank's heavy exposure to Canadian retail and business banking. Although Mr. McCaughey and Mr. Nesbitt are widely viewed to have 'de-risked' the bank, the term can be misleading. While the retiring executives lowered the risks of losing money on single trades, CIBC is now heavily dependent on its core domestic business. "They have an earnings concentration that isn't sustainable," said National Bank Financial analyst Peter Routledge.

While Mr. Routledge gives the bank credit for taking decisive actions in retail banking, such as revamping its mortgage business by ending its relationships with mortgage brokers, the overall exposure to the domestic market worries him. "I still can't get past this risk," he said.

Already CIBC has overcome some large obstacles that should help with its future growth. When Mr. McCaughey originally announced he was retiring, the board of directors made it clear they were looking at external CEO candidates, creating a tense environment for existing executives, according to three people familiar with the process. Instead, the board turned to Mr. Dodig, who headed the bank's wealth management arm.

However, Mr. Dodig had less than two months to prepare for the position.

"This is not the conventional way that a board would approach CEO succession planning," governance expert Beverly Behan wrote in an e-mail. "Typically, it's a well-orchestrated process that involves increased responsibility of a successor – to the point that the market realizes who the 'heir apparent' is."

However, Ms. Behan, who was initially critical of the process, gives the board of directors credit for making the best out of the tense situation they created. "I honestly think the CIBC board deserves a lot of credit," she wrote.