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Desjardins Caisse Populaire president Monique Leroux (Neil Mota/leloi.ca/Neil Mota/leloi.ca)
Desjardins Caisse Populaire president Monique Leroux (Neil Mota/leloi.ca/Neil Mota/leloi.ca)

Desjardins' quiet revolution Add to ...

It didn't look like the way a major financial institution picks a new CEO. Maybe that's why the process had such an unusual result.

The first contender walked out of the conference room at Hotel Le Concorde in Quebec City shortly after 10 a.m. Waiting family members greeted the vanquished candidate-some with hugs, others with tears. The ritual was repeated over the next two hours until a total of five men and two women had been ejected.

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Finally, around noon, the doors swung open to reveal a throng of voters surrounding a petite woman with shoulder-length blonde hair grinning-a big, infectious grin-as she clasped hands and kibitzed excitedly with her supporters.

After a gruelling two-month campaign that pitted her against seven other candidates, the dark horse had won the sixth and final round of votes by an electoral college of 256 delegates. The unique and secretive corporate ritual was over, and Quebec's largest financial temple, the Desjardins Group, had a new pope. And on that bitterly cold Saturday morning in March, 2008, Desjardins Group became Canada's largest company headed by a woman.

Monique Leroux's election was a pivotal moment in Desjardins' 110-year history. That's not because Leroux, 56, is the first female chief executive of a conservative and historically male-dominated financial institution. And it's not because she has since restored Desjardins' lustre after it was smudged by some bad bets on risky securities. Rather, what her victory has set in motion is an ambitious strategy to expand the country's sixth-largest financial institution. Although it boasts more than $175 billion in assets, the country's biggest credit union has struggled to build a national presence from its core francophone base of 481 caisse populaire networks in Quebec and Ontario.

Leroux is determined to expand Desjardins' reach by promoting its democratic structure and broad range of financial products. It's a distinct offering in a country that's dominated by a hand-

ful of banking and insurance giants-and at a time when the public may well be prepared to look at alternatives in the face of a financial system that has come perilously close to global collapse.

The distinctions in the Desjardins model are not insignificant: Members pocket about a third of its annual surplus profits, and, thanks to liberal Quebec laws, they can buy a variety of products in caisse branches, including insurance- something that banks, under federal law, may not sell in their own branches.

"We are working very hard to be better positioned in Canada," says Leroux in an accent that evokes Catherine Deneuve. "Our vision is to be recognized as the leading financial co-operative in Canada. We need to be more proactive, open and innovative in bringing new members to Desjardins."

Late last year, she revealed her hand, as Desjardins signed an agreement to acquire Alberta-based bank and insurance brokerage Western Financial Group Inc. for $443 million.

"This could be a sea change" for Desjardins, says National Bank Financial analyst Peter Routledge. Western Financial's small bank, Bank West, and network of 93 insurance brokerages serve individuals, farmers and small businesses in the four western provinces. Those outlets, says Routledge, offer Desjardins a badly needed distribution pipeline for the stable of mutual funds, annuities, investments, banking services, credit cards and insurance policies that have allowed it to flourish in Quebec.

Shepherding a company into a new phase is a heavy responsibility at the best of times-but all the more so when it's a company with a long, revered history and literally millions of owners. The enormity of the leadership challenge first hit Leroux the evening of her election victory. In her room at the Château Frontenac, she tossed and turned. "It was impossible for me to get to sleep that night," she says. Just before dawn, she saw the light. "Something had made me very different," she realized. "I was no longer a manager. I was an elected officer of Desjardins. It is a major shift: You realize that you have to represent people who put their faith and trust in you."

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North America's first credit union was launched in 1900 under the caisse banner in Lévis, Quebec, the hometown of Alphonse Desjardins. A driven former journalist and federal civil servant, Desjardins imported the European savings and credit union movement to Quebec to end financial exploitation by unscrupulous moneylenders. Crucially, he aligned the caisses popu-laires-people's banks-with the Catholic church, then the dominant force in Quebec life. Owned by its members and backed by the church, caisse branches became as prolific as parishes. The credit-union alternative took hold more thoroughly in Quebec than anywhere else in North America.

Today Desjardins dominates Quebec's financial sector. It operates more than 1,300 caisse populaire branches, houses 40% of the province's deposits and ranks as Quebec's largest private-sector employer, with a head count of nearly 40,000. Its 5.8 million members account for two of every three Quebeckers. Customer loyalty is nurtured with annual dividend payments that neared $600 million by 2007. The caisse tradition inspires such faith among its membership that the eminent Montreal journalist Lise Bissonnette observed in 1997 that, in Quebec, the name Alphonse Desjardins has the "same validity as papal infallibility."

The downside of Desjardins' dominance is, of course, that there is precious little room left for it to grow in its home province. Past attempts to diversify have been stalled by the credit union's decentralized structure, some misadventures in new financial products and intense competition outside Quebec from the financial giants that dominate English-Canadian markets.

Leroux's predecessors sought for years to diversify by acquiring insurance companies and peddling life and property and casualty policies in the Maritimes and Ontario through Desjardins offices and partnerships with other credit unions. But more than 20 years after it bought its first non-Quebec insurance company, Desjardins remains a minor player. Dwarfed by the likes of Manulife, Great-West Life and Sun Life, Desjardins holds only a 4% share of Canada's property and casualty insurance market, and an 8% share of life insurance.

Back home in Quebec, Desjardins was so prolific that it grew into an unwieldy tangle of fiefdoms with layers upon layers of management. Some of its 12 divisions, or so-called federations, were so powerful that acquisitions were sometimes made without head-office approval. In the late 1990s, then-president Claude Béland persuaded members to create a single centralized federation, the better to foster innovation at a time of deregulation and rapid change in the financial industry.

Under Béland, Desjardins was led by a centralized executive group that pushed further into insurance, and expanded discount brokerage, wealth management and investment services. The new direction brought rapid growth and, by the late 2000s, increased risks. Under CEO Alban D'Amours, Desjardins followed other Quebec financial players such as the National Bank and Caisse de dépôt et placement into the high-octane world of intricately engineered securities that promised higher yields and investment security.

Desjardins embraced two classes of the new securities. One, known as principal protected notes (PPNs), guaranteed that clients would fully recover what they invested. Desjardins took some of the cash it raised from selling PPNs and traded in Asset-Backed Commercial Paper, a popular class of high-yielding notes based on underlying pools of mortgages and other assets. The notes seemed indestructible because of their high credit ratings. In addition to trading in ABCP, Desjardins also bought the notes for pension funds it manages.

In August of 2007, Desjardins and hundreds of other investors learned how flawed the celebrated ABCP was when a panic over subprime mortgage fraud in the United States paralyzed the booming Canadian market. The failure of these and other securities left backers of investment insurance products on the hook for billions of dollars of losses. Desjardins, the company founded expressly to protect Quebeckers from financial legerdemain, was exposed to $2 billion of the toxic assets. The co-operative bought back the tainted notes it had sold to customers and absorbed a large writedown on the remainder.

Desjardins was luckier than most of its brethren during the financial crisis because it did not have to endure a public beating of its stock price on equity markets. As a member-owned co-operative, Desjardins has no publicly listed stock. What it does have, however, are debentures and other debt securities that are sold to investors and rated by credit agencies.

As the crisis started to boil in late 2007, Peter Routledge, then an analyst with Moody's Investors Service, began assessing the damage at Desjardins. After discussions with a number of executives, he concluded that the company's most informed executive was its chief financial officer. Routledge was impressed by how unusually frank and co-operative the executive was regarding the complex products and their potential impact on the company. Monique Leroux, he recalls, had such an "extraordinary" grasp of the details that "I could never stump her. She always had an answer."

Although many other financial players saw their credit ratings downgraded, Moody's left Desjardins' rating intact.

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Monique Leroux has been taking charge of messy situations ever since her 1960s childhood in the Montreal suburb of Boucherville. When her parents were in financial straits, and the family wanted "to make sure we were able to keep our house," it was Monique who came up with a name, logo and marketing plan for the shoe store that her parents were opening. The budding executive was 12 at the time.

To supplement the family's modest income, Leroux played the piano at a local dance studio and the organ during services every Sunday at the local Catholic church. Juggling schoolwork, part-time jobs and piano lessons instilled in Leroux a strong discipline and appetite for challenges. It also cultivated an infectious optimism about work. Famous to this day for keeping long hours at the office and an active file of community causes, Leroux makes little distinction between work and personal life. "When you have an opportunity in your life that is aligned with what you like to do, you can invest a lot of passion and a lot of time in your work," she says.

Leroux's first career choice was one of her most difficult. When she was 17, her piano teacher encouraged her to study abroad so she could go professional. Although to this day she loves the "communication of emotion with the piano," Leroux didn't want to burden her family with the costs of international studies. In any case, the lonely life of a soloist was not for her. "It is really my passion to be with people," she says.

Her technical skills in music-an art that is fundamentally mathematical-drew Leroux to the complex world of finance and a career as a chartered accountant. When she was hired by accounting firm Clarkson Gordon in 1978, she was one of a handful of female accountants in its large Montreal office. Leroux earned a reputation as an adroit problem-solver who worked easily with colleagues and clients.

Clarkson Gordon named her one of its first female partners, and in 1995 she was hired as a senior manager by the Royal Bank, where she eventually oversaw its Quebec retail banking operations. A rare female in the bank's senior ranks, Leroux made a big impression on at least one director. "She stood out," says Sheelagh Whittaker, then a Royal Bank director and CEO of EDS Canada, who met Leroux during a bank strategy session in the late 1990s. "I was always on the alert for individuals of genuinely outstanding talent, people with an evident ability to get the job done, and from that day I marked Monique down in my book as one of them."

In 2000, Leroux decided to leave the demanding Royal Bank job, which entailed constant travel between Toronto and Montreal, because "sometimes in your life you have to make decisions for your family." The choice she made with her husband, Marc, a telecommunications executive, was to adopt their first and only child, Anne-Sophie. Leroux's idea of an easier career was to join Quebecor Inc. as chief operating officer-close quarters with the company's mercurial chief, Pierre Karl Péladeau. The job lasted a year, and in 2001 she accepted a position running Desjardins' insurance and trust units.

When the first financial storm hit in 2007, Leroux had been the company's chief financial officer for three years. People close to Desjardins say she voiced concern internally about danger signs in the world's financial markets. By then, Desjardins' executive team and its CEO, D'Amours, had committed to PPNs and ABCP to grow the wealth management business. When the flawed securities began to infect the financial institutions that backed them, Desjardins not only had a financial crisis, it had a management problem.

CEOs are elected every four years at Desjardins, and when the 2008 election rolled around, candidates faced a membership that was not happy. Desjardins did not tell members about its exposure to ABCP until late 2007, and even then information was so scant that it was difficult to gauge the extent of the damage. "We would have liked to have known about [ABCP earlier]" says Emanuel Linharès, chairman of a Montreal-based caisse that serves 8,000 Portuguese members (caisses are variously organized by area, profession or ethnicity). With little information, he said members feared the worst and became "preoccupied" with the ABCP meltdown. It seemed to the rank and file that Desjardins had drifted from its co-operative roots.

With D'Amours retiring, eight candidates threw their hats in the ring. Leading the pack was Bertrand Laferrière, the company's COO and president-and a favourite, according to sources, of D'Amours. Leroux seemed to be a dark-horse candidate. By the standards of Desjardins, where CEOs tend to be lifers, she was a relative newcomer, having logged a mere seven years at the co-operative.

She was also a rare female executive in an organization dominated by men in both the executive suite and the membership ranks. She joined the race because she believed she had the skills Desjardins needed at a time when there "was a strong possibility of another financial crisis." The message Leroux took to voters in early 2008 was that Desjardins' foray into higher-risk investments had diluted its core strength as a co-operative founded to create wealth for members and economic opportunities at the community level. "I wanted to get back to our foundations because I was convinced that this was the way to bring something of value to the community," she says. As well, "It positioned us better than other financial institutions."

Leroux's message, combined with her extensive financial background, hit the right note with Desjardins members. "We needed someone very strong on the financial market, someone who had their hands on the situation and who could bring a different kind of leadership," says Linharès, a supporter.

Leroux's election as Desjardins chair and CEO handed her the reins to Canada's sixth-largest financial institution and made Desjardins the country's largest company with a female CEO. Those distinctions throw a conspicuous light on Canada's Big 5 banks and insurers, which are all led by men and will remain so for the foreseeable future. Leroux believes her ascent to the top spot would not have been possible had it not been for the "open-to-everybody" election process at Desjardins. "I think that if there would have been a typical nomination with a board, with a committee, I'm not sure that I would have been nominated."

In the early months of Leroux's administration, her prophecy of a deepening crisis came true, as Wall Street giants Bear Stearns and Lehman Brothers toppled and banks around the world had to be resuscitated with government money.

Desjardins was strong enough to weather the storms, but Leroux believed drastic steps were necessary to insulate the company against future squalls. She wanted the co-operative to absorb a $1.1-billion hit from ABCP and other investment writedowns in the 2008 fiscal year. She also wanted to set aside almost all of the company's surplus profits to bolster its capital and build an acquisition war chest. The plan would erode most of Desjardins' 2008 profits and slash more than 50% of members' annual dividends.

Before Leroux publicized the bitter medicine, she took the unusual step of convening meetings with caisse officers around Quebec to share what was then confidential information about the writedowns and her plans. Thousands of people participated.

Hélène Lee-Gosselin, a caisse member and chair of Desjardins' Board of Ethics and Professional Conduct, attended a session and was surprised by how much confidential data Leroux divulged. "It was a sign of a very high level of trust. She trusts us-well, we will trust her in return." When Desjardins announced the bad news, none of its members complained publicly.

Less than two years after Leroux was elected, Desjardins' balance sheet had been restored, credit agency warnings had been withdrawn and a new executive team was in place-and the CEO was ready for new challenges. In late 2009, one of the new hires, Christiane Bergevin, recruited from the senior ranks of SNC Lavalin to be Desjardins' executive vice-president of strategic partnerships, came to Leroux with a proposal.

Bergevin outlined a plan to sell Desjardins insurance and investment products in urban Western Canada by partnering with Western Financial, an insurance brokerage and bank based in High River, Alberta. Bergevin did not get the response from Leroux that she expected. "She said, 'Don't limit the vision,'" Bergevin recalls. Caught off guard, Bergevin left the meeting with a new understanding of her boss and a determination to think outside the box. "It was a very telling point. This woman has the power to empower people. In a subtle way, she was challenging me."

Bergevin's response was to come up with a more ambitious strategy regarding Western Financial. She declines to discuss details about confidential negotiations, but sources familiar with the talks say Desjardins entered discussions with national home and auto insurer Intact Insurance Co. to break up Western Financial. Intact would buy the thriving property and casualty insurance business and Desjardins would acquire its small regional bank, Bank West, which had seen deposits shrink during the financial meltdown. As the talks moved closer to the finish line in early December, Bergevin and Leroux expanded the vision again. They would break away from Intact and launch their own bid for all of Western Financial.

Desjardins won the day by slapping down a premium of more than 60% for Western's shares. It is a rich offer for a tiny financial player. But Western Financial offers Desjardins something it has always lacked outside of Quebec: an alliance with a financial player that has a strong brand with local communities.

"They decided very late in the game to go for the whole thing. It was a very aggressive move," says one person familiar with the discussions. Less than a month later, Desjardins announced an agreement to acquire Western Financial. There is still a chance a rival could top the bid before a shareholder vote in late February, but the rich premium paid by the Quebec co-operative would be challenging to top.

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If Desjardins prevails with its bid, it will mark one of the country's most unlikely financial marriages. Desjardins is a quintessential Québécois institution, a 110-year-old co-operative built up from the grassroots. Western Financial is a 14-year-old company that has grown quickly by acquiring or striking partnerships with insurance brokers and travel franchises to serve the overwhelmingly anglophone communities in the northern parts of the western provinces. Desjardins has had most of its success on the insurance front with life policies; Western Financial specializes in property and casualty.

Yet there are enough similarities between the two financial solitudes to create a foundation for Leroux's pan-Canadian vision. Both Desjardins and Western have deep roots in farming communities. Desjardins operates Quebec's largest farm lending group and Western Financial offers lending, leasing and insurance products to western farmers, a market neglected by the major banks as they've retreated from rural Canada. More importantly, the two companies provide the kind of one-stop financial shopping that Canada's banks are proscribed from offering. Although federal law restricts banks from selling insurance in their branches, Quebec financial reform in the late 1990s allowed Desjardins to sell insurance from its branches. For its part, Western can be in both businesses because it backed into banking from insurance. It has been offering bank services since 2003, when it launched Bank West as a kind of virtual bank that sold loan and savings products through its insurance brokers.

Desjardins has no plans to rebrand Western Financial's operations or push it to adhere to its co-operative model. It does plan to start expanding Western's limited line of financial products. If all goes according to plan, Western Financial customers will be able to walk into a local office and choose from an array of financial products. Even if the co-op model is not exported, the hope is that the appeal of doing business locally will stick.

If there is indeed a sea change at Desjardins, it will be a slow one. Although she's an ambitious CEO, Leroux is at heart a conservatively trained accountant who is vigilant about risk and given to talking about "prudent growth." As much as she thinks that Desjardins must push into new territory-which could mean more acquisitions, more partnerships and new lines of business-she is mindful that her fiscal restraint was a key selling point with Desjardins' member-owners, who do not want to endanger their dividends or Desjardins' historic attention to the economic health of local communities. The complex mandate means that when Leroux talks of "diversifying our revenues" or "increasing our critical mass," her eye is trained on "landing future deals or entering into partnerships with other organizations with which we share common values." With this kind of focus, there is little chance that Desjardins, Canada's "people's bank," will lose its distinctiveness any time soon.

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Desjardins' roots: Parish or perish

Desjardins Group was as much a religious venture as a commercial one when Alphonse Desjardins and his wife, Dorimène, welcomed neighbours into their home in 1900 to launch North America's first credit union.

It was a grim time for Quebeckers. Years of poor harvests and soaring supply costs forced impoverished farmers and workers in the then mostly rural province to move to cities and towns and borrow for necessities. Banks rarely lent money to the province's consumers, forcing them to turn to unscrupulous moneylenders. Interest rates were so extortionate that on April 6, 1897, Montreal MP Michael Quinn stood up in the House of Commons to demand federal protection for constituents who were being exploited by loan sharks. One of his constituents, he told the House, was ordered by a court to pay $5,000 in interest on a $150 loan.

Taking careful notes that day in the House was Alphonse Desjardins-and not just because he was a parliamentary stenographer. One of 15 children of a displaced farmer, Desjardins had a strong sense of social injustice. When he heard about the moneylenders that day in Parliament, Desjardins, a former journalist and devout Catholic, had a new cause. After researching European credit unions, Desjardins promoted his first caisse populaire in Lévis, near Quebec City, as a "social pact" that called for local residents to pool savings in a collective that would make "productive loans" at low rates for basic necessities. Any profits from these loans would be shared by members in the form of annual dividends. It was a revolutionary concept that was backed from the beginning by one of Quebec's most powerful institutions, the Catholic church.

Desjardins won strong support from Lévis' parish priest and the province's archbishop, who embraced the collective as a financial miracle for struggling parishioners. Sunday sermons extolled the virtues of a people's caisse, priests presided over early caisse assemblies, and many branches were operated out of church basements. Desjardins travelled across the province to spread his financial gospel, and within decades most Quebec towns and cities boasted a caisse. Eventually renamed the Desjardins Movement, it became so ingrained in the social fabric that the province changed the Education Act to allow children to make caisse deposits through school programs.

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