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Canada’s banks give the impression that they could almost run on auto-pilot, churning out profits no matter what the economic environment. Even as the country’s economy has stuttered ahead with modest growth, Royal Bank of Canada turned in another profitable year, propelling it into the No. 1 spot in our Top 1000 list. So, should CEO Gord Nixon worry? Always.
As Canada’s biggest bank, RBC usually appears high on the Top 1000. How much does that matter to you?
I would love to say it doesn’t matter. And the reason I say that is because you can make decisions to get to the top of a list, but that doesn’t necessarily mean you’re doing the right thing for your shareholders or the organization. If one of the Canadian banks bought another large bank, de facto they would become larger; that doesn’t mean their shares would perform better and doesn’t mean their returns would be higher. I would be fine if that happened, as long as we were making the right business decisions.
As a bank CEO, what is keeping you up at night?
The easy answers are the obvious ones: the regulatory environment, the euro zone economy and housing in Canada, which gets a lot of attention. But most of those things are manageable. What really keeps me up at night is the unknown. Our industry has had so many crises over the last number of years, and in most cases they were unpredictable events, yet you still have to manage them. You can deal with economic performance of the euro zone, you can deal with the fiscal imbalances in the United States, you can deal with the slowing housing market in Canada and you can run your business accordingly. But in an industry which is so impacted by risk and risk taking, the unexpected are the things that provide the biggest challenge and what cause me the most worry.
Of the U.S. and Europe, which one concerns you more?
In the short term, Europe, for sure. Because the challenge with Europe is the structural imbalances are so severe—it’s difficult for anyone to understand how Europe moves itself out of its current challenges, given the severity of the fiscal imbalances. I mean, economic growth does not solve the problems in Europe. It helps a lot, but it doesn’t solve the problem. There is significant structural reform that has to take place in many European countries to ultimately deal with the problem. And the political environment, combined with the single currency challenges, makes it very difficult for policy decisions to be implemented to deal with those structural imbalances.
Some international observers suggest Canada is peaking, giving rise to the “short Canada” argument. Should we be worried?
Yes, there’s a lot of questioning as to whether Canada’s best days are over. I tend to be a little bit more of a defender of Canada at this point in the cycle. The first thing that I think people miss is that while we are experiencing slightly slower growth than the United States, it’s off a much higher base. Canada has outperformed the U.S. since 2008. And, therefore, growing 2% off where we have come from in 2008 is better than growing at 3% off where the U.S. fell to between 2008 and 2012. So I think our base is better. I also think the structural issues in Canada are less pronounced. Our fiscal imbalances are not nearly as severe as they are in the U.S. They are important, and they are something we have to watch, particularly at the provincial level, but they are not as severe.
Speaking of fiscal imbalances, are bank CEOs paid too much?
Oh, boy. Well, if you were to ask me whether CEOs in general are paid too much, I would say that the answer to that is yes. Having said that, if you look at what has happened with respect to CEO compensation over the last number of years, there’s been way more progress made than people think. Compensation now is performance based—how you perform relative to the metrics that are set by the institution and the board, and how you perform relative to other institutions in your peer group. In Canada, it’s hard to explain the numbers to the general public. But I think the Canadian story is a pretty good one when you look at compensation relative to other institutions around the world—particularly in the U.S., where compensation levels were dramatically higher and performance has been dramatically lower.
So Canada looks good compared to what Goldman Sachs pays its executives.
Well, you know, sometimes the comment is made that, why do we have to pay bank executives on a competitive basis with what you have in the United States; they’re not going to necessarily go there. I take issue with that, because I can tell you most of my top executives have been offered very big positions in the United States and elsewhere. It is a global market, a competitive market, and if you look at Canada relative to the U. S., compensation levels are significantly lower, and a lot of our top people have had lots of opportunities. Now, don’t get me wrong: As I say [bank executives] are extremely well paid.
You’ve joked that you could write a book about what you’ve learned in your 13 years as Royal Bank CEO. Will you?
I’m not sure that many people would want to read it. If I had something to write that I felt was of real interest to people, then I might consider it.
That hasn’t stopped other CEOs.
No, it hasn’t.
This interview was condensed and edited.
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