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Scott Thomson will become Scotiabank’s president on Dec. 1 for a two-month apprenticeship before taking over as chief executive on Jan. 31, when current CEO Brian Porter retires.SCOTIABANK/Reuters

Bank of Nova Scotia BNS-T surprised Canada’s business community Monday by choosing Scott Thomson, one of its board members, to be the bank’s next chief executive, after a lengthy succession process that passed over the leading internal contenders for the job.

Mr. Thomson, 52, is the chief executive of construction equipment dealer Finning International Inc. FTT-T, a role from which he will retire on Nov. 15. He will become Scotiabank’s president on Dec. 1 for a two-month apprenticeship before taking over as chief executive on Jan. 31, when current CEO Brian Porter retires.

The decision to appoint someone from outside the banking industry to lead Canada’s third-largest bank is highly unusual, and stunned even senior bankers who are close to the company. A Scotiabank director since 2016, Mr. Thomson chairs the board committee that is most closely involved in the bank’s succession planning, and would have helped set the terms of its CEO search.

The bank’s board chair, Aaron Regent, described him as a seasoned chief executive with broad experience across multiple industries who has been “one of our top directors.”

“He’s been on the board of the bank for six years, so he understands the bank, understands the challenges we have, the opportunities we have, understands our people. And so he could really hit the ground running,” Mr. Regent said.

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Earlier in his career, Mr. Thomson was an investment banker at Goldman Sachs GS-N, but he has worked outside banking for the past two decades. Before he took over at Finning International in 2013, he was chief financial officer of Talisman Energy Inc. for five years, and prior to that he worked for five years at Bell Canada parent BCE Inc., starting in 2003.

While at Finning International, Mr. Thomson gained experience working in Latin America, where the company is a major dealer of Caterpillar equipment, notably to the copper-mining industry in Chile. That will be an asset, because Scotiabank has concentrated its international operations in the region.

He takes over from Mr. Porter, a consummate banker who spent more than four decades at Scotiabank, the last nine of those years as chief executive. Mr. Porter undertook considerable heavy lifting to refocus the bank, streamlining its international operations and building up its wealth-management arm.

But investors haven’t yet rewarded the bank for that strategic shift, and the bank’s share price has lagged relative to other large banks, rising less than 9 per cent since he took charge in late 2013. By contrast, shares in its largest rival, Royal Bank of Canada RY-T, are up 75 per cent over the same span.

Scotiabank’s share price fell 2.8 per cent to $67.30 on Monday on the Toronto Stock Exchange. It was the only one of Canada’s Big Six bank stocks to trade lower at the end of the day.

Canadian banks have rarely reached outside their own ranks for chief executives. The example that is perhaps the most comparable to what Scotiabank has done dates back to the late 1970s, when Bank of Montreal made board member Bill Mulholland president and CEO. He was also a former investment banker who had worked extensively outside the banking sector.

The country’s major banks are vast, complex organizations with many business lines. The typical path to the chief executive’s office involves a lengthy tenure running one or more of the major profit-making business lines, sometimes coupled with a tour of duty overseeing risk management.

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It was widely known on Bay Street that Scotiabank had been running a succession process for some time, led by Mr. Regent. And Mr. Porter’s retirement after nearly a decade in charge, at age 64, had been expected. But Bay Street was still caught off guard.

“What is surprising to us is that the person taking over the CEO role is not a current executive of [Scotiabank],” said Darko Mihelic, an analyst at RBC Dominion Securities Inc., in a note to clients.

The presumed front-runners to succeed Mr. Porter were Dan Rees, Scotiabank’s Canadian banking head, and Jake Lawrence, the chief executive of the bank’s global banking and markets division. They represented a younger generation of talented bankers who rose quickly under Mr. Porter’s leadership. Scotiabank also evaluated the head of its international division, Ignacio (Nacho) Deschamps, as a CEO candidate.

Mr. Lawrence, Mr. Rees and Mr. Deschamps came to the forefront after Scotiabank deliberately rewrote its succession plan several years ago, seeking to increase the depth of talent in the bank’s senior ranks. The leading internal candidates presented their strategies to Scotiabank’s board in June, but even then no clear individual front-runner emerged.

“We benchmarked our internal options against externals and we had some great choices, and went from there,” Mr. Regent said. “We had strong candidates. We have a number of our business leaders who are doing really well in their jobs, hitting their stride if you will, and we have big expectations of what they’re going to continue to do. This is not a statement against them at all. In fact I think we have a very strong team.”

Four sources close to the bank who are familiar with the succession process said some board members had misgivings about whether any of the internal candidates were the right choice for chief executive.

The Globe and Mail spoke to more than a dozen sources close to Scotiabank about its succession process, but is not naming them because they were not authorized to discuss the bank or its internal deliberations.

“The [landmark] decision from the board of directors to bring in someone from the outside to run a large Canadian bank clearly suggests to us that perhaps some significant changes may be on the way,” Mr. Mihelic wrote.

The overarching challenge Mr. Thomson faces is to find the next phase of growth for Scotiabank. But he gave no clues about his strategy on Monday. Neither he nor Mr. Porter were available for interviews.

Hal Kvisle, the board chair of Finning International, said what stands out about Mr. Thomson is his ability to identify, retain, “stimulate and motivate” a team of executives working for him. “His skill as a people leader and organizational person is really admirable,” Mr. Kvisle said.

Over the past decade, Mr. Porter led an ambitious strategy for Scotiabank that included curbing its risk-taking by selling off operations in more volatile, lower-return markets. He also narrowed the bank’s international focus to four Latin American markets with opportunities for rapid growth – Mexico, Peru, Chile and Colombia – as well as the Caribbean. And he made the bank much more competitive in wealth management by acquiring MD Financial Management and Jarislowsky Fraser.

“In some respects, his vision was a decade ahead of the current wave of global banks picking their spots and rationalizing some of their foreign operations,” BMO chief executive Darryl White said in an e-mail. “I have a lot of respect for the discipline with which they simplified their portfolio and grew it at the same time under his watch, all while competing very hard in the Canadian market.”

But Scotiabank gave up some income in the process, and its bet on Latin America has faced unforeseen headwinds, including the economic fallout from COVID-19 and political upheaval in countries such as Chile, which is trying to redraw its constitution.

“I leave the Bank with the same sense of optimism that marked the start of my time in this role,” Mr. Porter said in a news release.