There is one unshakable truth when running a business: Tone comes from the top. Like a corporate law of gravity, what the chief executive says and does trickles down through the organization, even when it’s unintentional.
In the best cases, it is a good thing. Employees who are impressed by what they see will try to emulate it. Good managers beget good managers. In the worst, it breeds a culture built on fear, because everyone is terrified of the consequences if they don’t toe the line.
During Brian Porter’s tenure running Bank of Nova Scotia, the latter has been true far too often. So many executives were sent packing for who knows what reason, and others seemed to leave on their own out of utter frustration. Some departures were surely amicable, but the cumulative impression was that Scotiabank had become a toxic place to work.
The worst part? Everyone knew it. The whole Street talked about it. Yet the lender’s board of directors rarely seemed to care and stuck by Mr. Porter and his strategy, even when Scotiabank’s shares started falling further and further behind rival Big Six bank stocks.
Nine years in, the board has finally decided it’s time for some fresh blood. Except in doing so, they’ve added another element of chaos to the equation, naming Scott Thomson, who currently runs Finning International, an industrial company, as the new CEO.
Scotiabank wants to spin this as though he’s not some radical candidate, because he’s served on the bank’s board since 2016. It’s a stretch, but fine, board chair Aaron Regent can have that one. The banking regulator would never have signed off on it if this was a truly reckless decision.
But it still doesn’t explain why Mr. Thomson was considered in the first place. If the internal slate of candidates was too thin or inexperienced for the board’s liking, that’s their own fault. They should have never let it come to this.
Over the past six months, one of the hottest lunch topics on Bay Street was gossiping about which Scotiabank executive would succeed Mr. Porter: Canadian banking head Dan Rees, or global markets chief Jake Lawrence? It had all become so ludicrous that people from rival banks started speculating about jumping ship to Scotiabank in hope of choosing the right horse, then landing a plum gig if that horse was named the next CEO.
Instead, the board has gone with a wild-card pick. Who knows how many fresh faces he’ll bring into the organization to build his leadership team.
Of course, executives have to be held accountable, and rival banks have made some major changes themselves. Toronto-Dominion Bank recently shuffled its own executives and named new heads of Canadian and U.S. retail banking operations. Royal Bank of Canada also recently punted its CFO and the head of its innovation arm, which has become an integral part of its Canadian retail bank.
But what’s transpired at Scotiabank is something else. In his first three years, Mr. Porter replaced eight of the bank’s top 10 executives, as well as two regional leaders – one for Mexico, the other for Latin America. Eventually there was so much change that Mr. Porter addressed it publicly, telling The Globe and Mail in 2016 that by the time he was named CEO, he believed Scotiabank had been too frugal when it came to investments in technology – which led to a major restructuring – and that parts of the management group had grown soft. In an internal company presentation obtained by The Globe at the time, Scotiabank’s culture was described as “overly collegial.”
The trouble is, the executive changes kept coming after that. James O’Sullivan, the retail banking head who replaced Anatol von Hahn in 2015, announced he was retiring in 2019. A year later, Mr. Sullivan was named the chief executive of IGM Financial, the Desmarais-owned parent company of IG Wealth Management and Mackenzie Investments. In global markets, where Mr. Porter spent most of his career, the executive turnover has been even more frenetic. Even people Mr. Porter was once close with, at least professionally, such as Adam Waterous, left the bank.
Mr. Porter’s tenure is defined by much more than executive turnover, and some of it is very positive. He laid out a clear strategy when he took over, which involved shrinking the bank’s sprawling international footprint to focus on four countries outside of Canada – Mexico, Peru, Colombia and Chile – and he green-lit major investments in technology. That money will pay dividends for years because it has helped transform Scotiabank from what employees used to call the Kmart of Canadian banking, because it was so cheap, into a digital contender.
Some of Mr. Porter’s capital decisions were also brilliant. One of his first acts as CEO was selling most of Scotiabank’s 37-per-cent stake in CI Financial Corp., then worth nearly $4-billion. He timed it perfectly, unloading when CI’s shares were trading around $35 each. Today they’re worth roughly $13.50 apiece.
But the more time passed, the more investors grew confused by what exactly Scotiabank was up to. In the span of 10 months around 2018, Mr. Porter spent nearly $7-billion on acquisitions, including two major deals in wealth management – one for MD Financial, the other for Jarislowsky Fraser. A third deal in retail banking, worth $2.9-billion, was for a majority stake in BBVA Chile.
Mr. Porter was smart to invest in wealth management, because it’s become a hot sector, yet it’s been tough to tell whether anything special has come from either transaction. As for Latin America, the region was hit hard by COVID-19, and some recent regime changes have investors worried about its banking climate.
Because the bank was starting to stall, and because its shares were struggling again, everyone assumed there would be a new CEO soon. So the board was right to assume something should be done. Yet once again Scotiabank’s directors seem pretty tone-deaf to cultural matters. Because there’s already been so much turnover, the last thing the bank’s investors – and crucially, its employees – wanted is more upheaval.
Maybe Mr. Thomson has the magic touch. Maybe he’s exactly what the bank needs. But if so, the board’s going to have to do a lot more work explaining his selection than simply saying “trust us,” because that’s been been hard to do for quite some time.