One by one, they were called in.
Every May, investment bankers, traders and analysts at Canaccord Genuity Group Inc. are invited to private meetings to discuss their annual bonuses. This year, chief executive officer Dan Daviau had a surprise in store for his senior team.
Worried about the possible departure of key employees after a rough 18 months at the independent investment bank, Mr. Daviau introduced a catch to last year's bonus. To receive their cheques, top staff would have to commit to staying at the dealer for a full year. Anyone who left in the next 12 months would be required to pay back the money in full.
Few things infuriate people on Bay Street more than someone toying with their compensation. Making matters worse, this new policy – implemented retroactively – was highly unusual at a Canadian investment bank.
The backlash was swift. One affected employee likened the new condition to "being held hostage." A band of investment bankers, which sources say included top performers Justin Bosa and Sanjiv Samant, refused to sign the paperwork.
Following a short standoff, Canaccord's executives came back with an alternative proposal, allowing bankers to receive half their bonus in cash and the balance in stock that would vest over three years. But the damage had been done. As of this week, Mr. Bosa and Mr. Samant no longer work at Canaccord, having departed for new roles at larger, bank-owned dealers. (Both men declined to comment for this story.) A third banker, Brent Layton, has also left the brokerage.
The three joined a wave of recent departures at the firm. Since January, Canaccord has parted ways with co-head of investment banking Jens Mayer, M&A banker Rob Fedrock, mining banker Ali Pejman, treasurer Peter Virvilis, and corporate development head Scott Davidson, among others.
The moves follow a sudden leadership change that began with a tragedy. In April, 2015, former CEO Paul Reynolds – successor to founder Peter Brown and just the second CEO in Canaccord's history – died suddenly after suffering a heart attack while competing in a Hawaii triathlon. While Mr. Daviau had long been tipped as a potential CEO candidate, the company's succession plan was rapidly and unexpectedly accelerated, and he was given the reins at Canaccord last fall.
The transition has not been easy. Mr. Daviau took over as a broad and prolonged commodities downturn was hitting revenues across the industry. The swoon in natural resources has badly hurt a number of players in the Canadian financial sector – reducing trading revenues as well as financing and advisory fees.
Smaller investment dealers, which lack the balance sheets and lending power of the major banks, tend to feel the brunt of poor market conditions. The effects are playing out in a very public way at Canaccord, which has long put investors' money into the hands of entrepreneurs with mines to build and oil wells to drill. The investment bank has long been a lead adviser to mining financier Frank Giustra and to gold magnate Ian Telfer; it often positioned itself as both a champion of the Western Canadian resource economy and as a counterweight to the power of the Toronto-based banks.
Canaccord also holds political sway, particularly in British Columbia: Mr. Brown is a power broker and a major fundraiser for the provincial Liberals; John Reynolds, Paul Reynolds' father, was both a federal member of Parliament and a member of the legislative assembly for conservative-minded parties.
But now the firm is suffering. As recently as 2011, when the mining supercycle was in full swing, Canaccord seemed on a rapid growth trajectory, pulling in $100-million in annual profit. Since then, the company has lost money in four of the past five years. In the most recent fiscal year, Canaccord booked a $359-million loss – its deepest annual loss by far since going public in 2004, largely the result of a goodwill writedown in the value of its business. In February, the firm unveiled a restructuring that cut 7 per cent of its global work force.
The company's stock is languishing near all-time lows, having fallen 42 per cent in the past year and 84 per cent from its 2006 peak.
On top of it all, Mr. Daviau is now dealing with a depleted roster. Mr. Bosa and Mr. Samant generated some of Canaccord Genuity's highest fees last year, and the sectors they cover – real estate and technology, respectively – have grown in importance in the midst of the rout in mining and energy. Their departures, as well as some others over the past year, have come on less-than-pleasant terms.
"We're trying to institute change in this organization," Mr. Daviau said in an interview. "That doesn't come without ruffling a couple of feathers."
When Mr. Brown handed the company's leadership to Mr. Reynolds in 2007, he had built a powerhouse. Riding the great commodity bull run through the mid 2000s, the dealer had just posted its highest-ever profit. And Mr. Reynolds had designs on taking the dealer to new heights.
Ever since the country's largest banks swallowed independent dealers such as Dominion Securities and Nesbitt Thompson in the 1980s, few boutiques had been capable of rivalling the Big Six banks in capital markets. But through a series of acquisitions – including the crucial 2010 merger with Genuity Capital Markets – Canada's largest independent brokerage was entering a new league. The problem: Integrating Canaccord and Genuity proved challenging.
"The Genuity acquisition, on paper, looked like a jewel," Mr. Brown said in an interview. "The cultures did not come together well."
Now, six years after the merger that formed Canaccord Genuity, the company is facing an identity crisis as Mr. Daviau, a veteran of Genuity, looks to plot a course for future growth. Among ideas on the table is jettisoning the 'Canaccord' title entirely.
Asked about the possibility, Mr. Daviau said the company is weighing "a new name that's more reflective of the new organization," adding that no decision has been made yet.
If the Canaccord name dies, it will mark the end of a Canadian brand with roots dating back nearly 50 years.
Building Canaccord Genuity
Founded in 1968, Canaccord built a reputation for its prowess in trading and underwriting small-capitalization companies. Based in Vancouver, the dealer's investment bankers advised corporations on the best ways to raise money, and they relied on the dealer's extensive retail-adviser network to help sell new share issues.
Run by Mr. Brown, the company had grown rapidly through the 1970s and 80s by promoting risky junior mining stocks on Vancouver's Howe Street. By 1979, Canaccord – then known as Canarim Investment Corp. – had become the predominant trader in resource issues on the now-defunct Vancouver Stock Exchange, with Mr. Brown saying his company accounted for about 60 per cent of financings at the time. In the 1980s, Mr. Brown was a celebrity in the British Columbia business world, known for driving around in one of his three Bentleys and eating at top-tier restaurants such as Il Giardino.
Mr. Brown and his team prided themselves on working at a scrappy independent. Although banks offered more stable paycheques, with big brand names helping to bring in steady business, Canaccord employees were lured by the potential for bigger payouts when they landed deals. They weren't just cogs in a massive machine; they hustled, and were paid appropriately.
"When I ran the firm, we wanted to be an alternative to the banks, who were seen as bureaucratic," Mr. Brown said. "We really worked hard at developing a partnership culture. We really wanted to hire the guy that didn't want to work for the bank."
Yet for all of its strength, Canaccord had a major weak spot: mergers and acquisitions. Financial advisory work for large-cap companies is extremely lucrative, and Canaccord was not a player. That hurt its prestige, limiting its perception on Bay Street.
Genuity Capital Markets, meanwhile, was in many ways Canaccord's antithesis.
Founded in 2005, the advisory boutique employed some of the biggest names in Canadian M&A, including David Kassie, Phil Evershed and Barry Goldberg. Mr. Daviau, Canaccord Genuity's current CEO, was also a founding partner.
From its formation, Genuity had Bay Street talking. Many of the early partners had worked at CIBC World Markets and they fled en masse to start their own shop. The major hiccup: They organized the new venture while they were still CIBC employees, communicating by text messages and e-mails on company cellphones. When CIBC caught wind of their plans, the bank sued on non-compete grounds – using the electronic communications as evidence.
Some Genuity founders also carried outsized reputations – especially Mr. Kassie, the lead backer. While running CIBC's investment bank, he was known for his competitive and aggressive nature – and also for his astronomical pay packages. In 2000, he made $14-million– more than Canadian bank CEOs earn today.
He was also tied to some of CIBC's missteps, including a $2.4-billion (U.S.) charge stemming from Enron-related lawsuits and the bank's dealings with scandal-ridden companies such as Global Crossing and Livent.
In its first few years, Genuity was a breakout star on Bay Street. However, the 2008 global financial crisis forced it to re-evaluate its future. Because revenues were heavily tied to mergers and acquisition work, fees dried up when the markets collapsed. That year, Mr. Kassie reached out to Canaccord to initiate merger talks. The Vancouver-based dealer entertained the idea, according to people familiar with the negotiations, but it was still reeling from the asset-backed commercial paper crisis, which left 1,400 of its retail clients holding securities that became worthless overnight. Preoccupied with managing that problem, the talks didn't go far.
By 2010, markets had largely recovered and this time Canaccord called Genuity. The companies soon agreed to a $286-million (Canadian) deal.
When the deal was announced, Mr. Kassie said this kind of union had been considered since the day Genuity was conceived over a picnic table in his backyard.
"This is not the end, this is the beginning," he said.
It seemed like a perfect match.
Canaccord would get the M&A franchise it long wanted, while Genuity founders would get to swap their private shares for publicly traded ones and gain access to a deeper pool of capital at the same time.
But merging distinct investment banks is no easy task. From the start, a delicate balance of power had to be crafted.
At the top of the food chain, Canaccord retained the most senior management roles, including CEO and CFO, while Mr. Kassie was named executive chairman. Senior capital markets positions were split between both firms, with the careful divide clearly communicated to the outside world.
In the press release announcing the deal, leaders had their respective firms inserted beside their names to emphasize balance. One example: "Jens Mayer (from Canaccord) and Ted Hirst (from Genuity) will serve as global co-heads of investment banking."
Worried about potential conflicts, Mr. Reynolds moved from Vancouver to Toronto to keep peace between the two tribes – which took more effort than expected.
In Vancouver, the two camps were physically separated in the office, operating as if they were from different companies. The same was true in Calgary after Genuity bankers moved into Canaccord's office. "They really didn't communicate. They didn't really share information. They worked as separate banking groups," said a former member of the capital markets team.
While they were both entrepreneurial independent dealers, each was comfortable with a different level of speculation. The disparity was, perhaps, most noticeable on the Toronto sales and trading desk, where David Morrison and John Esteireiro – both of whom joined from Genuity and had worked at CIBC World Markets before that – were comfortable with considerably more risk than Canaccord was accustomed to. Taking big swings was nothing new for them. According to multiple sources, Genuity suffered a $40-million trading loss in 2008, largely due to an ill-timed bet on a mining company.
With that mentality living on, Canaccord started enduring much more volatile trading patterns. Losses sometimes amounted to millions in a single month, according to sources. Mr. Morrison and Mr. Esteireiro, who both left the dealer in 2013, did not respond to requests for interviews.
Genuity's more aggressive nature is also alleged to have affected day-to-day relations within the merged dealer.
"As the influence of the Genuity investment bankers grew, Canaccord's culture evolved from one of co-operation to one of confrontation and competition," Jens Mayer, Canaccord Genuity's former investment banking head, alleged in a wrongful dismissal lawsuit filed in March.
"I think that's a very false narrative – the facts being that Paul was the CEO, the firm was very much run from the office of the president," Mr. Kassie said of such allegations. "He was the CEO, this was his strategic vision and agenda, and he was in charge. The people who are complaining reported to him, or indirectly to him."
Even as internal tensions rose, the firm's profits soared. Commodity markets, particularly gold, went into overdrive shortly after the merger; profit soared to $100-million in 2011 on the back of the global mining boom.
Buoyed by the dealer's encouraging bottom line, Mr. Reynolds embarked on an ambitious international expansion plan. Deals were struck in Asia, London and New York. In three years Mr. Reynolds spent nearly $750-million on acquisitions – the biggest being the $400-million purchase of Collins Stewart Hawkpoint PLC in Britain.
"Paul had this idea that he could create a Jefferies – a global mid-cap franchise," Mr. Brown said of his successor's ambitions to recreate the U.S. investment bank's success. "Unfortunately, it didn't work out the way he hoped."
Shortly after the acquisition spree, a deep and protracted commodity rout hit metals markets. At first there was hope it would be short-lived – just a natural correction in a frothy market. As the years passed, things kept getting worse, and the problems eventually spread to the oil and gas sector.
By 2015, it was clear something had to give. That January, Canaccord announced plans to cut 4 per cent of its global staff. Soon after, some of the biggest deal makers started to depart, including Mr. Goldberg and Mr. Evershed, widely considered to be two of the most talented mergers and acquisitions bankers in the country. Matt Gaasenbeek, a 20-year Canaccord veteran who ran Canadian capital markets, also left.
The worst was yet to come.
Tragedy and transition
In the hours after the accident, there was reason for hope.
"We are optimistic for Paul's full and speedy recovery. He is awake and responsive with his family by his side," Mr. Kassie wrote to employees and investors after chief executive officer Paul Reynolds suffered his heart attack one year ago.
The next update was devastating. Three days later, on April 2, 2015, Mr. Kassie announced that Mr. Reynolds had died at 52, leaving behind his wife and four children.
The company he helped build over 30 years was left with a glaring hole.
After giving employees time to grieve, the board was tasked with picking the next leader. Two men stood out as the top candidates: Alexis De Rosnay, the suave son of a French baron who ran the capital markets business in the United Kingdom, and Dan Daviau, a Toronto-based investment banker on a winning streak.
Of the two, Mr. Daviau had a leg up. He was widely acknowledged as an outstanding banker and he had taken on increasingly senior roles within the merged firm. After running the U.S. capital markets business, he had just been promoted to head of North American capital markets in early 2015.
In 360-degree reviews of employees during the succession process, Mr. Kassie said descriptions of Mr. Daviau included, "open, transparent, highly focused, very analytical."
He was also coming off a banner year in 2014, having generated roughly $60-million in fees from deals in the online gambling sector, including advising Amaya Inc. on its $4.9-billion (U.S.) acquisition of Oldford Group Ltd. In 2016, Quebec's securities regulator laid multiple insider trading charges tied to the acquisition, including against Amaya CEO David Baazov. While the regulator's investigation included Canaccord, no charges have been laid nor any specific allegations made against the company or its staff.
For his efforts, Mr. Daviau was paid $11.7-million – among the highest paid to a banker at the firm, and more than the CEOs of all but one Canadian bank. But the same year, Canaccord posted an $11.3-million loss, prompting some inside the dealer to say Mr. Daviau was grabbing a much bigger piece of the pie than was merited.
The board didn't seem to mind. Mr. Daviau took over as CEO in September, 2015, bringing a new, more aggressive approach to the corner office.
"Dan and I kind of grew up together, so I know him really well," said Neil Selfe, CEO of independent advisory boutique Infor Financial Group, who competed against Mr. Daviau as a technology banker for two decades. "He's hard-nosed, so he'll make the difficult decisions and he is prone to action. He's not a ditherer."
Yet in the nine months since, those same qualities have also sparked criticisms about his leadership style.
Is he a bully?
"I don't think that's a fair characterization of my personality," Mr. Daviau said. "I have a strong opinion undoubtedly. No one in this business doesn't. You wouldn't get to this position unless you were able to espouse an opinion and back it," adding that his aggressive nature will help him put the company back on track.
"I am an aggressive investment banker," he said. "And I'm aggressively turning the culture of this organization, and I'm aggressively ensuring that our employees pursue our objective. And our objective is to maximize our share price. And if that's aggression, then I'm guilty as charged."
Still, critics worry his management style is too harsh. A number of wrongful dismissal suits have been filed against the company this year, including that of long-time treasurer Peter Virvilis, who alleged he was let go with only six weeks pay, after working for the firm for almost 30 years. Canaccord disputed the allegations in court documents.
Mr. Kassie defended Mr. Daviau's record as CEO.
"We are very pleased with succession and the direction Dan is taking the firm," he said. "We like what we're doing as a franchise – notwithstanding the stock price."
"Is he an aggressive individual? Absolutely. But behaviourally, I'd say he's adjusted his style for different audiences, which anybody does when they become CEO."
Mr. Brown said there is a learning curve ahead.
"Dan Daviau is one of the most innovative, hard-driving bankers in the country," he said. "We're now going to find out whether he's a CEO or not."
"A banker worries about the deal today, about getting the puck in the net today. A CEO has to be investing in the business with a three-to-five year time horizon."
The road ahead
Mr. Daviau acknowledges he's facing significant hurdles – both competitively and culturally.
"I expected it to be a difficult job. It's been a difficult job," he said. "I'm happy with the progress we've made to date. But we still have work to do."
Numerous long-term Canaccord employees who have left the firm said the internal culture has deteriorated to the point of being unrecognizable from what it once was. The team spirit that once characterized the Vancouver-based dealer, they say, has been dropped in favour of an "every man for himself" mentality.
"We had a culture that was led by Peter [Brown] and a lot of us signed up for that. ... And it was 'work hard and you play hard,' but we had a great group of talented guys that were all fair," said Mr. Gaasenbeek, the former Canadian capital markets head. "Under [David] Kassie and [Dan] Daviau, they just don't believe in that. They just think people are commodities."
Mr. Brown said that current cultural woes can't be ignored, but said Mr. Daviau stepped into a difficult situation.
"He walked into a firm that was badly split," the founder explained.
Already, Mr. Daviau has taken steps to bridge the divide. Last week, he and Pat Burke, the former Bank of Nova Scotia executive he hired to be his deputy, made the highly unusual decision to give back millions of dollars worth of stock units granted to them in 2015.
"It's been a bad year for our shareholders. It didn't feel right to me and it didn't feel right to Pat to take those share awards given the nature of the year," Mr. Daviau said.
The company has also launched a private share sale for employees with terms that encourage investing in the firm – a move Mr. Daviau is convinced will make employees behave more like partners. It will also provide a strong incentive to stay with the dealer, because employees can't sell or exercise the accompanying half a warrant that allows them to buy more stock for up to three years.
Despite its weakened financial state, Canaccord isn't exactly on the brink. The company is still reasonably well capitalized, and it could always sell some profitable units – such as its U.K. wealth management arm – to raise any needed cash.
"We are in a very cyclical business," Mr. Kassie said. "We're trying very hard strategically to change the composition of our business to diversify it more and to have more stability."
However, a turnaround won't be easy. The underwriting business that was historically Canaccord's strength is in bad shape, with the dealer missing from the recent billion-dollar oil patch financings. Larger rivals are also keen on poaching talent. It used to be employees at independent dealers preferred the entrepreneurial mindset, yet the recently departed Mr. Samant and Mr. Bosa both fled for big banks.
Mr. Brown takes the long view. Looking back, his tenure as CEO often seems rosy now, but he swears it wasn't always so. During the deep recessions in 1982 and 1991, Canaccord went so far as to experiment with four-day work weeks to cut costs.
He also believes corporate histories ebb and flow, because their talent eventually turns over. "People get old, people get tired, people get sick, people get rich," he explained. Acknowledging that the company he built is on the ropes, he believes a full-blown makeover, affecting everything from culture to compensation, is necessary. "That's Dan's job."