Leadership Lessons From a Financial Services Veteran

You recently retired as CIBC’S Chief Operating Officer, where you were responsible for the global operations of Wholesale Banking, Technology and Operations, Strategy and Corporate Development, International Operations and Treasury. What were the key challenges of this multidimensional job?

When I took on the role in 2008, it was a particularly difficult time for CIBC, due to the credit crisis. There was certainly no time to learn on the job: I had to start making decisions on the first day. The most important challenge for any senior executive is to form a strong management team, and in my experience, that takes up to a year — sometimes two. For a while, you’re running things on your own, and it can be a very lonely time. By January of 2009, I had hired a full management team — people from all over the world, who came to Toronto to help us sort out our problems. I have never been a fan of siloes, where certain departments put their interests ahead of the whole company. People are extremely important, no matter where they are in the firm or what they’ve chosen to do in life, and leaders must encourage everyone to work as a team.

As indicated, you had a ‘bird’s eye view’ throughout the financial crisis. What key lessons do you hope finance leaders have taken from it?

For the next 30 years, people will be debating the causes of the crisis, but to me it’s crystal clear: excess. Excess in terms of the amount of leverage people were taking; excess in terms of mortgage debt; and excess in the types of securities that were being created — which were much higher-risk than the rating agencies said they were. In my view, the dangers of excess and the lack of personal responsibility we witnessed are the most important lessons to be learned.

Of course, there are other lessons. From day one, I taught my people that they were personally responsible for the risk of our bank. They couldn’t blame anybody else or say, ‘I thought somebody else was handling that.’ Another lesson is, don’t bet the bank: never bet your organization on a single venture or series of transactions. Some companies have to do this — if you’re an aviation firm building a new airplane, for example — but most don’t. The fact is, some banks were betting their entire futures on perpetually-increasing housing prices and mortgage markets, and that is an unacceptable thing to do.

Before joining CIBC, you were the chief executive of TSX Group, which operates the Toronto Stock Exchange. On page 97 of this issue, we interview Brad Katsuyama, the founder of IEX. What is your take on ‘alternative trading systems’?

I’ve read Flash Boys, and I found it very entertaining. I would agree, 100 per cent, that front-running is wrong. It’s illegal, and people who are convicted of it should pay the price. However, since the launch of the book, there have been very few — if any — prosecutions for front running, and the rea-

son is that the structure of the industry was approved by the SEC and other regulators, so the exchanges and their clients are operating under approved rules. The question to ask is, when you move to multi markets and electronic trading, how will people compete? It was clear when the system was established: they will compete on price, features and speed. This is neither good nor bad, but it was entirely predictable.

To make an analogy, I don’t think it makes any sense to run the Kentucky Derby with horses that are older than three years old. That’s the whole purpose of the Derby: to find the fastest three-year-old. And I don’t think we should let certain horses start further down the track from others. However, if we find out that somebody is doping a horse or operating in another illegal way, that should be taken very seriously. People have to live by certain rules. So, IEX is an interesting perspective on the modern markets, and the modern markets are an evolution of something that people wanted. Market participants deserve choice, and IEX is another choice; that is the way it should be.

You have been recognized for your pioneering efforts to advance women into leadership positions. Why is this issue so important?

First and foremost, this is a business issue involving people. I can say in all honesty that, every time I’ve added a woman to a management team, uniformly, doing so has improved the quality of decision-making by that department or business. As I became more senior, I started to say, “Wow, this really works; the whole organization should do it.” As a result, we did a number of things. For one, we addressed our hiring practices, making sure that women were always being interviewed and that a certain number of the graduates we hired were women. We did our best to ensure that the ‘plumbing’ of the company was appropriate — that there was no built-in bias in our recruiting or promotion committees. We also addressed our maternity policies, to get women back in the office after having children feeling good about the firm’s support. We made certain that women were moving up at all levels as visible role models — for both women and men.

The fact is, in order to make progress in this arena, you have to work with men. Today, women make up less than five per cent of CEOS running public companies. We seen to accept that some women can run companies, but it’s not seen as a universal attribute. The fact is, the research shows the complete opposite: if you add women to a management team or a board, performance improves. Some men are already advocates of advancing women on boards and in management, but once more men recognize that doing so will improve their performance, I believe things will start to change fairly quickly.

You yourself did not come to this conclusion until you had substantial leadership experience. Was there a specific person or incident that got you thinking about this?

I always tell the story about the time I was running the equity division at CIBC Wood Gundy, when, all of a sudden, several of the young women in the division got pregnant. I avoided the issue for as long as I could, but it became clear to me that these women were very unhappy with our maternity policies. My view at the time was, “What’s it got to do with me? I don’t run this company; I run the equity division, and it is doing just fine, thank you very much!” The person who reminded me that I should care was Richard Venn, then-president of Wood Gundy. Richard called me in one day, and he didn’t want to talk about how well my division was doing: he wanted to talk about the concerns within my division, and what this said about me, as a manager. I said to him, “You are the president — why don’t you fix it?” And he said, “You are going to fix this.”

So, I met with my people, and found out what they wanted. They kept telling me that our policies were not ‘on market’ — even though the HR department insisted they were. So, I did my own research to determine what ‘on market’ meant, and sure enough, we weren’t there. I had the facts to back me up, so HR had to listen. I unilaterally decided that Now I would change the policies for the equity division. When I told the employees, they were very pleased — but they wondered about the rest of the company. I indicated that the rest of the company would either get on board, or they would have their own issues to face. What happened next amazed me: every other division adopted these policies. Even today, CIBC has the best maternity policy of any investment bank in Canada; but it only happened because

From day one, I taught my people that they were personally responsible for the risk of our bank.

I recognized that as a leader, I had the responsibility for establishing policies that were an integral aspect of retaining talented women.

You had a reputation as a tough leader; how did you get this rep, and once you realized you had it, did you adjust your approach?

The fact is, if you look at my career, I’ve always taken on difficult situations that needed to be turned around, or situations where a product didn’t exist and it had to be created. Over time, I got this reputation that, when a tough situation arises, ‘that’s where you put Richard, because he will sort it all out’. I believe that leaders must act to protect the people and the firm who will be there when the business is returned to an acceptable operation, and doing that often requires layoffs, changes in direction, and favoured people not being favoured anymore. I’ve never been one to hold back on change, and I think that’s how the reputation emerged. There’s a reason why [Rotman Professor] Ajay Agrawal uses the term ‘creative destruction’: any change that involves creation inevitably involves destruction.

I’ve tried to soften my approach over the last 10 to 15 years, because as a senior executive, you really have to take everybody’s feelings and considerations into account. You can’t go along like when you were younger — with an attitude of, “I know this to be true, and everybody else be damned.” A senior leader has to look beyond that perspective. I never think of myself as the smartest person in the room, and as a former trader, I can change my mind 180 degrees if someone has a better argument. But if I come upon a vacuum of leadership, I will fill it, because I don’t think that’s appropriate for any organization. People value their jobs and their livelihoods — and they have a right to expect someone to lead them.

I’ve always been happy to take on very opaque situations, where we don’t know what the future’s going to be like, because we have to create it. That’s what we did with the Toronto Stock Exchange by acquiring the Canadian Venture Exchange in 2001 and then creating TSX Group. No one in Canada had ever created a for-profit, public stock exchange; no one believed that we could combine the best of the Toronto and Montreal exchanges to create a single multi-asset class, full service marketplace. But that is what our teams did.

For me, the highlight of leadership is assembling a team of people to help create the future — and these are actually the most exciting challenges for employees, too. People will put a lot of effort into something that they believe will have a lasting impact on the economy or society.

You are now involved with the Mind-brain-behaviour Hive at Rotman, which is exploring the neurological foundations of learning and decision making. What can we expect from it?

This exciting new initiative is being headed up by Professor Mihnea Moldoveanu, and I chair the advisory board. We will be conducting research into how the brain reacts to different stimuli, and how to use that information to create better instruction for managers — and thereby, better leaders. For example, there are now various types of eyeglasses out there that record reactions; in the brain; how might we use similar technology in a management situation? We will also be looking into how managers’ brains react in different situations. For instance, should they make decisions before or after they eat? Under different lighting conditions? If we can define the conditions under which people make the best decisions, we can train better managers. I believe this work will ultimately change the way we educate future leaders at Rotman.

I’ve tried to soften my approach over the last 15 years, because as a senior executive, you have to take everybody’s

feelings and considerations into account.