For the board renewal, TD is doing most of what it should have done some time ago, even if it’s soft-pedalling what’s going on here. Toronto Dominion Bank in Ottawa on Sept. 7, 2022.Sean Kilpatrick/The Canadian Press
In a dramatic announcement Friday, Toronto-Dominion Bank TD-T said it will now do much less than it should have done last year to hold its leadership responsible for its criminal U.S. money-laundering fiasco.
Those are my words, of course. TD said it was “accelerating” its “transition” of chief executive officers, from Bharat Masrani to Raymond Chun, and would have a “renewal” of its board of directors and its committees, with multiple replacements. It’s monumental by Canadian governance standards.
Then again, it was a pretty big deal in October when the U.S. government said TD had allowed criminals to launder hundreds of millions of dollars and failed to properly monitor trillions of dollars’ worth of transactions. That nation’s top justice official said that TD had effectively acted as a criminal enterprise.
Friday’s changes at TD only serve to underscore that just as TD failed to manage and govern itself for years, it has also been struggling to figure out how to fix itself and hold its leaders accountable.
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Let’s first talk about the CEO swap. TD first said in mid-September that Mr. Masrani would retire in April, then stay on as an adviser until October. That announcement came about three weeks before the U.S. revealed its settlement with the bank.
On Friday, TD said Mr. Masrani would instead leave Feb. 1, an “acceleration” of about two months. And, importantly, TD still characterizes Mr. Masrani’s departure as a retirement, not as a termination or resignation.
As I observed in October, the decision to allow Mr. Masrani to retire sets him up for tens of millions of dollars after he leaves the bank, owing to the more than two million TD stock options he holds, awarded as part of his compensation.
If a TD executive is terminated “with cause” – generally defined as for wrongdoing – all unvested stock awards are forfeited. With a termination “without cause,” the executive’s stock awards continue to vest after employment, but they must use them a little more quickly than they otherwise would. And if an executive resigns, unvested stock awards are forfeited. They must use vested stock options within 30 days, even if they were supposed to expire years in the future.
But a retirement? Mr. Masrani’s stock awards continue to vest on their original terms, and expire on their original expiration dates. In October, I figured that if TD stock appreciated 8 per cent annually from that point forward, Mr. Masrani’s options would be worth about $87.2-million if he exercised them as they came due. (TD’s stock is already up more than 8 per cent from that point 10 weeks ago, by the way.)
The unrealized profit on Mr. Masrani’s unexercised options has increased by about $12-million from TD’s postsettlement low of $73.22 a share. It gained $4.65-million of that just in Friday’s trading.
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In Friday’s announcement, TD highlighted compensation cuts for Mr. Masrani and other unnamed executives. TD said Mr. Masrani received no cash bonus or stock award for the 2024 fiscal year, so his direct pay will be $1.5-million, down from $13.27-million in fiscal 2023.
I’ve always found it kind of curious that companies will give a retiring CEO, or one on the cusp of a retirement, a giant slug of stock awards as if they’ll be around for the next three, five or 10 years building value. I see it as more of a backdoor retirement-severance award, instead.
In this case? If TD had given Mr. Masrani $10-million in stock awards, as it did in the previous year, the bank should be burned to the ground. So, congratulations for not doing that.
As for the board renewal: TD is doing most of what it should have done some time ago, even if it’s soft-pedalling what’s going on here. TD says it’s reducing its “discretionary director term extension,” which had allowed board members to serve another five years after their 10-year terms were up. Now, the extension will be limited to two years.
By framing these departures as the result of a new limit on long-time service, TD makes the problem sound like crusty and outdated thinking. Conveniently, however, this removes most of the directors who had served on TD’s audit committees, which were supposed to oversee TD’s anti-money-laundering program, during some or all of the bank’s U.S. misadventure. (The Toronto holding company and the U.S. units all have boards and audit committees.)
Amy Brinkley, Karen Maidment, Claude Mongeau and Brian Ferguson will all retire – yes, retirement, again – at TD’s April 10 shareholders’ meeting. Will they be there in attendance to face shareholders?
TD seems to have decided that 2020 is the demarcation line for director performance in this matter. Jane Rowe, the former Ontario Teachers’ Pension Plan executive who has been on TD’s audit committee since 2020, will stay on the board and serve as chair of the newly constituted Remediation Committee.
Alan MacGibbon, who TD inexplicably elevated to board chair in 2024 after he spent years leading the audit committee during the time when the money laundering occurred, will also stay, perhaps to Dec. 31, 2025. He will retire when his successor is named.
Mr. MacGibbon made $857,764 as a TD director in the year ended Oct. 31, 2023, suggesting he could collect roughly $1-million between the U.S. settlement date last October and a year-end 2025 departure. He, as TD said, “will provide continuity as he guides the board’s renewal and supports a successful CEO transition.”
Continuity is an important concept in governance, and it seems to have been very important to TD in all of this. But perhaps the bank should have thought sooner, harder and longer about what it was continuing here. With this series of delayed and delicate departures, we can close the book and say TD never figured out the right things to do.