CEO Brian Porter has tidied up redundancies by refocusing the bank’s sprawling international arm and cutting jobs.Cole Burston/The Canadian Press
After 20 long months, the shell shock stemming from Brian Porter's radical house cleaning is starting to subside. The billion-dollar question now is whether the pain was worth it.
Since he took over as Bank of Nova Scotia's chief executive officer in November, 2013, Mr. Porter has put the lender's executive ranks through intense upheaval. In that time, the financial institution has changed its chief risk officer, chief operating officer, capital markets co-head, wealth management head, marketing head, Latin American head and Mexican head.
When the new chief started, the bank had 23 executive vice-presidents; today, it has 16. And last November, the CEO announced 1,500 job cuts globally, two-thirds of which would be felt in Canada.
With 2014 in the rearview mirror, it finally seemed as though things were calming down. Then came arguably the biggest blow. As of this week, Anatol von Hahn, the cheerful former head of Canadian banking – the lender's largest unit – is no longer with organization. As someone who speaks multiple languages, Mr. von Hahn was once viewed as a future CEO contender because he is so international. Just like Scotiabank.
Canadian Imperial Bank of Commerce is often chided for the mass exoduses of executives it endured in years past, but Scotiabank's recent experience is just as biting and could just as easily hurt employee morale.
Executive turnover is to be expected whenever a new CEO is named – whether it's because of hurt feelings from not getting the top job, or from individual disagreements with the new chief. In December, 2013, on the very first day that Dave McKay was named Royal Bank of Canada's next leader, the lender also announced that Mark Standish, a former capital markets co-head, was quietly leaving the bank.
But what's transpired at Scotiabank is so deep, so widespread, that outsiders are scratching their heads. Bank employees also have many of their own questions, and last week Mr. Porter held a town hall to address the shift.
The uncertainty stems from two key points. Mr. Porter comes from a capital-markets background – he cut his teeth at Scotia Capital – and is widely seen as a stone-faced executive who has little time for small talk. There is a perception now that all employees are expendable unless they are on page with his playbook.
Then there is a legacy issue: Mr. Porter and Rick Waugh, his predecessor, didn't see eye-to-eye. In some corners, there are fears the current chief is happy to undo some of Mr. Waugh's legacy.
However true, that's too easy a brush to paint with. Much of Mr. Porter's strategy makes sense.
Mr. Waugh was an acquisitive CEO, inking more than $13-billion worth of deals following the financial crisis. Although he stuck by Scotiabank's long-standing style of taking small stakes in potential targets, to feel them out before going all-in, writing cheques is always the easy part. Integrating acquisitions is what's tough. Many of Mr. Waugh's purchases were in Latin America, and that led to redundancies Mr. Porter had to tidy up.
The new CEO pursued the same streamlining in some Canadian units. Mr. Waugh beefed up the bank's wealth-management arm, acquiring DundeeWealth Inc. for $2.3-billion, for instance, but such growth put too many cooks in the kitchen. When he took over, Mr. Porter felt the arm was bloated, so he collapsed its management structure and moved the whole thing under Canadian banking.
And Scotiabank's current CEO is also decisive, for better or worse. There is no dithering. Within months of taking over, he refocused the bank's sprawling international arm on four countries – Colombia, Peru, Mexico and Chile – and sold his multibillion stake in CI Financial Corp., cashing in on a bull market. Now investors have clarity on what he wants to do, strategically speaking.
But here's the hiccup: Mr. Porter didn't inherent a weak lender. Although Scotiabank's stock has underperformed its peers lately, its shares soared during Mr. Waugh's tenure. And during his reign, profit almost tripled. The bank's capital position has also been strong for years, and during the financial crisis, Scotiabank did not have to raise common equity, which meant it didn't have to dilute its shareholders.
As for strategy, sure, Mr. Waugh probably had his hands in too many assets. But his strategy seemed to be one of throwing spaghetti at the wall and seeing what sticks. Sometimes, small 20-per-cent stakes blossom into something bigger. And he could transact when he needed to: Scotiabank sold its Toronto headquarters in 2012 to two real estate investment trusts for $1.3-billion – cashing in on a hot market, just like Mr. Porter has.
On those fronts, maybe it's best to call it a wash. Different CEOs are going to have different strategies. But where people are most confused is the culture Mr. Porter wants to impose.
Historically, Scotiabank was run somewhat like a family, and its different departments were very collaborative. Sources say Mr. Porter has sent the message that no family member is safe, because too often poorly performing employees were simply shuffled around instead of held accountable for their actions.
Speaking to the widespread changes, Scotiabank said in a statement that it is "simplifying the organizational model to be closer to our customers and more agile and nimble" and that it continues "to have a long-tenured senior team at the table with an average of more than 20 years of experience." The bank added that it wants executives who are "more customer-focused and performance-oriented."
But there's a difference between sending a message – which Mr. Porter did by replacing the Mexican and Latin American heads – and creating a culture in which no top executive is safe. No matter how smart a corporate strategy may be, if the people who have to execute it don't buy in, success will be hard to come by.
That's especially true for financial institutions. It's easy to think of Canada's biggest lenders as monoliths, but banking, believe it or not, is a people business, and Scotiabank has to make sure its own are on board.