With CEO search, CIBC sends encouraging message to outsiders

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Ever since Canadian Imperial Bank of Commerce said it would consider hiring an outsider as chief executive officer, Bay Street has wondered just how serious the board is about looking outside the bank and whom the external candidates could be.

The conjecture stems from comments made by board chairman Charles Sirois following the bank's annual meeting on April 24, when CIBC announced the retirement of current CEO Gerald McCaughey.

In an interview with The Globe and Mail, Mr. Sirois said CIBC has strong internal talent, but added that the board is also "scouting the outside market on a regular basis." A few days later he said the bank will identify Mr. McCaughey's successor "by not only looking internally but [also] externally."

By themselves, Mr. Sirois's words might not signify that much. Some boards believe it is their duty to search far and wide for the best possible candidate. However, the way in which CIBC released the news created palpable uncertainty.

In announcing Mr. McCaughey's retirement, the bank did not immediately name a successor, as big Canadian lenders normally do. CIBC also did not provide a firm date for Mr. McCaughey's departure, instead saying he has a two-year window during which he could leave.

Mr. Sirois has twice told The Globe and Mail that the board announced the news when it did because the directors believe in full disclosure. Skeptics, though, wonder if the announcement was intended to be a signal to both insiders and outsiders. "It sends a message to prospective external CEO [candidates] that, yes, you can be considered," said Richard Leblanc, a York University professor who has served as an adviser to boards, including CIBC's.

Mr. Sirois knows something about looking at outside candidates. He sits on the board of Rogers Communications, which recently shuffled CEOs. Much like CIBC, Rogers announced that previous CEO Nadir Mohamed was leaving the company without naming a successor. When the company ultimately named a replacement, it was an outsider.

Many on Bay Street would welcome more clarity on CIBC's succession plan. According to a person familiar with the search process, some of CIBC's largest shareholders reached out to the bank in the days after the annual meeting to inquire about the announcement's roll-out – sometimes going so far as to indicate their preference for an internal candidate.

The succession issue is tied up with questions about what it might mean for bank strategy. Over the past six months CIBC has shown its retail business is turning itself around, led by encouraging results in its mortgage division. After the bank's 2013 fiscal results were released, National Bank Financial analyst Peter Routledge noted that "the transformation of the [retail and business banking] segment is succeeding and will endure."

For decades, it has been the norm for Canadian banks to promote internal candidates into the CEO's office. If CIBC decides to break with tradition and appoint an outsider, there may be a number of potential candidates. "With three banks having recently undergone CEO changes, the thinking is that executives passed over at their current banks would be willing to consider the No. 1 chair at CIBC if it was offered," Bank of Nova Scotia analyst Sumit Malhotra wrote in a recent note to clients.

Some on Bay Street have speculated that CIBC may try to lure Tim Hockey, TD's head of Canadian personal and commercial banking, since he would seem to be a natural fit for a bank that derives 70 per cent of its earnings from Canadian banking. Mr. Hockey declined to comment.

Culture and cost will be important factors in determining CIBC's path. Each of the Canadian banks has a distinct culture, and bringing someone in from the outside to shake things up can be an expensive experiment. Also, the odds aren't in the outsiders' favour. "Internal successors tend to be more successful and they cost less than external successors," Mr. Leblanc said.