by Gordon Pitts
Day flew several times with Ritchie between Canada and Britain. “Each of these trips was a learning experience, as Ced did not sleep and offered me a monologue on a particular current issue. I remember particularly the one on liquidity.” Day felt he contributed little of value in his first couple of years, but he worked hard and began to join more committees. He became the first chair of the bank’s corporate governance committee. Even the existence of that committee meant a more serious commitment to governance issues. Allan Shaw says Day opened the way for a more questioning and effective board. He could go “toe-to-toe with those guys”—the senior managers—“and lots of people couldn’t.” Shaw says he and Day were there during a transition. “When I went on that board, nobody said anything unless they were asked.” That would change.
The senior ranks of Canadian chartered banks resemble the Renaissance courts of Medici and Borgia for their palace intrigues, factions, and succession struggles. Scotiabank was no different. Ritchie would stay on top for two decades, as would-be rivals and successors came and went, frustrated that there was no movement at the top. Then Peter Godsoe emerged from the ranks, and he was a key transitional figure. He was born in Toronto, but he had impeccable Maritime credentials. His parents were from Nova Scotia and his brother Gerald was a prominent lawyer at Stewart McKelvey in Halifax. As a boy he had returned every summer, often visiting bucolic Chester, ocean playground for the Nova Scotia elite.
Peter Godsoe had also earned an MBA from Harvard, a sharp departure from the branch-to-boardroom background of Ced Ritchie. He embodied the shift in bank leadership from the employee who learned the trade on the job to someone who came out of university with a strong grounding, not yet applied, in management and risk. The emergence of the MBA as a management credential in Canada had started in the late 1950s with Richard Thomson, a smart MBA out of Harvard who joined the Toronto-Dominion Bank. Thomson had risen to the CEO post and surrounded himself with other MBAs, including Robert Korthals, Charles Baillie, and a group of up-and-comers from the business school at the University of Western Ontario. More than any institution, the TD Bank established in Canada the idea of the MBA as the must-have degree for the rising business person. By the 1990s, the concept had invaded all the banks; even bankers who started in the lowly branches were expected to add gravitas through a Harvard executive program.
Godsoe learned the ropes and emerged as vice-chairman with a clear shot at the top when, if ever, Ritchie left. “It was probably a flip of the coin whether I’d ever get the job or not, but they sort of ran out of people,” Godsoe says, with his classic self-deprecation. He remembers going to London for business and having dinner with director Graham Day. Day picked him up at the hotel on a day when his picture had been splashed across the business pages of the newspapers. When they entered the restaurant, people turned to catch a glimpse of him. Day had a face that was known. “I had a lovely dinner, and I was with this rock star,” Godsoe recalls. “He’s very good company. He’s sort of a bit of a Renaissance man, he reads broadly, and he does all these other things [besides business].” And, Godsoe adds, “he had that military bearing. He sort of stands that way. You’d think he’s right out of the Guards.”
It was the beginning of a strong personal bond. In 1995, when Ritchie finally stepped aside as CEO and chairman, Godsoe was appointed his successor. Day would be a rock of support as Godsoe sought to put his stamp on the bank after the long reign of Cedric Ritchie. (In retirement, Ritchie kept coming to the office most days, even after he lost his sight and almost to the day he died in March 2016 at age eighty-eight.) By that time, a working relationship had developed. “Graham was the role model of a director for my generation.” Godsoe says. “He’s as good as I’ve come across.” In Godsoe’s view, “[Day] doesn’t waste a lot of time, it’s just not his way. He has no real issue other than to give you his view of what was going on there, what you were doing, how you were doing it. There would be no looking for some return. He’s not looking for power—he doesn’t care about those things. He cares about it working, and he cares about people.” Godsoe received an education in the directorial art, which he put to his own use as a chairman and a lead director in other companies. “I was watching a very honest man, a very smart man who really only has two things that he wants done: to make that board and the company work well, and you as the CEO to work well.”
Day realized he was not dealing with a normal succession. It was a sea change. Ritchie had an innate judgment of what made sense for the bank and its customers, honed by years of experience. Godsoe had a quicksilver mind, a grasp of the possible, and a highly developed sense of risk. As a member of the HR committee, Day applauded Godsoe’s initiative in opening up prospects for women to join the senior ranks. “Fairness aside, the talent pool was dramatically improved.”
It was a tumultuous period, dominated by merger talk among the Big Five banks. Royal Bank of Canada and the Bank of Montreal announced plans to merge in 1998, and then the Toronto-Dominion Bank and the Canadian Imperial Bank of Commerce stepped forward to say they would join, too. These deals would have dramatically reshaped Canadian business and society, but the federal government moved to squelch them. The Bank of Nova Scotia initially had been the odd man out, but three years later Godsoe led the bank into talks with the Bank of Montreal. This transaction, too, was shot down. After all the jockeying, the Big Five rolled on as before. But within the goup, there was movement. The period of Godsoe’s leadership was a heady time for Scotiabank as it moved up in the standings from a perennial fourth or fifth to the number two bank in size.
Rick Waugh was also part of that growth story as he rose to become a contender for the top job post- Godsoe. He had started off in a Winnipeg branch, and was transferred to Toronto, where, in his late twenties, he managed the main branch on King Street. He acquired an MBA from York University, and had mentors who pushed him into the all-important credit side of the bank. As an executive in corporate lending, Waugh would go to the board for major loan approvals. Graham Day did not have a lot of questions—it was not the nature of boards in those days—but he had his favourites. Waugh knew that, if the deal involved shipping, Day would be very alert to the risks. He was sure to ask his classic question: where was the ship built? If the answer was South Korea, which it often was, “we would have a real battle to get it done,” Waugh recalls. Day would counsel the bank to be careful about the quality of construction. “It was a good question,” Waugh says, “and he had the expertise. So I would say to the others, ‘Okay, get ready for this one.’”
Day would also focus on what changes to bank policy or practice would mean for employees and customers. As a result, Hantsport, Nova Scotia, became perhaps the most closely watched branch in the country. When an issue came up, he wanted to know how it would affect the people on the front line, and Hantsport was where he could do his due diligence. “You had to be ready for that customer-service, employee-satisfaction kind of question,” Waugh says.
As Cedric Ritchie built Canada’s most international bank, he tapped the views of Day and McCain, who were those rare directors with direct international experience: Day as a globe-trotting executive and McCain as an entrepreneur building a worldwide food company. And both sat on the board’s powerful executive committee. International banking was volatile, and the Latin American economies went through periodic crises. But Ritchie had a long-term view, and stayed the course. Waugh notes that “originally, he was the guy from Bath, New Brunswick. And then he started really pushing [the international side]. Those two directors would have been very important.”
In time, Day would emerge as a pivotal player in the broader push to make corporate boards better informed, better prepared, and more meaningful. For many shareholder activists, a key change would be to separate the roles of chair of the board and chief executive officer. Globe and Mail columnist Eric Reguly saw that change as a watershed in corporate governance: “A separate chairman reinforces the p
rinciple, conveniently forgotten in some companies, that management in general and the CEO in particular are accountable to the board, and the board to shareholders. As many institutional investors have pointed out, the board cannot effectively monitor management if the lead manager runs the board. It’s called a conflict of interest.”
Governance advocates focused most intently on the banks, the companies with the widest reach, the most shareholders, and the highest profile. The banks fought back, claiming their history of combining the two roles had not harmed performance or decision making. Also, they argued that chief executives needed the added authority, especially since there was little movement in the United States in this direction. In Canada, the issue constantly arose at annual general meetings. The turning point came when the activists’ campaign was joined by two major pension funds, the massive Caisse de dépôt et placement du Québec and the Ontario Teachers’ Pension Plan. In early 2001, the Royal Bank, as it prepared to pass the baton to new CEO Gord Nixon, became the first to separate the jobs of chair and CEO; the rest of the banks followed.
The Bank of Nova Scotia, however, did not want to make the change in the midst of Godsoe’s tenure. “It was a magic time to be in the bank because you made money whether you were good, bad, or indifferent,” Godsoe recalls. “And we were doing very well. They couldn’t make a good argument for changing at that time.” So the board settled on an interim plan: Peter Godsoe would be the last officer to hold the combined offices of chairman and CEO. Until his successor as CEO and a non-executive chairman were appointed, Graham Day would be the lead director and would chair the executive committee. The lead director is the senior independent director, but, in the evolution of governance, the role was similar to a non-executive chairman. Essentially, Day and Godsoe became co-chairs.
Helen Parker served on the Scotiabank board for twenty-six years, often commuting from the Northwest Territories, where her husband had a stint as commissioner. She says of Day, “As lead director, he was very effective. He grasped issues so quickly himself, but had great patience with others not doing it as quickly. He has a sense of humour he could use effectively.” In her long term as a director, Parker saw the rising importance of board committees and the work they did, and the shift to a much more democratic process. The board became a more effective forum as it shrank in numbers from forty-one to twenty-nine and now to seventeen. But, as a result, being a board member today is a much more demanding role. “Graham was a significant instrument of change, in a very quiet way and not by pushing,” she says, attributing his style to his Maritime roots.
As for Day, he supported the separation of the chair and CEO jobs, but his thinking had a strong pragmatic side. “I was absolutely convinced that this wasn’t a ditch we should die in,” he says now. The board was well aware at annual meetings that the question was top of mind for many shareholders. People were very polite in saying that this was not personal—Godsoe was well liked—but Day could see the inevitable. If so, sooner was better than later, although he could not say that he felt the bank would be better governed.
As lead director, he had chaired the executive committee, and he felt that his relationship with Godsoe had been frank and open. “I also believed that the executive committee functioned well, and that we very adequately kept the board advised. So, in a pure governance point of view, I didn’t think a lot would change. And I don’t think it has.” But, at the time, Day’s other reason to advocate splitting the jobs was to support the new CEO. “I thought that to have a pretty solid chairman might be helpful to Rick Waugh even if he didn’t want the help—because he wasn’t Peter Godsoe.”
Indeed, the bank had appointed Waugh as president, thus signalling he was the favourite to succeed Godsoe. Just as Ritchie and Godsoe were different, Godsoe and Waugh were like night and day. Godsoe was cerebral and soft-spoken; Waugh was outgoing and ebullient, with a tendency to speak before he thought. Waugh had developed his reputation as an unconventional populist banker. He would often show up at board events in a sports jacket, not a suit. Harrison McCain would lead the jokes, pointing out the casual style of this westerner. Among the eastern-flavoured board, Waugh would call his sports jacket “my Winnipeg suit.” Both Godsoe and Waugh were able executives, but on the board there were some concerns about Waugh and whether the bank should skip a generation in choosing a CEO. And once the choice was made, Day says, “Rick had to understand that, if he wanted to be the chief executive, that’s what he was going to be. He was not going to be the chairman.”
As the bank and other companies absorbed these changes, Day grasped the broader evolution in the corporate world. A Globe and Mail article in February 1996 reported on Day’s testimony to the Senate banking committee, where he strongly urged a standard training course for directors. “A first-time parent and a first appointment to a public company board are two very responsible roles for which, in our culture, we demand little if any preparation,” he said. Most directors learned on the job, he observed. Instead, he said first-time directors should have basic knowledge before joining a public company. He proposed that an unspecified organization set up a training program that would be offered in a variety of locations across Canada, probably within universities. Thus the early thinking behind programs such as the Institute of Corporate Directors and the Directors College, now accepted foundations for a directorial career.
Day’s time on the board was coming to an end. He and Peter Godsoe both retired from the bank at its annual meeting in 2004. Rick Waugh assumed the role of CEO; Toronto corporate lawyer Arthur Scace would be the first non-executive chairman. Waugh insists he did not take the separation of powers personally. He had plenty of experience taking deals to the board for approval, so he could work well within the new framework. The title did not matter in terms of his ability to function internally. But outside the bank, his peers in the United States would ask how he could do his job without the authority of the two titles. When he travelled in international banking circles, he was concerned about the tendency to write him off. “You have to wonder if they thought they were wasting their time talking to you,” Waugh says, as if he was not quite equal as, say, Jamie Dimon, the powerful chair and CEO of JP Morgan Chase.
Day insists that, in the end, it didn’t matter much. As the other Canadian banks conformed, it ceased to be an issue. “No one doubted who the leader was in the public eye. You know, no financial journalist wrote about the chairman of the Bank of Nova Scotia.” Today, it is hard to think the public even knows who the bank’s chairman is. Titles matter, Waugh agrees, and in the final analysis, the word “chief,” as in chief executive officer, is the one that confers authority. “To have a c in your title is what you want; it tells the people at the other end of the table that you are the boss.”
After all the anguish about succession, Rick Waugh had an impressive run as CEO. Through the shock of the financial crisis of 2008–09, the bank stood tall, and was one of the few major banks worldwide that did not have to issue shares to boost its capital. Canadian banks all did well, comparatively, and Waugh now believes one factor was the independence of their boards. “There are very many times you can use your board as a defence,” he says, often by saying, “I have to talk to my board.” If you are chair as well as CEO, that is a harder thing to say. “Many times I would do that,” Waugh says. Looking back, Day is proud of his time at the bank. It was work that was important for Canada. He had the intuitive feeling that, of all the commercial activities in Canada, the single most important is the work of Canada’s banks.
As a pioneer in corporate governance, however, he worries that the debate has gone too far: that “the governance tail wags the business dog.” He was an early supporter of directors’ courses, and was honoured as a Fellow of the Institute of Corporate Directors. But he now worries about the attitude that “look, I’ve got this designation from the director’s school. Therefore I must be a skilled director.” No, he warns, that is not true. You
might have this suite of courses, and you might understand the form of good governance, but you cannot be prepared fully for a corporate directorship until you have commercial experience and understand the language and processes of business. It’s a matter of form and substance, he maintains.
Looking back, the job of a director has become more demanding because of the volume of work, including the massive task of complying with new governance rules. Day wonders if CEOs might welcome the added burden on directors. If you believe in conspiracy theories, he says, you might consider whether chief executive officers are quite happy to have boards focus on governance because they have less time to critique the business. “I find that very worrying.”
His concerns are a reminder that movements come and go, governance trends rise and fall, but, in the end, it is all about people and power.
The Borgias would have understood.
Chapter 17
Payback Time
Mark MacDonald was in a dark place. One day in December 2009, he stood before a throng of workers in the port town of Yarmouth, on the far western edge of Nova Scotia, and told them they would lose their jobs. Then MacDonald dealt with a flurry of media questions about his decision to close down the ferry service that ran between Yarmouth and Maine, putting more than a hundred people out of work.
It was a harsh blow for the workers and an emotional hit for MacDonald. Six years earlier, he had made the transition from a lawyer at Stewart McKelvey with a specialization in marine law to a new life as a ferry company chief executive and, later, owner. He joined the company that operated Bay Ferries, a key link in Atlantic Canada’s transportation network. Bay Ferries had been running ships between Nova Scotia and Maine for years, including the Yarmouth-Portland-Bar Harbor service. But the provincial government, caught up in an austerity drive, had withdrawn its subsidy. In the face of an already weak economy, buffeted by the high Canadian dollar, Bay Ferries could not continue the service, and the cost would be jobs and loss of tourism revenue.