Inside Scotiabank’s succession saga that stunned Canada’s corporate elite

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Scott Thomson’s selection to become Scotiabank’s new CEO has raised eyebrows over the bank’s decision not to hire one of the bank’s top candidates after a three-year process.

In late June, three key internal candidates to be the next CEO of Bank of Nova Scotia’s BNS-T made their final pitch to the bank’s board of directors, vying to land one of Canada’s most influential corporate jobs. In. In carefully crafted presentations, he outlined the competing vision of how they will fuel the bank’s fortunes and shape its strategy in the years to come, should they be selected to lead Scotiabank’s next era. Listening to him from across the boardroom table was Scott Thomson, as director and co-chair of the bank’s succession planning process.


Three months later, Mr. Thomson himself was announced as the next Chief Executive Officer of the bank. The decision to pass on top managers from within the bank in favor of the 52-year-old CEO, who currently leads a major construction equipment dealer, has shadowed a highly unusual succession saga that has stunned Canada’s corporate elite. Have given.

The June submissions, described by a source with direct knowledge of the process, could be the logical culmination of a three-year competition between top internal candidates. This was the fourth set of presentations that those contenders – Capital Markets CEO Jake Lawrence, Retail Banking Chief Dan Rees and International Head Nacho Deschamps – made to the board since January 2021.

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Instead, June’s pitches have been a trigger point in the sudden change of direction that transformed Mr. Thomson, one of the most influential voices in picking the next CEO, into a top candidate for the job – and ultimately the winner.

The Globe is not identifying the six sources who described the bank’s succession process because they were not authorized to discuss it.

That late shift has raised strange questions about the expedited process that picked Mr Thomson over the summer. These include whether the board and outgoing CEO Brian Porter failed in their duty to identify and groom suitable candidates from within the bank’s management, or to field a leader with substantial outside banking experience. An important job of the CEO is to manage and prepare suitable candidates, and making the final choice is the top responsibility of the Board.

But the result also highlights Mr Thomson’s privileged position in the long-running process to choose Mr Porter’s successor, and the ability that could have given him an advantage.

Opinion: At Scotiabank and Finning, low-achiever CEO swaps may be cheaper than normal leadership changes

Mr. Thomson has been a Director of Scotiabank since 2016 and was Chairman of the Board’s Human Resources Committee – its Human Capital and Compensation Committee since 2019. In that role, he was one of the two most influential and informed people on succession planning, along with Aaron Regent, chairman of the board.

The decision to make him a candidate for CEO so late in the process broke no clear rules. But it has left an uneasy feeling that the playing field may not have been level both inside the bank and in the wider corporate community. And this can have an impact on the perception of the bank and the morale of the employees.

Richard Powers, an expert in corporate governance at the University of Toronto’s Rotman School of Management, said he was “opposed from the start in the process and privy to confidential information about the strengths and weaknesses of potential candidates.” Director of School Education Programs. “Could he use it to promote himself as a potential candidate? The obvious answer is yes.”

According to a note to clients of Ibrahim Poonawalla, an analyst at Bank of America Securities Inc., Scotiabank’s management said Mr. Thomson was dropped from the process after becoming a candidate.

A Scotiabank spokesperson declined to discuss when Mr Thomson became a candidate for the role of CEO or to answer questions about the process on Friday. Mr Thomson was not available for an interview.

The bank’s pivot from the path of nominating Mr Lawrence or Mr Rees as CEO – both widely considered to be major contenders inside and outside the bank – has happened between mid-June and August. Mr Regent, chairman of the board, said in an interview this week that the bank “benchmarked our internal options against external ones and we had some great options.”

“After a valuation analysis, which is quite rigorous,” said Mr. Regent, the board decided that Mr. Thomson “would be a great leader and a great CEO for the bank.”

But Mr. Thomson’s selection surprised even senior bank employees. And on 26 September, just days before Mr Thomson was announced as the next CEO, Lawrence and Rees were told they hadn’t found the job, according to three sources familiar with the results that had been shared. Were. internally.

Mr Lawrence and Mr Rees did not respond to requests for comment.

Opinion: Who is responsible for Scotiabank’s CEO succession mess? clumsy board of directors

Scotiabank’s board may have also felt the urgency to find a successor. When Mr Thomson starts on January 31, Mr Porter will have headed the bank for more than nine years. During his tenure, the bank’s share price and other financial metrics lagged that of rivals, and higher staff turnover and changes in the bank’s culture may have been a contributing factor.

The process of evaluation of internal candidates also went on for three years. Over time, the uncertainty about the outcome created friction inside the bank, according to three sources familiar with the internal dynamics. According to one source, as employees chose sides, teams became less cooperative, poorly performing areas were not easily addressed for fear that it could damage relationships, and even Tensions also grew between the candidates and in their conversations with Mr. Porter.

According to three sources familiar with the board’s thinking, some of Scotiabank’s board of directors were uneasy about the bank’s succession plan. In some cases, this was due to misunderstandings about whether Mr Lawrence and Mr Rees were experienced enough to handle it. In other instances, directors expressed concerns about how the plan was handled, how information was shared internally, and the length of the process. A source said limited importance was given to external candidates, but some other directors were of the view that the bank had more than one qualified internal candidate who could be the CEO.

Meanwhile, at Finning International Inc., where Mr. Thomson has been CEO for the past nine years, a different succession plan was put into motion.

The first indication that Mr. Thomson was considering stepping down came about a year ago in a private meeting with the company’s board chairman, Hal Quisley. Mr Thomson has been running the world’s largest Caterpillar equipment dealer since 2013, and has indicated “a time will come” when he would like to do something else, Mr Quissle said in an interview this week.

This prompted Finning to plan more seriously for a final change in CEO in January and February of this year. In April, Kevin Parks – who will replace Mr Thomson as Finning’s CEO in mid-November – returned from absence for health reasons and was appointed the company’s chief operating officer, making him the perfect fit for Finning’s top job. Was put in the queue. At the time, Finning was hoping Mr Thomson would retire and Mr Parks would take his place in January or February 2023.

“They told me about a month ago that it looked like Scotiabank might make an offer to them, and would we be willing to adjust their departure date a little bit. And I said of course we would,” Mr. Quistle said on Monday.

It is rare for Canadian banks to reach out to their own executive ranks to choose CEOs, partly because of the financial and regulatory complexity of running these huge companies. It is even less common for them to choose a director from their board.

But Mr Thomson is being greeted as an entirely unusual choice as he has not been a banker for the past two decades. Prior to joining Finning in 2013, Mr. Thomson spent five years as Chief Financial Officer at Talisman Energy Inc., and after an early career stint as an investment banker at Goldman Sachs, five years at Bell Canada parent BCE Inc. Spent years

Scotiabank has emphasized that his time on the board – with Mr Regent calling Mr Thomson “one of our top directors” – gives him a deep understanding of the way the bank works.

“He has been on the bank’s board for six years, so he understands the bank, the challenges we have, the opportunities we have, the people we have,” Mr. Regent said. “And so he could actually hit the ground running.”

However, some experts and senior industry sources say that it will be difficult to complete their progress so soon. “I just don’t believe him. He’s never run a bank before,” said Mr. Powers. Research shows that while a typical banking executive may work 3,000 hours a year, a director may at best spend 400 hours at that company, he said.

“There’s a huge information gap. It’s our first day in [directors education program]: The board will never know as much about management as Mr. Powers said. “I think he has an uphill climb to get to the point where he can operate effectively.”

Mr. Thomson also faces a challenge to ensure that the bank retains and attracts senior-level talent. Mr Powers said there is a risk that Mr Lawrence, Mr Rees and Mr Deschamps could leave the bank, especially as Mr Rees and Mr Deschamps are unlikely to get another shot at being Scotiabank’s CEO.

“It is likely that they are going to lose some high-potential talent,” Mr Powers said.

He added…


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