"Defending Trust: Banking for the 21st Century"
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Barbara G. Stymiest
Chief Operating Officer
RBC Financial Group
Canadian Club Luncheon Conference
April 3, 2006
Montreal, Quebec
Thank you very much and bonjour Mesdames, messieurs, ladies
and gentlemen………..
C'est merveilleux d'être de retour à Montréal.
Certains d'entre vous étaient peut-être présentes,
dans le public lorsque j'ai parlé devant le Club, il
y a de cela quelques années.
We were debating the merits of rules-based corporate governance
such as that imposed by Sarbanes Oxley over the Canadian practice
that rooted governance in understood principles and stated
guidelines. I was arguing for a more "made in Canada
solution", one that considered guidelines to be preferable
to rules in most circumstances.
Today, you might assume that someone who has had to confront
the Enron debacle in such an obvious and costly manner would
reflect differently on comments made in defense of guidelines
and the principles that attach to the notion of "comply
or explain". Reflect and then perhaps offer a more considered
view about resting trust with management.
So, in response to that observation let me say how pleased
I was to learn that the Canadian Securities Administrators
recently decided that they would not demand external audit
opinions on the effectiveness of internal controls over financial
reporting.
Many will recall that this was among the most controversial
and costly aspects of SOX and the CSA decision is a significant
move away from the US rules in support of greater interpretation
that considers a Canadian context.
Issuers may choose to engage the external auditor to assist
in the evaluation process but there will be no requirement
for the issuer to obtain an audit opinion on the effectiveness
of these controls.
And that sounds very much like a guideline to me.
Rules are absolutely necessary in an ordered society. Don't
get me wrong. But I don't believe that rules alone deter corporate
misconduct.
And I don't believe that rules promote trust. That is rooted
in understanding and the carefully developed relationships
we rely upon whether personal or institutional.
In the world of governance, I am convinced that rules often
persuade the dishonest to find other means to an end: to be
more focused on the obstacles that constrain ambitions. This
isn't the same as meeting expectations within a set of guidelines
that are produced both to establish standards and yet encourage
flexibility and creativity in meeting them.
Our development is about adaptation, after all and, of course,
as things change we all learn.
At least that's what the wisdom is in retail - that buyers
learn. My remarks today are tied to this adage. But I think
you'll find that our regulators and enforcement personnel
remain convinced that those intent on wrong doing learn as
well - if only to get around or bend rules. So do those who
meet rules head on but remain intent on achieving their goals
with complete honesty.
So we need to be very sure of our intentions as rule makers.
In a world constantly reshaped by extraordinary social and
technological progress, a world in which our individual expectations
invariably change, this debate over rules as opposed to guidelines
has become commonplace. In fact it has finally stretched into
the far corners of our pop culture.
Take Elizabeth Swann for example. She was the young heroine
who played opposite Johnny Depp in the recent motion picture,
Pirates of the Caribbean.
In her attempt to get a ship full of pirates to meet the
terms of an agreement, Elizabeth called on her captors to
respect the "Pirates Code". She was told that not
being a pirate she had no right to invoke the code. Even if
she were a pirate she needed to recognize that the "code"
was more a set of guidelines than a book of actual rules.
Unable to rely on the code, Elizabeth was forced to resort
to other means.
So the debate is endless and perhaps only more amusing when
prosecuted on the stern of a pirate ship lost in the warm
sun of a Caribbean sea.
Up in Ottawa the point of view is slightly different if only
influenced by geography but even there the premise must be
recognized to be the same: things change, people change. Expectations
change and the world we share together of course changes too
— usually to accommodate those who share the world.
More than 90 years ago the British economist Charles Fay
observed that "the tradition of Canadian banking is evolution
not revolution." In the context of what was happening
in Canada at the time, I am not sure the man could have been
more wrong.
If we walk from this building and turn toward the financial
district here in Montreal we will come shortly to Rue St-Jacques
or St James Street as the old English used to say.
There, exactly one hundred years ago this spring, at #147,
a man named Edson Pease commissioned an American architect
named Stone to design a new stone building, one that would
become the head office of the Royal Bank of Canada. Pease
wanted to be closer to the action. He wanted to aggressively
respond to the rapid rise of Canada's west and the opportunities
he was sure would attend that promise.
At the time, he was a joint general manager of the Bank and
was responsible for all territory west of Montreal. Later
he became chief executive and managing director and a man
convinced that success in Canada was tied to the men and women
who were landing daily at the docks, having chosen to build
their futures in this country.
His decision to move the Bank's head office from Halifax
to Montreal set in motion an unprecedented period of business
building for RBC — a revolution if only in our corporate
history.
But don't be misled. There was a lot going on in Canada generally
over the first two decades of the 20th century. It was a time
of enormous expansion. Fuelled by immigration and the boom
in the west, economic growth was beginning to forever shape
the face of the entire country.
By 1910 the banking industry in Canada was in the middle
of an extraordinary cycle of consolidation that touched every
province and territory - most of that operated from right
here in Montreal.
And there is no question that through these heady times the
face of Canadian banking was starting to assume another kind
of image, one captured more in the architectural awe perceived
in bricks and mortar and connected more to strength and stability
than a sense of personal service and individual relationships.
There's an expression still in fashion around the water cooler
today. "Clients love their bankers. It's their banks
they hate."
The famous Canadian humourist Steven Leacock captured the
apparent discomfort between client and bank, sharing a feeling
of complete intimidation in a short piece called My Financial
Career that found its way into his book, Literary Lapses.
It was published in 1910, the same year the Royal Bank embarked
on an acquisition and building program that saw 526 branches
added over the next eight years, beginning with those of the
Union Bank of Halifax and wrapping up with the 113 far west
branches of the Northern Crown Bank.
"When I go into a bank," wrote Leacock, "I
get rattled. The clerks rattle me; the wickets rattle me;
the sight of money rattles me; everything rattles me. The
moment I cross the threshold of a bank and attempt to transact
business there, I become an irresponsible idiot. I knew this
before hand, but my salary had been raised to fifty dollars
a month and I felt that the bank was the only place for it."
Without ruining this short story let me simply say that first
impressions became lasting impressions for this fellow. The
same might be said for Helen Goff or should I say for Pamela
Travers. That's the name Helen Goff, whose father was a bank
manager, assumed when she wrote her books about the nanny,
Mary Poppins, back in the mid-30s.
If you didn't read any of the books I'll wager you might
have seen the Disney film. It was released into theatres first
in 1964, again in 1973 and again in 1984. It told a story
set in London - in 1910.
Any hope of escaping the scene captured by Leacock was lost
forever in the image of the staid almost emotionless father
of young Jane and Michael. George Banks was a banker, an officer
in The Dawes, Tomes, Mousely, Grubbs Fidelity Fiduciary Bank.
You may remember that on Mary Poppins' day off, she suggested
that Mr. Banks take his children for a visit to the dark and
hushed, oak paneled temple in which he worked every day. He
thought it would be a perfect opportunity to introduce them
both to the bank and his son Michael, with tuppence in his
pocket, to his first bank account.
Fans of the film will know that things went quickly down
hill and, again without spoiling the story, it is safe to
tell you that the senior Mr. Dawes failed to convince Michael
that the bank was the right place to deposit his "tuppence".
Like Leacock's depositor before him, Michael beat a hasty
retreat from the tomb-like structure, cash in hand, with no
immediate thought of returning.
Soon a century will separate us from these scenes. For those
who measure the pace of change, it is instructive that Travers
penned her picture of the bank more than a generation after
Leacock put his emotional recollection on paper but both depositors
were captured in the same time: in 1910. And both banks failed
to get the deposit apparently missing by miles the clients'
expectations.
The Globe and Mail suggested a few weeks ago that the last
five years have been enormous in terms of meeting the evolving
needs of the Canadian banking client. Elsewhere some recognized
the close of the century as a point that would usher in a
time of incredible opportunity for banks, investment dealers,
financial planners and mutual fund companies alike.
In their widely celebrated book Boom Bust and Echo, David
Foot and Daniel Stoffman suggested that by 2000 the financial
services industry would be looking into the face of an entirely
new and very large client base populated by a very different
kind of client.
That was ten years ago.
Their theory was rooted in the irreversible aging of Canada's
baby boomers. By the turn of the century they would all be
over 40.
The notion is that anyone born before 1940 who had been financially
successful in life would be handing that success over to those
who were born after 1967, to the so-called "baby busters"
or to members of the "echo" generation. For these
people new spending would focus on "cars, houses and
other necessities of life", including a search for investment
advice.
The potential for new opportunity forecast by Foot and Stoffman
invariably links to our ability to accommodate change. The
future presses into our lives and shapes immediate demands
for increased balance and stability in everything we do but
particularly in our investment decisions.
He might well have been speaking to everyone involved in
the Canadian banking industry when the American author and
futurist, Alvin Toffler, said, "The illiterate of the
21st century will not be those who cannot read or write but
those who cannot learn and unlearn and relearn."
And this is what all of us have been doing, particularly
over the last few years, largely in response to the new demands
of the echo generation and the opportunities presented both
by technology and a highly educated workforce.
The parallels between the first two decades of this century
and the first two decades of the last are irresistible in
terms of the influence rapid change has had on this industry.
One hundred years ago we met expectations first by opening
branches and extending the network. Trust was promised with
a guarantee of reach, security and stability. And, yes: bricks
and mortar presented the face of that early ambition.
Although it still attaches to security, today trust is defined
much more within the development of individual relationships
and, inside these, satisfying complex needs. In this respect
we are working to anticipate an ever-widening set of individual
expectations by increasing the depth of our skills and resources
in the branches, on the phones, on line and in our mobile
salesforces in an effort captured best by simply saying, "Client
first".
Yes, the banking client is, in most important ways, very
different indeed today. Safety and stability are key determinants
but so, as predicted, are demands for advice and the trust
and performance that makes advice credible.
Motivated by new ambitions, and defined by increasing confidence
and apparently limitless expectations, the banking client
sets the standard today.
The clerks don't "rattle him". The wickets don't
rattle him. What was once an almost daily visit to a banking
hall for the average retail bank client has been reduced to
actually visiting the bank no more than four or five times
a year.
In fact, the individual banking client of today appears to
have less and less time for banking. And the irony of that
reality is that the banking client of today has never been
confronted with more choice in terms of financial products
and services. And so we work to uncover new ways to bring
the bank to the client.
In every way this reveals the one thing that constantly requires
reinvention and that rests in this question of trust. Trust
remains illusive. It is fragile and easily lost.
Trust is the one thing no banker will be forever guaranteed
by his client. In our view, it must be earned constantly with
service and with improved performance and we have come to
know that well.
This is what lies behind our "Client first" and
the related, "First for you" positioning that today
drives not only our external communications but also a great
deal of our internal focus. These concepts have emerged from
a new understanding that we have of our clients, one that
demands that we be more knowledgeable and technically thoughtful.
We are determined to bring greater depth and dimension to
the services we provide to our clients because these are the
expectations. We are determined to broaden our product offerings
across the bank because these are the expectations. We are
no longer simply "order takers" in your mind or
in our own minds. The image conjured by bricks and mortar
is quickly falling away.
And it is this desire to meet expectations that lies behind
our repeated calls on Government to ease the bizarre rules
that forbid banks in Canada to sell insurance products through
their branch networks.
Every defense of this quite unreasonable regulation seems
to me to be a defense of the relationship between government
and the insurance industry, not a defense of the relationship
between the industry and the insurance client.
This is not about better service and it is not about protecting
privacy. These are red herrings. This is about losing sight
of the financial services client of today.
If he was alive, Leacock's assessment might have been more
damning but probably more humorous as well. As it is we are
allowed to open insurance retail outlets beside our banks;
not in the banking hall; not upstairs; not downstairs; only
beside the branch.
For example, there is one beside a branch in Scarborough,
in Toronto, which does a brisk trade. We have just recently
opened a retail insurance office in Kirkland on the West Island.
But if I was a teller and you came to my wicket at the neighbouring
bank branch and asked me about insurance by rule, by law,
there is nothing I am allowed to say to you.
I can't give you a brochure. I can't point to the building
next door. There is no one to whom I am allowed to refer you.
I have to be what I know you don't want me to be when it comes
to your questions. I have to be unhelpful, unknowledgeable,
not service oriented.
So when it comes to insurance, that's what you should expect
at the branch because that's the law, that's the rule. In
the branch we say nothing about insurance. True, you can buy
it from us on the internet. Yes, we are available by telephone.
But in the Branch we say nothing.
Along the lines of services designed to facilitate the language
laws here in Quebec and in other provinces, we are thinking
of having signs made that will sit at the wicket and simply
say. "Insurance Not Spoken Here". It will avoid
a lot of embarrassment.
Never mind that you can buy insurance at your local grocer
at the same time you thought about picking up a steak for
dinner. Never mind that you can connect your decision to buy
jumper cables at Canadian Tire with a decision to buy life
insurance for the whole family. The fact is you can't buy
it at any branch of the Bank. Stop asking!
And what about a mortgage? Oh well that's not an issue. You
can get one of those over at your insurance company.
What about a savings account? Not a problem. Your insurance
agent will open one for you at the same time you complete
the policy application.
Heavens, out in Alberta at Bank West you can bank, trade
securities and buy insurance all in one go. No holds barred.
Who are we kidding with these rules?
The insurance industry has said recent polling is unequivocal;
a significant number of respondents believe that when you
consider the products and services provided by banks today
it is clear that they already have enough of a clients' personal
information.
The suggestion apparently is someone someplace else should
have more. And this is offered in defense of personal privacy.
These obviously aren't the same people who are buying RBC
mortgage insurance to protect their homes. And they aren't
the same people buying our travel insurance — by my last
count that was nearly everybody who traveled with additional
insurance.
They must be the same people who didn't want banks and securities
brokers to merge back in the late 80s. I have been wondering
where those people got to after all this time.
Here in Quebec the story is even more sharply pronounced.
The caisse populaires have been selling insurance since 1987.
You can get information and advice in the branch. You can
expect a sensible referral to a broker. In fact, they might
even have a broker sitting there in the branch. How convenient
is that?
Allowing the caisse populaires to get into the selling of
insurance was forecast to be a body blow for the insurance
industry. The sales agent "population" would shrink
in the face of lost jobs.
Yet nearly 20 years later insurance ownership in Quebec is
greater than in Canada as a whole, especially among low-income
groups who have access to coverage at arguably lower costs
than that offered by traditional carriers.
And the number of insurance sale agents? It has not declined.
It has increased inside a very interesting shift between the
agents tied to a specific company and those who operate independently
across the Province. There has been a huge shift to independent
status, likely in accommodation of change.
Let me come back to where I began a few minutes ago and restate
a bias for guidelines over rules. In the wrong place rules
simply increase costs unnecessarily and for no one's benefit.
Attempting to enhance a sense of security should not be confused
with fostering trust.
In determining their role in the marketplace I am convinced
that government must confront the same expectations as every
other participant. In this respect none of us must ever lose
sight of the buyer, his capacity to learn and his constant
search for simplicity and reliability within a relationship
he can trust.
We must never lose sight of the influences that shape that
learning, particularly our shared circumstances and the ambitions
that drive us to accept them.
In reaching to meet the expectations of more than 11 million
Canadians every day we rely on the nearly 70,000 employees
who are working very hard to adapt to change and discover
a new paradigm inside the banking hall that distant history
alone captures in terms of bricks and mortar.
In 2006 we are nothing more and nothing less than people
like you, anxious to meet needs, build lives and dream.
Just as corporate governance can sometimes lose its wisdom
in the face of rigid rules, creating barriers to market constrains
our ability to meet the needs of our clients. Government needs
to reflect on that point as we await the opening of the 39th
Parliament and approach yet another turn of the bank Act and
the rules that stake its ground.
Thank you.
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