Remarks to Canadian Business Leader Award Dinner
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Gordon Nixon
President & Chief Executive Officer
Royal Bank of Canada
March 16, 2010
Edmonton, Alberta
Thank you and good evening.
Mr. Premier, Mayor Mandel, President Samarasekera, Dean Percy,
honoured guests, friends and students.
This is a great honour to be here to receive the University
of Alberta's Canadian Business Leader Award and I would like
to thank the University, the School of Business and members
of the selection committee.
The list of this award's past recipients is a who's who of
business heavyweights who helped build this province and shape
the country's economy.
It includes pioneers like Poole, Southern, Ward, Shaw, Beaudoin
and Pattison reflecting contributions to our society that
frankly leave me quite humbled.
These are people who built companies and created industries.
Those who start and build successful, global companies are
rare and of an extraordinary breed, and, frankly Canada needs
more of them.
While I am honoured to be in their company, as CEO of a 140-year
old bank, my perspective is somewhat different. My responsibility
is to build on the foundation of my predecessors and leave
for the next generation a company that is well-positioned
for its next phase of growth.
The role of a CEO of a large public company is neither to
totally re-invent nor to simply maintain one's inherited legacy
- but rather to ensure ongoing transformation and act as a
catalyst for growth. Over the past 10 years, I have tried
to build on the great foundation of RBC while recognizing
the dynamic and innovative nature of an industry that has
gone through remarkable change.
There are many ways to build on a foundation - aggressive
expansion, acquisitions, restructuring, disruptive technology
and none is right or wrong but it is finding the right balance
that ultimately determines the long term success. When organizations
lose that balance - trouble is often around the corner.
I learned very early on in my career that the best leaders
are never alone - and for that reason, I share this award
with my management team and our roughly 80,000 employees in
over 50 countries.
The heartbeat of our company is not in a gold tower in Toronto
- it rests with our most valuable assets who ride our elevators
and enter our buildings every day and the people who represent
RBC in our communities. I'm pleased that a number of my fellow
colleagues are here today and one of our board members - John
Ferguson - who has many distinctions but none greater than,
of course, being a resident of Edmonton.
As a leader, you quickly understand that it is your job to
harness and harmonize the skills and brainpower of your team.
Managing through the financial crisis reinforced three things
for me:
- The first being the capacity of people to rise to the
occasion during times of crisis;
- Secondly, if you give good people responsibility they
seldom disappoint; and
- Finally, reputation and brand cannot be overstated as
critical components of long term growth. Over the past two
years, more employees and more customers have told me how
proud they are to work for RBC, or how proud they are to
do business with our organization.
The challenge with receiving an award like this is that one
is expected to provide words of wisdom on business success
or leadership. In my judgement, one should avoid dispensing
advice, particularly publicly, until they are well past retirement;
however, I would like to provide my perspective on some of
the challenges and paradigm shifts for our public companies
as they manage through a world that has dramatically increased
in complexity.
To say that the world has changed over the past two years
is an understatement. Whether the banking industry, shifts
in global economic power or the reputation of business and
its role in our society -- it has changed significantly and,
in my view, permanently.
While it started with Sarbanes Oxley, new accounting standards
and new governance rules, the developments over the past two
years have resulted in a wholesale reconstruction of the marketplace,
redefining what shareholders, customers and broader stakeholders
expect from public companies.
The concept that "greed and avarice is good" sounds
fine in the movies but expectations of companies is more than
just shareholder returns and the relationship between a corporation
and society is changing - and those that manage this balance
will generate the best returns.
This change is being brought on through a number of dynamics
- changing culture, transparency, mobility, instantaneous
information flow, partisan media, and the ability of individuals
to organize and force change. Part of it is evolution, however,
part is a reaction to the excesses of the last decade and
the fall out from the financial and economic crisis that began
in 2007.
Following years of strong and rising markets the world was
shocked by a financial and economic downturn that exposed
a lot of mistakes, weaknesses and imbalances. As Warren Buffet
said; "when the tide goes out you see who's been swimming
naked". The fallout has been dramatic and as a result
there is a public demand for significant change.
In the aftermath of the financial crisis, there has been
a lot of talk about the "new normal" and what that
means for businesses.
For banks the result will be less leverage, increased regulation
and greater consumer protection but it is also reflective
of a different and more dynamic relationship between business,
their customers and a wide range of stakeholders.
We are all - to some degree - picking up the pieces from
the turmoil of the past two years and trying to fill a gulf
that was created between the expectations of society and the
performance of markets and businesses.
The public's distrust of our system grew when individuals
saw the value of their retirement savings plummet, and peaked
when it became clear that many corporations, regulators, politicians,
and other participants were reckless in their pursuit of short-term
gain and failed to live up to a set of core values. Political
trust collapsed globally along side many industries from banking
to automotive and pharma to energy.
Headlines in many respected journals even question the survival
of capitalism.
As our markets are restructured, as our companies are rebuilt
and as confidence and trust are restored, there is understandably
a great need from customers, regulators and stakeholders for
more accountability, more responsibility and more transparency.
There is, in short, a demand for leadership and while some
believe and hope that this is a blip that will pass, I believe
there will be a permanent impact on corporate behaviour and
the business community will have to adjust.
While we at RBC managed through the crisis relatively unscathed,
as CEO, I have become much more personally engaged in discussions
with stakeholders and regulators about a wide variety of issues
- from lending practices, to risk management, from our community
activities to governance.
Two industries that will be significantly impacted by the
"new normal" are two of the biggest industries in
our country and they are extremely important to this audience
- financial services, particularly important to me - and energy
which is critical to our country but, in particular, the Province
of Alberta.
I would like to touch briefly on the financial services industry
and, the role and impact that regulation and government will
play going forward and also comment on the energy industry
which also must better address regulation and increased societal
intrusion as a result, particularly, of environmental issues.
The overarching themes that I would suggest are critical
to both financial and energy regulation are pro-activeness
and balance - as without them the economic and social impact
on our country could be quite damaging.
Regulatory reforms
Perhaps more than ever before, my time is spent understanding
the new regulatory pressures facing our industry and helping
to shape the outcome.
As banks, in addition to declining client trust and weak
consumer confidence, we face an environment of more regulation
across multiple jurisdictions as well as unprecedented political
intervention.
Regulatory reforms now being considered will play a material
role in setting the stage for the future prospects of our
industry.
With this backdrop, there is no choice but to work actively
with regulators and government to ensure clarity of rules
and regulations that will allow resources to be allocated
efficiently and risks and returns to be calculated accurately.
I understand that - particularly in the U.S. and U.K. there
is popular outrage about bank bail-outs, compounded by the
recent profit levels and bonuses at banks that were bailed
out.
While in Canada the respect for and perception of the banking
industry has actually strengthened - in the U.S. and Europe
it has collapsed.
Fortunately, as I said, perceptions among Canadians are much
better but having said that, we are not immune from the fallout
of global regulation and the expectations of our stakeholders
are increasing.
And while we share at least one objective of restoring trust
and confidence in the financial markets, all stakeholders
in this debate are not aligned, which makes reaching agreement
a tricky balance.
Regulators are accountable for safety and soundness, central
bankers must balance regulation and economic growth, banks
have responsibilities to shareholders as well as depositors,
and elected officials have to focus on consumer protection,
public discourse and political fallout.
I won't go into specifics relating to possible reforms --
but I will repeat what I have said for the past two years
- that any prudent reforms must balance the need and urgency
for change with their impact on economic growth.
The stakes are high and they are critical in the context
of the economic recovery. A recent report found that the cumulative
impact of currently proposed global regulations would increase
the cost of financial products across the system by close
to 40 per cent.
Moreover, regulatory reforms are emerging from several sources
and authorities, without coordination of content or timing.
This lack of coordination is dangerous and potentially destabilizing.
In some instances, the temptation is to punish for political
gain rather than deal with the root causes or find solutions
that balance safety with the role that banks play in capital
formation and economic growth.
As CEO of a global bank, I am actively engaged in ensuring
that we find the right balance by working together with governments
and regulators to improve the system.
While new regulation in response to recent events is inevitable,
it is an important part of my job to help policymakers understand
that new standards will work only if they don't impede the
ability of the market from operating efficiently. But we too
must accept that the public expects a higher standard from
it's financial system and the industry must adjust accordingly.
For the record, I have confidence in the Canadian model of
regulation. While Canada was not immune from problems and
some institutions suffered substantial losses, we should all
be proud of how our system managed through the recent crisis.
However, we are part of a global system and Canadian banks
and Canadian businesses and consumers will be greatly impacted
by the global fallout. Our discussions with regulators and
policymakers must find the right balance and form the basis
for a stronger industry with reduced risk of future crises
but not by stifling innovation and economic growth. We have
to get these discussions back to balance.
While financial institutions may be in the spotlight, in
my view, all industries will be faced with a higher expectation
of accountability and as governments seek to curb perceived
weakness in the system. The public demands better and successful
leaders of major companies must engage and respond.
Environment
The changing relationships between business and stakeholders
are just as clear when it comes to the area of corporate social
responsibility, including the environment.
While the environment is an issue that one might naturally
feel is not within the scope of the banking industry, many
of our stakeholders have expectations around our policies
because of our role as a capital provider.
A decade ago, such an issue may not have generated a single
question beyond our internal risk meetings, but at our recent
annual meeting, it became a central point of lengthy discussion
and questions. The issue - our role in financing the Oil Sands.
Because of our role as a leader to industry, over the past
year, we have had to defend ourselves against erroneous allegations,
smear tactics and even vandalism from various stakeholders.
We do not have any direct investments in the Oil Sands and
we are not the largest lender to energy companies that operate
in the Oil Sands.
But non-engagement is never a serious option.
So in the past year, leadership has meant investing time
and resources. We have had hours of visits and discussion
with numerous stakeholders, including environmental groups,
government officials, energy sector clients, and First Nations'
leaders.
As was said by Jim Prentice "The development of the Oil
Sands and the environmental footprint have become an international
issue and, as such, they now transcend the interest of any
single corporation".
We understand that if we don't take a long-term view, we
are making a mistake. But we fully believe any solution must
be balanced.
As I told shareholders last week, the Oil Sands are a critical
natural resource for Canada, and integral to our energy security
and our economic strength.
But, we also must ensure there is responsible development
that takes into account environmental considerations. The
industry, in my view, must become even more proactive, transparent
and work with stakeholders to find balance.
To be sure, government and industry must work together around
environmental investment and towards, greater transparency
and communication -- and banks must support and fuel best
practices and innovation. We know this is not an issue that
will go away and while we will never satisfy the extremes,
most Canadians and Albertans are expecting balance.
For our part, we have a responsibility to our shareholders
and our economy to provide financial solutions to all types
of businesses that behave in a manner consistent with the
laws and regulations of the jurisdictions where they operate.
But we have standards and policies that commit us to ensuring
we are dealing with companies, organizations and projects
that meet specific criteria regarding social, ethical and
environmental standards.
We are extremely proud of the relationships and quality of
customers that we do deal with across all spectrums of the
energy sector including those active in Oil Sands development
- clients that invest billions of dollars to create jobs and
create technologies that will ensure responsible development.
But it is critical that the industry be more proactive in
telling their story, separating fact from fiction and supported
by a willingness to invest and take bold action. The industry
must put responsible development at the top of the agenda
and cannot put profit ahead of social responsibility, because
in the long run they are linked.
There is no question that my personal time and energy has
been more devoted to this issue. I used to think I could say
"we are a bank - go talk to the oil companies" but
we don't have that luxury and the public expects more.
All participants in this issue - energy companies, environmental
groups, governments and banks - must step up. No one can be
bullied but no one can be complacent.
There is no question that the last two years have brought
on significant change to all industries and the financial
and energy sectors will have to continue to adapt to the new
paradigm in our society. Leadership cannot be about ignoring
and fighting but accepting the reality that a balanced approach
will ultimately generate value and that innovation and change
can be a driver of success.
Canada has proven that it is a global leader - and I want
to end by emphasizing my belief that amongst this turmoil
lies unparalleled opportunities for our organization and for
our country.
Journalists and commentators commonly attribute Canada's
dullness, conservative culture and less competitive financial
markets for our relative success. We are successful, but these
commentators are dead wrong in their analysis.
Canada's banking market is far more competitive than virtually
any developed country in the world, particularly, if you measure
competitiveness by the level and cost of services.
Our banks are also more international and diversified than
most U.S. banks, particularly those that went under or were
bailed out.
And there were no restrictions that prevented us from making
the kinds of investments and loans that brought many global
institutions to their knees.
It wasn't dullness that caused Canada to outperform, but
rather a combination of:
- Good macro-economic fundamentals in this country
- A more conservative risk appetite by both banks and our
customers
- Good governance and decision making
- A well structured mortgage market in Canada; and,
- A sound regulatory and public policy regime
Two years ago, RBC was a very successful institution but
we were, admittedly, not seen as top-tier outside of Canada.
As events unfolded, we not only rose in the ranks of global
banks, but our reputation for integrity and sound business
management became a beacon for customers of all sizes and
needs.
As a result, throughout the crisis we invested where others
have retreated and have gained market share in virtually all
of our businesses both inside and outside Canada.
In response to the crisis, many of our competitors have been
forced to change their business mix and strategies but our
priorities remain consistent and, in my view, there has never
been a better time to grow and invest.
And I also believe that, notwithstanding, the many challenges
that we face as a country, it is a time of unmatched opportunity
for Canada to shine and take advantage of our competitive
position.
We enjoy one of the strongest economies in the developed
world, we are blessed with resources, and we enjoy the best
debt level of any G8 country as a result of fiscal discipline
and sacrifices that Canadians accepted going back 20 years.
Canada's open immigration policies and our ability to attract
talent and innovation is a great competitive strength. And
we are viewed and respected as a tolerant society in a world
that is becoming increasingly polarized.
As the CEO of a Canadian leader, I am tremendously proud
to represent our company and our country on the global stage.
As was mentioned in the video, at the beginning of the recession,
every analysis and spreadsheet said we either didn't need
or couldn't afford to spend on a marketing expense like the
Olympic Torch Relay.
Our instincts said our people, our communities and our country
would respond as the Torch made its way through more than
a thousand cities, towns and villages across Canada.
You won't hear me boast very often, but let me tell you proudly
… our instincts were right.
Having seen the Torch Relay captivate the country and having
spent the last week of the Olympics in Whistler, and Vancouver,
I saw how the pride and confidence in our country, once bubbling
under the surface, has erupted.
It is cool to be Canadian and as was emphasized in a piece
for NBC by Tom Brokow- To know Canada is to respect Canada.
When I looked around that arena after Sydney Crosby's goal
I could see a sense of pride that went well beyond hockey.
I passionately believe this can be Canada's decade but it
is up to all of us collectively to execute.
Once again, I can't thank the University of Alberta and its
School of Business enough for this honour. It is a great institution
with outstanding leadership that continues to grow and invest.
It's reputation across Canada and internationally should be
a great source of pride and to be associated with it in this
way is a wonderful honour.
Thank you.
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