Gordon M. Nixon
President & Chief Executive Officer
Royal Bank of Canada
March 16, 2010
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 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.
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.
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:
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.