Ed Clark has that rare ability to explain things so anyone can understand them. He’s also very likeable even while being incredibly smart and (presumably) incapable of suffering fools. In sum, the man in charge of Canada’s TD Bank Group has the characteristics of the ideal chief executive. Certainly analysts and investors think so, having awarded Clark with the best IR by a CEO (large cap) award four years in a row at the IR Magazine Awards – Canada, an unparalleled run.
It’s worth noting that while the investment community lauds him as a straight-talker, Clark is also a very good businessman. Having started out in the 1970s as a Federal government bureaucrat before joining Merrill Lynch, he was CEO of Canada Trust when it was bought by TD in 2000 and was appointed CEO there in 2002. He made TD into Canada’s largest retail bank and defied doubters with a foray into the US that culminated in the acquisition of New Jersey’s Commerce Bancorp in 2008 and Chrysler Financial in 2011. Today TD has more branches in the US than in Canada, and at the end of 2013 it overtook RBC as Canada’s largest bank, with nearly $900 bn in assets.
As Clark prepares to retire from TD in November 2014 and looks back on his career, it’s perhaps surprising that he doesn’t point to the global financial crisis or TD’s US acquisition trail as his hardest ordeals in IR terms. Instead, he cites the Canada Trust integration as one of the toughest.
‘As an opening shot, that was pretty rough,’ he says, recalling how, in 2002, TD was taking huge loan losses and he told the board not to pay his bonus. ‘We created what turned out to be, by historical standards, one of the best acquisitions ever and a huge growth engine, but you would never have guessed it in 2002 – and investors are impatient.’
Another stressful move was also his most prescient: getting TD out of the structured products business in 2005, three years before those very products contributed to the demise of some other banks. TD was enviably one of the top 10 operators in credit derivatives, a go-go business for banks around the world. Clark wanted out because of the inherent risk, but it was an expensive transition and many investors didn’t like it. ‘It’s very hard going against the tide, persuading people you’re not just stupid, which is what one of our competitors called me,’ he says. ‘Those are times when I had to use a lot of my personal credibility, saying, I’m not worried, this is going to work, though of course I was worried.’
That episode neatly illustrates the dramatic shift in investors’ attitude that subsequently took place. ‘Today they get tail risk and understand how we do risk management,’ notes Clark. ‘Maybe they even over-get it. Before the financial crisis the constant question was, How are you going to grow faster? Now it’s, What are you worried about?’
Go big or go home
Despite that swing, Clark is all too aware that asset managers face quarterly performance goals that lead them to focus on short-term earnings goals. ‘If we run our business entirely on a short-term basis, we don’t go anywhere in the end and it’s dangerous,’ he explains. ‘On the other hand, it’s naïve for CEOs to say they have a vision and investors need to stick with them for four or five years. The reason CEOs get paid what we get paid is we have to balance those two things.’ Case in point: TD’s US push. ‘Go big or go home’ was a constant refrain as TD made a string of acquisitions, and Clark had to be persuasive to convince investors it was the right strategy while they waited for the pop.
TD is notable for having set out to make investor relations a competitive advantage, a goal that was tied to its decision to be a growth company. ‘We have an engine that can generate a great deal of excess capital,’ Clark remembers telling the board early in his tenure. ‘Do you want me to use it to buy back shares or grow the company?’ The board’s response was emphatic: his job was to grow the company. ‘But that meant we had to carry our shareholders with us, and they had to believe in our strategy – which made it a necessity for us to gain the core confidence of the investment community,’ Clark adds.
TD is also known for providing very specific guidance, but it was not always so. When Clark took over as CEO he declared it was the analysts’ job to predict the future, not TD’s. But within a few years he was back to giving clear forecasts as part of his commitment to transparency – internal transparency, that is. ‘The biggest risk for a CEO is that something’s going wrong in the company and you don’t know about it, and the most powerful way to create an internal culture of transparency is to be transparent to the outside world,’ he explains.
Again, Clark finds a lesson in the period after the Canada Trust merger: there were two big problems – the bank’s collections and mortgage areas – and he laid them bare in a quarterly earnings call. ‘The ripple effect was astounding,’ he says. ‘People in those areas didn’t think I knew about those problems, and the fact that I would tell investors and the press just blew their minds.’
Access all areas
Another hallmark of Clark’s approach to IR is that he insists on giving investors access to the whole team, by which he means everyone from the C-suite to branch managers. ‘In this People magazine world, folks become mesmerized by the superhero boss and don’t look at the depth of the management team,’ he explains. ‘The term ‘culture matters’ may be overused, but that doesn’t mean it’s not true. People who invest in TD, and people who work here, choose on the basis of the culture and the quality of the people. I tell investors, Why don’t you go see? If it isn’t real down there, it doesn’t matter what I’m telling you.’
Again, Clark ties that access for external audiences to the ethos within TD: ‘Our people see it as an open company, where you’re allowed to disagree with management, where you’re allowed to tell the truth, and that creates a better-run company.’ So Clark starts with the notion that anything that doesn’t cost the bank competitive advantage should be divulged. He admits, however, that he and CFO Colleen Johnston have grappled with how much forward-looking guidance to give: ‘Management shouldn’t be in the forecasting business.’
But TD has been in situations, such as major deals in the US, ‘where you realize analysts and investors don’t have a clue what the deals are worth to us. When they don’t really know how to get to a number, we might as well tell them.’ TD’s degree of guidance, then, depends on the market’s level of understanding. ‘If analysts are getting it wrong, we have an obligation to try to nudge them into place,’ Clark concludes.
That can often mean a nudge down instead of up, and Clark is acclaimed for being frank. ‘I have a simple philosophy: our job is not to try to sell our stock,’ he says. ‘Depending on investors’ point of view, they can decide whether it’s overpriced or underpriced. Our job is to tell investors what we intend to do, then ensure we actually do it.’
To illustrate his point, Clark looks back to the period after the global financial crisis when European investors were looking for beat-up bank stocks. ‘If you’re asking whether we were badly run and blew up, the answer is no,’ he would tell bargain-hunters. ‘TD doesn’t fit your category. We’re not what you’re looking for.’
Setting governance standards
TD has raised the bar in corporate governance as well as IR, such as with some boardroom practices that have become more widespread and firmly rooted since the financial crisis. At the start of every board meeting, Clark has an in camera session to walk directors through the agenda and ‘tell them about the bad things’. He also insists the whole board meets in camera without him there, and he can’t be present when the board is voting on an acquisition.
Board committees follow exactly the same routines. ‘We try to make sure directors are making decisions without management putting even subliminal pressure on them,’ Clark says.
TD’s independent board chair and HR committee chair meet with all the bank’s top shareholders before they do their annual performance review and set compensation. ‘Getting investors to where they have access to the board and – even more importantly – to where the board has access to investors so it gets an independent view, are positive things for corporate governance in Canada,’ Clark comments.
A related area where TD has led the way is diversity, including gender diversity in the boardroom and in senior management, an issue that has been in the spotlight in Canada over the past year. ‘Sometimes there’s a moral imperative and it doesn’t matter if it’s a good business decision or not,’ Clark says. ‘But I also think there’s a business imperative. At TD, 60 percent of our employees are women, and it would be absurd to have them look up and see no women on the board.’ Responding to worries about tokenism, Clark says the women on TD’s board categorically rank in the top half in terms of director performance.
While some Canadian business leaders have called for quotas of women on boards and in senior management, Clark doesn’t like them – ‘The problem with quotas is they make the subject of the quota feel diminished’ – and doesn’t think they’re needed. ‘Surely common sense will tell you that all large public companies in Canada have to have a significant portion of women directors, and indeed have to reflect the diversity of Canada, because Canada has changed a lot and the people running companies have got to look like Canada,’ he explains.
Future perfect
At time of writing, Clark hasn’t hinted at his post-retirement plans beyond his already active charitable work. His two passions outside TD appear to be family and philanthropy, and he and his wife are significant donors to non-profit organizations such as Habitat for Humanity, which builds housing for poor families.
‘I’ve been lucky enough to be paid in a way that means I have a significant amount of money I can use for social purposes, and I get excited when we can transform people’s lives, or transform business models in the social sector to make them better,’ Clark says.
He doesn’t rule out returning to business life and, at 66 years old, he declares himself still a young man. Nor does he discount a directorship if there were a company with potential and with a CEO who needed help realizing that potential.
For now, though, Clark is leaving behind an industry he feels very positive about. ‘If you look at the kind of capital and liquidity banks are carrying today compared with 2007, it’s day and night,’ he says. ‘We’ve moved away from the casino-like behavior that ultimately blew up the financial system. Banks have had a wake-up call. We’re part of society, part of an economy, and we’re given a special privilege.’
Inside TD, Clark has been known to ask about anything the bank does. ‘If we stopped doing it, would the GNP of the US or Canada change?’ he offers as an example. If the answer is no, he asks, ‘Then why are we doing it? Because our job here is to add value to the economy and to society.’
