Scotiabank's new CEO choice 'anomalous but clever': governance expert

TORONTO — As Scotiabank prepares for a leadership change, one governance expert calls its move to appoint a relative outsider to its top job "anomalous but clever."

The bank announced Monday that CEO Brian Porter will retire at the end of January next year, with the head of heavy equipment dealer Finning International Inc., Scott Thomson, set to take over.

York University law and governance professor Richard Leblanc said in an interview that this choice by Scotiabank's board is unusual, but is "the best of both worlds" because of Thomson's "transferable" CEO skills, and the fact that he has been a member of the bank's board since 2016.

"You're an insider, because you see everything management sees as a director on the board. And you're also an outsider, because you're not part of management, you're supervising management. So you've got that independent quality that an outsider has," he said.

Leblanc also said that over the six years Thomson has been on the board, he's inevitably learned the business.

"I mean, six years is not a short time, it's not a long time. But it's enough to understand the global scope of the business," he said.

Sometimes boards get it wrong though, Leblanc noted.

"The latest data shows that 40 per cent of CEO appointments result in failure. So this is not an easy thing to get right," he said.

Leblanc added that the decision to appoint Thomson does not necessarily mean there is a lack of faith in the calibre of the management team, even though a board often goes outside when the internal bench is weak, but said it signals the board might want "major change."

Lemar Persaud, analyst at Cormark Securities, also said choosing an external candidate suggests "some changes" could be coming to the bank.

Barclays analyst John Aiken said in a note to clients that the appointment of a Canadian bank CEO from outside of the organization and industry is "surprising."

"That said, with Mr. Thomson’s involvement in the board (and several committees), we do not expect the transition to be jarring and the move leads us to believe that there should not be an immediate shift in Scotia’s strategy as Mr. Thomson has been involved in developing it at the board level," said Aiken.

"Further, we believe that his experience in Latin America is a positive and was likely a component that attracted the search committee."

Aiken noted that during Thomson's tenure, he "significantly improved" the company’s earnings capacity, driving increased return on invested capital, particularly in Latin America.

Thomson will retire from Finning on Nov. 15 and become president at Scotiabank starting on Dec. 1, where he will be responsible for Canadian Banking, Global Banking and Markets, Global Wealth Management, and International Banking, before taking over as chief executive on Feb. 1, 2023.

Thomson has an investment banking background and experience in telecom and the natural resource industry.

Porter joined Scotiabank in 1981 and became chief executive on Nov. 1, 2013.

To aid in the transition, he will serve as a strategic adviser to Thomson from Feb. 1 to April 30, 2023.

During his time as Scotiabank's CEO, Porter presided over the sale of the bank’s CI Financial stake and acquisition of Jarislowsky Fraser and MD Financial Management, and overhauled the bank's Latin America-focused business.

"I have always believed that banking is a calling and serving this enduring, 190-year-old institution as president and CEO has been the honour of my lifetime," Porter said in a statement attached to Scotiabank's announcement.

"I leave the bank with the same sense of optimism that marked the start of my time in this role. I am confident that Scott Thomson will guide the bank through the next phase of its growth and development. He is a results-driven and proven leader who executes with purpose and shares values that are aligned with those of the bank. I have every confidence he will lead the bank exceedingly well."

In a separate news release, Finning said Kevin Parkes, currently chief operating officer at the company, will succeed Thomson as president and chief executive officer.

This report by The Canadian Press was first published Sept. 26, 2022.

Companies in this story: (TSX:BNS)

Adena Ali, The Canadian Press

Note to readers: This is a corrected story. A previous version included an incorrect name for MD Financial Management.