Colleen Johnston, TD Financial Group, Top CFO

Recessions are a time to sink or swim. Colleen Johnston knows what it’s like to sink: she’s a terrible swimmer. “My mom pushed me to keep going back to swimming lessons, because she believed it was good to fail at things in life,” she says. “It builds character.” But “failure” does not describe Johnston’s tenure as chief financial officer of TD Bank Financial Group. Like other Canadian banks, it swam through the recession without requiring a lifeguard’s services — and she deserves much of the credit.

Now 51, Johnston joined TD as an executive vice-president in 2004. “I’d tried to recruit her to come work for me for a number of years,” says Ed Clark, the bank’s CEO. “She was seen in the Bank of Nova Scotia as a superstar.” After Clark appointed her to TD’s top financial post in November 2005, Johnston restructured its entire finance department, seeking to have her charges focus less on numbers, more on playing key decision-making roles in the bank’s most important initiatives.

Those initiatives included TD’s aggressive expansion into American retail banking. Five years ago, it had no branches in the United States; today it has more than 1,000 — as many as it has in Canada — thanks to its purchases of Banknorth and Commerce Bancorp in 2005 and 2007, respectively. While many American competitors have been decimated by unwise dabblings in junk mortgages, credit default swaps and other high-risk instruments, TD suffered comparatively modest credit losses.

The way Johnston tells it, common sense goes a long way in not blowing your brains out lending to Americans. TD’s U.S. operations are confined mostly to the northeastern states, which have suffered less than other regions. The bank maintained conservative credit and underwriting standards, and sold products originated by its own people rather than risk-inebriated third-party brokers. Those factors made TD “a positive outlier,” she says.

TD wants the majority (85%) of its revenues coming from lower-risk retail banking. Early in Johnston’s tenure, the bank examined its so-called complex-structured-products business outside North America — the very sort ofinstruments that would later choke up the world’s financial system. “We said we don’t think there’s enough liquidity,” Johnston says, and “these products were harder to value.” So in spite of their profitability, TD exited the business. Had it not, she says, “we would have been looking at a much different picture during the financial crisis.” By comparison, CIBC endured massive writedowns stemming from such products, resulting in a $2.1-billion loss last year.

TD’s disclosure has been widely praised under Johnston’s stewardship; the League of American Communications Professionals and GovernanceMetrics International both rank it highly. “If you ask institutional investors, they just love her because she’s honest as the day is long,” Clark says. “The board loves her. She gets inthere and can make the complex simple.” Her contributions at TD have not gone unrewarded: she received nearly $2.9 million in compensation last year. Not that you’ll hear detailed accounts of her successes from Johnston, who eagerly deflects praise to both her superiors and juniors. “She also has low ego needs for herself,” Clark observes.

That perhaps explains why Johnston remains willing to confront tasks accompanies by the risk of failure. Though still uncomfortable in the water, she recently resumed swimming lessons in hopes of completing an abbreviated triathlon next summer. “We started with a flutterboard and some other helpful props,” she says. “It was a challenge.” – Matthew McClearn