CEO Insider

CEO of the Year: Ed Clark, Toronto-Dominion Bank

Think big, talk small

Ed Clark (Photo: Markian Lozowchuk)

Ed Clark (Photo: Markian Lozowchuk)

Ed Clark has a saying. Actually, he has a whole bunch of sayings. During his 11-year tenure as CEO of TD, he has shepherded the bank through controversial policy changes, a successful U.S. expansion and built a company that earns genuine affection from its customers. But when you ask him about any aspect of his intricate business, he crunches all the complex calculations and abstract principles into one of his library of folksy aphorisms:

“You need to know how to win the ties.”

“Figure out how you can make money, not how you think you should make money.”

“Look ahead so you can get ahead.”

Such koans reveal not just how Clark thinks about his job, but why he’s so good at it. This CEO of the Year award is a testament to a mind that thinks in decades, not months or years, and often defies industry trends. He has “the ability to be very macro in his thinking, but is very able to get into detail,” says Jeff Hauswirth, a Spencer Stuart board member who sat on the CEO of the Year advisory board. But none of Clark’s insights—such as ditching risky financial products while they were still popular or avoiding sub-prime mortgages in the United States—would have mattered if he couldn’t get his team onboard. His bank certainly couldn’t have won the Highest Customer Service award among the big banks from market researcher J. D. Power eight years in a row if he hadn’t convinced his 85,000 employees that it mattered. “A leader doesn’t need the people behind him to say, ‘Wow, that sounds smart,’” says Timothy Hockey, head of the bank’s Canadian operations. “They need them to say, ‘I understand, and I will go there with you.’ He can get people to understand why they should rally behind him.”

With Clark leading the rally, TD has seen a remarkable period of expansion and growth. Over the past seven years, it has gone from having no retail operations in the United States to 1,300 branches; it is now the 11th-largest bank network in the United States. Overall, its assets have tripled during his tenure, to $835 billion. TD posted a $76-million loss in the year Clark took over. When he retires next November he will leave it in far better shape—the bank announced $7.1 billion in profits last year. Managing this turnaround meant watching both global trends and branch-level details. “He’s a guy who thinks at the highest levels—about government, about macroeconomic issues, about geopolitical issues and about what’s happening in our industry,” says Colleen Johnston, TD’s chief financial officer, adding, “Despite all he’s achieved, he’s also a guy who can put himself in other people’s shoes and think like a normal person.” That’s the magic of Ed Clark. Lots of chief executives do highbrow thinking. Lots of them do homespun charm. Clark manages both.

Around the bank, Clark’s nickname is “the professor.” This alludes to his gift as a communicator and his intellectual voracity. But it’s also a literal reference to his substantial academic credentials. The Toronto-born Clark earned a doctorate from Harvard in 1974, writing a thesis on social development in Tanzania. While completing his dissertation, Clark spent two years working for the central planning ministry of the then-socialist African nation, and the first of his four children was born there, with only a midwife present to support the birth.

Following his time in Africa, Clark held a series of civil service jobs in Ottawa. He was the rare apparatchik whose name wasn’t only known but reviled by members of the public, thanks to his involvement in crafting the National Energy Program, imposing price caps and taxes on oil. His reputation as “Red Ed” didn’t help when the time came to leap to the private sector. But the network he built while working on the energy file—including prominent lawyer Purdy Crawford and Brian Levitt, now TD’s chairman—landed him a job with Merrill Lynch. A succession of roles in the financial sector led him to Canada Trust, first as chief operating officer in 1991 and then CEO three years later.

The customer-friendly approach Clark champions at TD was born at Canada Trust. In an era when banks still closed at three o’clock, Canada Trust stayed open until eight—and they opened on Saturdays. They also had their Johnny Cash Money Machines, with the legendary country singer as their pitchman. When Charles Baillie, then TD’s CEO, purchased Canada Trust in 2000, he didn’t just want their growing customer base, but their business model as well. The result was a rare case of the conqueror adopting the culture of the conquered. It also marked TD’s transformation into being a bank that depends heavily on its retail operations. Seventy-one per cent of its earnings last year came from retail banking; its closest competitor on that front was CIBC, at 64%. When he succeeded Baillie in 2002, Clark pushed the focus on “old-fashioned banking” even further. At the time, TD was among the Top 10 banks in the structured-products market, a business built on arcane financial instruments that shift risk between balance sheets and was ultimately a compounding factor of the financial crisis. Clark decided to unwind this business. “I decided I’d spend a day every week looking at these products,” he says. “I discovered either I couldn’t understand them, which was scary, or I could, and it was obvious they’d blow up.”

The notion that Clark didn’t grasp the structured credit market is dubious, says Peter Routledge, an analyst at National Bank. “He understood that business better than nine out of 10 of his CEO peers,” says Routledge. “I think he looked at it as ‘I gotta take a lot of risk, and I’m not getting paid that much. I don’t understand that.’”

Without trendy financial vehicles, TD worked on building its retail customer base. There were obvious tactics—like longer hours—but placing customers first extends beyond keeping the lights on late. Last year the bank phoned 700,000 customers and asked about their experience dealing with a branch, ATM or call centre. Their responses help determine bonuses for everyone in the organization, including Clark’s. “Ed has developed a strategy and explained it in a way that says: ‘What’s good for the customers is good for the bank,’” says Levitt.

The end result is that TD operates more like a retail organization than a traditional bank, says Levitt. Like a high-end chain retailer, TD uses its reputation as a reason to get people through the door. It’s difficult to convince customers who have life-long connections—and entanglements—with competitors to switch banks. But TD’s approach gives it an advantage when fighting for the small pool of customers in transition, or starting to bank for the first time. That’s where the notion “winning the ties” comes in. “If we’re going to go head-to-head and the answer is that you’re just going to work harder, or have more capital, or take more risk—that doesn’t work for me. You actually need something different,” says Clark.

Appealing directly to consumers has also informed TD’s deals in recent years, like becoming the main issuer of Aeroplan credit cards this year, or its purchase in 2011 of MBNA Canada. It also determined which American banks were purchased as part of its U.S. expansion. TD bought a 51% share in Maine-based Banknorth in 2005 for $3.8 billion, and all remaining shares in 2007. The same year, it spent more than $8 billion for Commerce Bankcorp of New Jersey. In both cases, the American banks were similarly customer-focused, a trait critics warned would hobble TD in the United States. “Americans are only interested in value. They’ll drop you in a heartbeat,” Clark was told. But by distinguishing itself as “America’s Most Convenient Bank,” TD saw a 22% jump in U.S. revenue last quarter alone compared with 2012. The American expansion has only intensified TD’s culture of service. While the Canadian operation referred to its quality assurance metric as a “customer experience index,” Commerce Bankcorp had the more visceral sounding “WOW! index.” Clark imported a bit of the WOW! northward.

The ever-present green lapel pins worn by TD staff (Clark sports his alongside his Order of Canada) were an American initiative. “If they’re proud to be associated with the company, that dramatically increases the likelihood that their customers are going to be happy,” says Levitt.

Despite these signs of cohesion between TD and its recent acquisitions, Clark doesn’t trust the bank’s carefully cultivated culture will perpetuate itself through osmosis alone. He has strongly held beliefs on how to manage an organization—such as never yelling. “That’s why these banks blow up. You have some guy at the top who intimidates people.” Fear makes people less willing to share problems. “The one thing I don’t want to have happen is ending up in a position where I haven’t heard the bad news.”

But Clark realizes that just because he never yells, it didn’t mean his subordinates will keep their voices down. So the bank has developed a suite of leadership programs, including one where Clark himself fields questions. It seems fitting “the professor” has implemented an educational framework to teach leadership.

Leading by example might not be sufficient to sustain the bank, but it’s hard not to see TD’s core values—like service and respect for its employees—as manifestations of the basic human decency of its CEO. Timothy Hockey says most of the people who have worked alongside Clark have an “Ed story,” a moment when the chief executive took a personal interest in their lives. For Hockey, it came when he was a vice-president at Canada Trust, working far down the management chain from Clark. When his wife gave birth to a child with severe medical issues, a note arrived on Clark’s letterhead. “Scrawled on it, in his handwriting, was ‘Whatever you need—Ed,” says Hockey. It was, once again, Clark responding to a challenging situation in the simplest, best way possible.