An address by Richard E. Waugh
President and Chief Executive Officer
the Scotiabank Annual General Meeting
Halifax, Nova Scotia
March 3, 2009
Check Against Delivery
Thank you, Mr. Chairman, and good morning, ladies and gentlemen. It's a pleasure to be here in Halifax for this, our 177th annual meeting. As all of us are well aware, last year was - and is continuing to be - one of the most challenging for the global financial sector and for Scotiabank. In fact, it is fair to say this is the worst financial crisis we've experienced in decades as a bank. In the U.S. and Europe, in particular, over-leveraging, poor risk management and governance, bad incentives and poor regulation, and government policies have all contributed to the crisis.
And we recognize that you, as shareholders - and, indeed, our management team and many of our employees who are also shareholders - have all been impacted by the decline of the share price of our Bank. While our share performance has not been affected to the same extent as that of the European and American banks, it is not the performance either you or we expect.
However, we should all take comfort in the first quarter results Luc just announced. We are meeting today's challenges successfully and, when this crisis ends, as it will, Scotiabank will be positioned very well for the future.
Today's priority for government policy setters and for us in the private sector is to stabilize the financial sector. This is a pre-requisite before the significant government stimulus will have a real effect. Once that occurs, all of the factors that contributed to the crisis must be reassessed. Business models - that is, how we run the Bank - as well as regulation and government policies will have to change.
Changes by some financial institutions will need to be significant. Banking will be different as we move into the future. For our Bank, because of our performance and overall strengths, it will be more evolutionary. While the overall results expected of us were disappointing in 2008, our relative performance was strong - and our strategies and our business model are working. We should be proud of that fact, particularly when we see the problems facing other banks around the world.
The financial crisis has been grabbing headlines for some time now. But what is less well known or appreciated among Canadians is that Canada and our banking system are being held up as the model for other countries to follow. There are good reasons why the World Economic Forum ranked our banking system as the soundest in the world, compared to 40th for the U.S. and 44th for Britain. Similar rankings have been given by the IMF and, just very recently, Standard & Poors.
There are several reasons for this strong performance. First, Canada has benefitted from having good macro-economic policies for over a decade; we have a strong regulatory framework; and Canadian banks have made good decisions on managing risk, embracing diversification and ensuring proper governance.
Today, I want to build on this last point - about good governance. In particular, I want to talk about the value of a corporate culture in managing a bank - and, in this case, Scotiabank's culture. The essence of our culture comes down to a focus on three things - values, strengths and people.
Let me start by recognizing that Scotiabank has performed very well during this crisis - better than our global and Canadian peers.
Global consulting firm Oliver Wyman has a report it produces each year on the state of the financial services industry. The most recent report looks at the performance of global financial institutions for the most difficult period - from August 2007 to December 2008 - and Scotiabank is the only Canadian bank to rank in the top 10 as one of the world's best performing banks for the period.
As Scotiabankers, we're proud that our Bank has been recognized as a solid performer on the international stage. But what is it that has given Scotiabank, in particular, the ability to navigate what have been some very difficult times over the last year and half?
As I said, I think a good part of it comes down to culture, which affects the way we manage the Bank.
I believe our culture has made us strong. Our culture has helped make us successful. And our culture will be what helps us continue to succeed.
Describing a corporate culture is like describing a personality. It's the sum total of our actions - of what we do and say as an organization. Our culture is reflected in the decisions we make. Our culture influences how we see ourselves and how others see us.
Like people, culture is not static. It evolves and grows with experience. It's also what we value and what we place as a priority. It's what holds us together. Employees today want to be a part of something they can be proud of. Customers want to do business with a financial institution that they can trust, and that will help them, especially if times are tough. Communities want us to provide leadership and support local causes. And shareholders want an organization that meets their goals and provides shareholder value.
Certainly, our Board of Directors believes our culture matters.
That's why, when I became CEO of Scotiabank, the Board asked me to do two specific things. One - ensure the consistency of our earnings and performance - and two -maintain and enhance Scotiabank's culture.
My entire career has been spent at Scotiabank. I've worked in most areas of the Bank. And I've come to trust our culture - to know that it has made a difference and will continue to make a difference.
In financial services, your products can be easily copied. Technology solutions can be purchased. Your strategy can be duplicated. But a culture is hard to match. As a result, it may be the most important reason for your success.
As I said at the outset, the essence of our culture comes down to a focus on three things - values, priorities and people.
Our Core Values are at the foundation of who we are as an organization.
They represent the way we do business, the way we manage our employees, the way we treat our customers.
Values matter. That's why they are worth stating. Our values are shared with our employees - and you will see them displayed in our branches and offices. We take every opportunity to talk about them - and that's because values are most important in difficult times - they guide us and remind us of who we are. Every day, there are more than 69,000 employees in the Bank who are making decisions and taking actions that ultimately affect the performance of our Bank. Each one of us is different, with our own personal lives and goals. But we must have something in common to make the experience at Scotiabank consistent and meaningful.
Scotiabank's values are Integrity, Respect, Commitment, Insight and Spirit.
Integrity is the cornerstone value for our Bank. Time and time again, our clients see us as an institution that consistently demonstrates integrity in our interactions with them and the communities in which we operate.
Respect is the simple view that people are valuable - that each person is an individual, with a history, a family, personal challenges and goals and beliefs.
Commitment is especially important to Scotiabank, because we're in the service business. When you're not producing cars or shoes but rather delivering personal service, your success is very much about how you do it and about the people who do it. Sure, we have great technology, great advertising, great processes and great prices, but at the end of the day, we deliver products and services through our people.
Insight is all about adding value, and it's a big part of the way we operate. It means taking the knowledge, training and experience we have acquired and using it to respond with the right solutions. It's about listening to customers talk about what's going on in their lives and businesses and identifying from those conversations, based on our banking knowledge, the opportunities to help them achieve their goals.
Finally, spirit. The people who work at Scotiabank have a powerful sense of teamwork and a willingness to work through challenges.
Every day, we see these values put into practice, and I'm proud to lead an organization where employees take these values seriously. There are many stories that I could tell that reflect these values, but for now I'll keep it to one. Back in 2004, Hurricane Ivan hit the Caribbean very hard. In the midst of it, we had an e-mail from a family living just outside of Toronto, wanting to thank the Bank. You see, their mother, a former Scotiabanker, was living alone at the time in Jamaica. As news of the coming hurricane spread, employees from her former branch went to her house and boarded up her windows, and checked in with her to make sure she was safe. They didn't make a big fuss about it, they just did it. We didn't know about it until her family contacted us to say thank you. From where I stand, that team embodied each and every Scotiabank value.
Linked to our values are our strengths. These are the things we are known for and are part of our heritage - indeed, they are a big reason why we are successfully getting through this crisis. They are diversification, risk management and cost control.
Our growth has always been rooted in a belief in diversification by business, by geography and by product.
That belief in diversification has made us unique in Canada and in the world - in that we have become Canada's most international bank. Our growth took us not only beyond provincial borders, but beyond national borders. Today, we have a rich heritage in the Caribbean that goes back more than 120 years, and we have operated in Asia and Latin America for decades.
We know how to succeed in new markets, and while this means understanding the business and local environment - again, it goes back to the Scotiabank culture of truly understanding the needs of our employees and customers. Today, we have almost as many employees who speak Spanish as a first language as those whose first language is English. And if you step into an elevator at our head office, you're as likely to hear a conversation in Spanish as English or French.
Our global reach means that we are not only well diversified from an earnings perspective, but from a risk perspective - so important in today's world.
Which leads me to another key strength - we have a strong risk culture. Our Bank has great history of managing risk well. I remember the first time I experienced it personally.
When I joined the Bank, it was my first job out of university. I had just come back from backpacking in Europe. I didn't have a penny to my name. I didn't own anything. Within a few weeks of starting work, I went to my own branch for a car loan. And they wouldn't give it to me. They thought I was a bad credit risk - because I'd only worked three weeks. And, you know what, they were right!
Kidding aside, our prudent risk management practices have helped our Bank largely avoid the severe consequences faced by many of the world's largest financial institutions. We are known for our robust risk management culture. We have a conservative approach to risk, and rigorous processes. We make a point of knowing our customers. But at the heart of our strength is the experience and good judgment of our people.
It was in recognition of our strength that I was asked by the Institute of International Finance - the largest private sector association representing the top 375 global financial companies - to co-chair its efforts to develop voluntary measures to help strengthen practices in the financial industry that led to the crisis.
I want to be clear here. Prudence in evaluating risk does not mean that we do not continue to lend. What it means is that we do our homework to make sure that the people and companies that we are lending to are able to manage their loans. That is important for us and for our customers.
In addition to risk management, we're known for our strength in cost control. Luc's presentation highlighted our recent performance there.
About a month ago, I spoke with a reporter from Barron's, a major financial publication. And he described us as tight fisted when it comes to expense control - right down to re-using paper clips - a compliment we gladly accept. We like to say, we just make a point of turning the lights out at night.
Yet in this environment, that part of our culture will make a difference.
Clearly, there's more uncertainty around being able to grow our revenues. After all, we don't control our revenues - our customers do - and they will be under increasing strain this year.
Because revenues become less predictable - by necessity, we must be even more careful on how we spend. While for the past few years we have been spending on our growth initiatives, now we are paying ever more careful attention to expenses.
Across our Bank, we are looking for ways to increase productivity. That means being more selective with our growth initiatives and deferring others.
It means being innovative and doing more with less. So, we've stopped holding major internal conferences, which involve a lot of time and travel, but we're leveraging technology for meetings - both teleconferencing and video conferencing - and piloting an internal social networking tool that works in a similar way to Facebook.
In addition to our values and strengths, our underlying culture is about people. And by people - I mean we manage our Bank with our stakeholders in mind. Our customers, our employees, the communities where we live and work and, of course, our shareholders.
For our customers, this is a difficult environment. But we will continue to meet their needs, with prudent lending, good advice and great service - just as we always have. And just as we always have, the team of dedicated and talented Scotiabankers in Canada and around the world will continue to work with our customers to make the most of their individual financial circumstances, and explore options if customers find themselves in a difficult situation.
We will continue to strive to be an employer of choice. Last year, the Bank ran a promotion in Canada called "Scotia Vibe" and, through it, we asked employees to tell us why they enjoyed working at Scotiabank. The enthusiasm, creativity, and teamwork that went into the submissions reflect the spirit and commitment of our employees. We received a response beyond anything we expected - and that speaks to the very strong sense of culture and purpose in this organization and its employees. It's no wonder Scotiabank was named one of Canada's top 50 employers for the fifth straight year by The Globe and Mail's Report on Business Magazine. We're now expanding that Scotia Vibe promotion to include employees around the world, and I look forward to the results.
Being an employer of choice also means that when we have difficult cost decisions to make, we are strong enough that we will not pursue major across-the-board layoffs as an option. We will carefully control our hiring - preserving employment and, wherever possible, filling vacant positions from within our organization.
We remain committed to our communities. As always, we take our social responsibility seriously, and will continue to contribute positively to the communities in which we live and work.
In addition to a wide range of important local, regional and national initiatives that the Bank supports, we are a proud supporter of cricket in the Caribbean, family activities in Latin America and minor hockey here in Canada. We know that hockey is a key part of winter from coast to coast and, for some of our youngest players, it encourages teamwork, dedication, and a healthy, active lifestyle for both boys and girls. Through the Scotiabank Community Hockey Sponsorship Program, for example, this year, Scotiabank sponsored 900 teams - about 150 of which are from Atlantic Canada.
Finally, and most importantly, we manage for our shareholders. That means that we see solid earnings in 2009, and that our dividend is safe and sound. It also means we will still pursue long-term opportunities, even in this difficult environment. However, we will evaluate these opportunities, as we always do, with discipline and prudence.
Ladies and gentlemen, Scotiabank is a strong bank. We have performed well relative to our global peers. And we are facing the challenges of this difficult environment head on. I have confidence in our ability to do so because of our Bank's culture. A culture that is supported by our core values - values which will continue to guide our actions. A culture with clear strengths - diversification, risk management and cost control. And a culture that manages in a balanced way - thinking about the people our decisions impact - our stakeholders - our employees, our customers, our communities and our shareholders.
One final point I'd like to end on involves good governance - which is also part of our culture. We are a bank of checks and balances. That, of course, includes our Board of Directors.
Two directors, Laurent Lemaire and Art Scace, are retiring. Laurent for the past 22 years has given us his insight as one of Quebec's great businessman, helping to guide our efforts in Quebec and across the Bank as a whole. Thank you, Laurent.
Art, of course, has been on our Board for 12 years and our Chairman since 2004. As I mentioned to our Board yesterday, Scotiabank in 2004 was not only going through a CEO succession but, for the first time in our history, we had a non-executive Chairman. A new experience for the Board and for management, one with some risks. Art got it right - the right mix of independent oversight with well-timed and well-reasoned advice to the Bank, and to me personally.
On behalf of the Board of Directors, our shareholders and our employees - thank you, Art and Laurent, and good health to you both in the future.
Lastly, ladies and gentlemen, fellow shareholders. Last year was clearly not one of our best and the value of your shareholdings has temporarily gone down. But rest assured, your management is personally and financially aligned to your interests and those of our other stakeholders. We continue to build for the future to ensure we retain and enhance our culture, build upon our performance and continue to be the great bank that we are.