COVER

AN UNLIKELY PARTNERSHIP

Peter C. Newman February 2 1998
COVER

AN UNLIKELY PARTNERSHIP

Peter C. Newman February 2 1998

AN UNLIKELY PARTNERSHIP

ESSAY

The Bank of Montreal and the Royal Bank are as different as their chairmen

PETER C. NEWMAN

The most intriguing question triggered by last week’s mega-merger between the Royal Bank and the Bank of Montreal is this: how will two strong personalities as different as Matthew Barrett and John Cleghorn survive their marriage of convenience? The answer is that they probably won’t.

Bank chairmen are very different from other CEOs. The financial institutions they head reflect their personal agendas and priorities. There can only be one boss. The Bank of Montreal and the Royal Bank of Canada are as different as Barrett and Cleghorn are, and two more diverse characters are difficult to imagine.

The newly created $435-billion bank will be an expanded Royal, propelled by the Montreal’s precious assets—notably its American arm, the Harris Bank of Chicago.

That’s a great pity, because as different as they are, Cleghorn and Barrett are great bankers, and there ought to be room in the system for their individual leadership talents. Barrett is the kind of in-your-face Irishman who appropriates his space—and yours— as he talks at you. His words and body language project a form of levitation that makes him sound wiser than he is. His language is part blarney and part intuitive leaps—a combination sure to sweep away the doubts of all but the most cynical and most innocent. Somewhere deep inside Barrett there is an unsmiling universe—the tough banker side of him—and that was what appealed to Bill Mulholland, the wily ex-U.S. marine who previously headed the Bank of Montreal, and picked Barrett over the heads of more obvious, but less imaginative contenders.

“Matt,” as everybody calls him, is a natural actor. He would have been perfectly cast as the smooth-tongued hero or villain—depending on the tilt of his moustache—of an Irish road company, reviving the comedies of Sean O’Casey or George Bernard Shaw. He has a charismatic stage presence and is always reaching for the electric moment.

One of Barrett’s most endearing traits is his self-deprecating wit.

‘Time will tell whether I have the qualities for this job,” he told me dur-

ing our first interview, shortly after

he was named to head the Montreal in 1990.

“But after all, it’s not brain surgery, and we have an experienced team in place. I like to think there’s a great teller out there and that one day she’ll become chairman of this bank.”

On another occasion, when I questioned the bank’s $ 1-billion-plus profit, Barrett shot back:

“I’m happy to tell my board of directors that I’m terrific, but it really isn’t an extraordinary feat to produce a $l-billion profit from assets of more than $160 billion.” Barrett’s roots are not in Harvard or Oxford or McGill, but the monastery school at Kells in Ireland’s County Meath, run by the Christian Brothers, who tried to drum some Latin into his head. The only phrase he retained, Omnia bona dura est (All good things are difficult), has become his mantra. The son of a danceband leader, he had no prospects or connections. Not able to find work, at age 18 he journeyed across the Irish Sea to London and was hired as a “waste book clerk” at the Bank of Montreal’s Waterloo Place branch. (“You had to be subhuman to have a

position that was lower.”)

In 1967, Expo year, he sailed for Canada and a junior job at the Bank of Montreal’s head office, carrying his earthly goods in a cheap collapsible cardboard suitcase. Except for a four-month lapse, he has been working up its food chain ever since. His lack of higher education at a time when most bankers were flaunting MBAs was partially remedied when the bank paid for him to take a 13-week advanced management course at Harvard. H. G. Wells’s aphorism “History becomes more and more a race between catastrophe and education” remains one of his favorite quotations.

Since becoming chairman, Barrett has stood out among Canadian bankers as the guy most willing to £ debunk the mythology that still surrounds his industry. There is no I better example than his high-profile 1 marriage last year to former model 3 Anne-Marie Sten, one of the most al« luring ornaments of the international “■ jet set.

“What’s not widely understood,” Barrett told me recently, “is that this is a fiercely competitive industry, with almost everybody wanting to eat our lunch. I’m increasingly concerned that the possibility of our banks being best in class may be eroded by the worry among Canadians that we’re too big. I don’t know what being too big means in today’s global context. We must, as a people, gain more self-confidence, start believing in ourselves, begin to understand that we’re as good in many areas, including financial services, as anybody in the world.”

John Cleghorn, who took charge of the Royal in 1995, is a much more complicated character. His blushing cheeks and modified granny glasses make him appear deceptively accommodating. He has the knack of being whoever you want him to be, but only up to a point. Don’t fool with him. The defining clue to Cleghorn’s character is his stint as centre for the legendary McGill Redmen football team, which won the national championship in 1960. Centres do not grab headlines, throw glamorous passes or score dramatic touchdowns. They hunch over the ball, snap it to the quarterback, then hurl themselves into the opposing team’s front line. They are human missiles who don’t admit diversion or defeat. That remains the key to Cleghorn’s operational code. One example: at the Royal’s table during a recent dinner for Prime Minister Jean Chrétien, Industry Minister John Manley had just raked the banks for their small-business loan practices. When Cleghorn spied him, he stood up and gave Manley a tongue-lashing the likes of which few ministers of the government get even from their own boss. Unlike some of his Royal Bank predecessors, who believed that it took only one person, themselves, to change a light bulb—they simply held it still while the world turned around them—Cleghorn rejects any pretense of being an imperial, all-knowing presence.

To underline that philosophy, he sold off the Royal’s Challenger luxury jet, refuses to use the chairman’s private limousine (driving his own Chrysler to work) and has done away with the pretentiously decorated private dining rooms on the top floor of the Royal’s headquarters in Toronto. When those facilities were first built, I compared their overblown decor to a Turkish whorehouse. The day my column hit the street, then-chairman Earle McLaughlin was on

the phone. “And when, may I ask,” he demanded, “was the last time you were in aTurkish whorehouse?” As CEO of the new mega-bank, Cleghorn will represent the greatest source of nongovernmental power in this country. He will be the new dean of the Canadian Establishment, with clout to decide which companies and individuals are granted the credit to multiply their assets, and whose expansion plans are to be postponed or vetoed.

A McGill commerce grad who started out in banking with Citibank in New York City and only joined the Royal in 1974, Cleghorn is an extraordinarily capable banker, but not very good at hiding his occasional bouts of boredom. At one recent meeting, to discuss how to

1 improve the Royal’s image, he g quickly decided that the room’s g potential for producing exciting ¡5 new ideas was dangerously close £ to zero. To keep himself awake and § alive, he broke into a lengthy

2 monologue about the Fuggers. “The Fuggers,” he kept saying.

“Love those Fuggers. They began in 1367 to dominate most of Germany’s commerce, expanded into trade, even leased the Roman mint, influenced the election of the Holy Roman emperor. Then they had the sense to get out of banking and move into real estate.” The assembled bankers harrumphed at appropriate moments, but seemingly had no idea their boss was talking about the legendary Fugger family, merchant bankers who were central to European commerce between the 14th and 16th centuries.

For students of history such as Cleghorn, the current merger is the culmination of a dream. The Royal was founded by the upstart Merchants Bank in 1869. At the time, the Bank of Montreal was so dominant that the new bank’s first branches bypassed Montreal and Toronto, to open in Bermuda and Vancouver. Some 129 years later, the Royal has finally triumphed.

“People say, why now?” Cleghorn told me after the merger announcement. “I tell them, listen, we’ve been sitting on our hands since 1925, and we didn’t know what the value of acquiring another bank was going to be, except that it would probably be too expensive. So the only hope we had of building a serious global presence was this merger.” He added: “Also, the Montreal and ourselves have a similar view of the future as corporate investment bankers. It’s a natural fit.”

Bank chairmen—especially Cleghorn and Barrett—identify so totally with their jobs that the decisions they make are extensions of their personal thoughts and feelings. Even though their backgrounds, personalities and talents complement one another, there is no more hierarchical structure in Canadian business than the Big Five banks. Only one CEO can bear the ultimate responsibility, and that will be Cleghorn. As co-chairman and head of the executive committee, Barrett will bear the responsibility for amalgamating the two cultures and for strategic planning—but he will report to Cleghorn. As well, Royal shareholders will control 54.9 per cent of the merged bank’s stock, leaving a 45.1-per-cent stake for Bank of Montreal shareholders. The merger will be painful and take two years to complete, providing Ottawa assents. But at least the process has started. If we’re serious about competing globally, humongous banks have to be part of the package.