The Nation’s Business

Corporate leaders also should face the music

With the bank mergers off, there is no excuse left to keep the CIBC’s CEO, Al Flood, in his palatial Bay Street office

Peter C. Newman January 18 1999
The Nation’s Business

Corporate leaders also should face the music

With the bank mergers off, there is no excuse left to keep the CIBC’s CEO, Al Flood, in his palatial Bay Street office

Peter C. Newman January 18 1999

Corporate leaders also should face the music

The Nation’s Business

With the bank mergers off, there is no excuse left to keep the CIBC’s CEO, Al Flood, in his palatial Bay Street office

Peter G. Newman

In the avalanche of sex, lies and videotapes that add up to Bill Clinton’s current humiliation, I am haunted by one presidential phrase. “I have nothing else to say,” Clinton said at one point during his several depositions, “except that I can’t disagree with anyone else who wants to be critical of what I have already acknowledged was indefensible.” You know politicians are lying when they use triple negatives in one sentence.

As usual, the CBC’s Royal Canadian Air Farce had the last word: “If Bill Clinton apologizes one more time,” one of the comedy team’s characters proclaimed, “we’ll have to make him an honorary Canadian!” Fat chance. Our own politicians, of course, always tell the truth, the whole truth and nothing but the truth. (Sam Donaldson, the American TV pundit, recently pointed out that Clinton follows that rule, except that he thinks it refers to three different versions of what actually happened.)

In the vortex of those terrible months in the mid-1980s when Mulroney ministers were resigning and being fired for dishonesty of various degrees, I remember writing in this column: “Ottawa’s mood has been so poisoned that even when cabinet ministers admit they’ve lied, nobody believes them.” That’s not true of Ottawa today, mainly because there isn’t enough happening to lie about.

In the political winter of 1999, not everything is as it seems. There’s at least one underground campaign (led by a group that calls itself the Political Friends of Brian Tobin) standing by to mount his leadership bid. The young and transparently ambitious premier of Newfoundland is crisscrossing the country, holding a series of “Evenings with Brian Tobin.” These are strictly private, no-media-allowed dinners (at $1,000 a plate), ostensibly fund-raisers sponsored by the Liberal Party of Newfoundland. In reality, they are the launch of Tobin’s run for the federal Liberal leadership, if and when Jean Chrétien ever decides to quit and play golf full time.

One such event in Vancouver recently was hosted by such local big-hitters as Ron J. MacDonald, CEO of the B.C. Council of Forest Industries, John Dustan, CEO of Genus Capital Management Inc., and Prem Singh Vinning, part-owner of Jack Pine Forest Products Ltd. At the Dec. 10 dinner, baked Chilean sea bass was served instead of Newfie cod, but the talk was mostly about national issues. None of the guests, who represented an impressive cross-section of the Vancouver business establishment, had any illusion about why they were there. And they came away mightily impressed.

Now that the bank mergers are history, it might be appropriate for at least one of the Big Five to re-examine its leadership. AÍ Flood, who first joined the Canadian Imperial Bank of Commerce in 1951

as a 16-year-old messenger, has had a record of failure—he is the Canadian banking version of Joe Bfstplk, the cartoon character in the Li’I Abner strip who moved with a black cloud hovering above him wherever he went. Flood climbed steadily through the Commerce ranks and, in 1974, was appointed area executive and then general manager for Latin America and the United States, just at the climax of the Third World credit crunch. At that time, the bank was making massive loans to Brazil, Mexico and Argentina—loans on which his bank eventually lost $1.7 billion.

He was thereafter promoted to head the bank’s U.S. division at the height of Wall Street’s leveraged buyout phase, when the Commerce was often on the wrong side of the wrong deals. Then came the coup de grace. Called back to Toronto head office, Flood assumed the bank’s most sensitive post—president of the corporate bank. In that job he distinguished himself by turning the Commerce into the lead banker for the Reichmann brothers’ real estate empire, one of the biggest Canadian business failures. When it turned out that the Reichmann empire had no clothes and that the Commerce loans had apparently been granted without adequate examination of the brothers’ dubious debt-equity ratios, Flood’s decisions eventually cost his bank $1.2 billion in bad loans on that account alone. “I take full responsibility,” he said at that time, adding that his experience would help him avoid mistakes in the future.

Following the Commerce’s twisted logic, there was only one way out: Flood was the obvious candidate to head the whole bank. In 1992, he was anointed chairman and CEO. His main contributions in the top slot have been a major push of the Commerce into derivative trading, which is the banking equivalent of bungee jumping. His other big move was to pay $350 million for Oppenheimer & Co. Inc., a Wall Street brokerage, on which the Commerce lost $230 million in its first year.

By last fall, after half-a-dozen Flood years, the Commerce’s record was once again unique. It was the only one of the Big Five to show an earnings drop—down 32 per cent from 1997. The Commerce’s fourth-quarter profits were down an astounding 91 per cent, most of it lost in derivative and global markets. The Dominion Bond Rating Service downgraded the bank’s long-term debt from “stable” to “negative.” Tom Gunn, senior vice-president for investment at the Ontario Municipal Employees Retirement System, one of the CIBC’s top five shareholders, publicly complained about Flood’s inadequate explanations of precisely what had gone wrong.

Now that the possibility of the Commerce’s assets being folded into the much more nimbly managed Toronto Dominion Bank under Charlie Baillie has vanished, there is no excuse left to keep AÍ Flood in his palatial office on the fifth floor of Bay Street’s Commerce Court.