The Bank of Montreal’s charismatic CEO turns down two more years at the helm
KIMBERLEY NOBLE and JOHN NICOL
Dec. 14, 1998, is a day no Canadian banker will ever forget. It will go down in industry annals as the frosty Monday on which Finance Minister Paul Martin, equipped with the federal competition watchdog's report on the country's two big bank mergers, stopped both proposals dead in their tracks. On top of that, it will be even more memo rable for the six directors on the Bank of Montreal
board's human resources committee. Theywill always recall this as the day they had to digest the disappointing merger news and then, only hours later, decide what to do about chairman and CEO Matthew Barrett.
It was not that the committee wanted Barrett to go. Quite the contrary. Most of the Bank of Montreal’s directors—like so many of the company’s employees—seemed to be in awe of their charismatic chairman. In 1989, Barrett took over an organization that made good money but was known for treating workers as if they were barely human. Under his leadership, the company became more profitable than ever before and also became a model employer. But with the failure of the proposed merger with the Royal Bank of Canada, the directors on the human resources committee knew that the bank was about to enter a new era. The question was, did the board still want Barrett at the helm—and if it did—would he want to stay?
The human resources committee spent the early part of Dec. 14 canvassing the rest of the board to find out what everyone thought. They were pleased and relieved that everyone was on the same wavelength. “We decided to tell Matt, you can carry on with our full confidence,” says Peter Bentley, a Vancouverbased forest products executive who heads up the committee. ‘We are happy to have you lead us.” However, committee members—including Air Canada chairman John Fraser, BCE Inc. president and CEO Jean Monty, Toronto lawyer Blair MacAulay, Ralph Bar ford of manufacturer GSW Inc., and Montreal business executive Lome Webster—all felt that whoever stepped up to the podium at the Feb. 23 annual meeting in Halifax to unveil the bank’s post-merger plans needed to be willing
to stick around to implement them. “Everybody agreed,” says Bentley, “that it was the right thing to ask for a twoyear minimum commitment.”
The process that began with the human resources committee in December and ended with last week’s announcement that Barrett would hand over the reins as CEO to Bank of Montreal president Anthony Comper was as carefully managed an exit as will ever be seen on Bay Street. Barrett had said from the start that he planned to leave the bank within a year or two after the merger. After it collapsed, however, there was speculation that he had changed his mind and wanted to stay long enough to implement the fallback strategy and go out in style.
In January, reports began to trickle out that a few bank directors were concerned. On Bay Street, questions were being asked about whether Barrett—who had warned of dire consequences should the merger fail—could effectively plot a new course. But the directors wanted to make sure that if Barrett did decide to leave, nobody could ever say that it was not entirely his own decision. Anybody who dares to suggest anything different, declared MacAulay, the lawyer whose power on the bank board is second only to Barrett’s, “is smoking funny mushrooms.” He followed up by sending Maclean’s a stiff note attached to a prepared statement he read at last Tuesday’s shareholders’ meeting in Halifax. “Mr. Barrett’s decision to step down at this time was entirely his and the board agreed to it with profound regret,” MacAulay wrote. Any other interpretation “would be considered wrong and deliberately misleading.”
MacAulay and Bentley are both adamant that no one suggested to Barrett that it was time for him to go. They are the only two directors who spoke privately to him during the period between Martin’s announcement on Dec. 14 and a meeting of the bank’s full board on Jan. 26. A few days after Dec. 14, Bentley, who is chairman of Canfor Corp. of Vancouver, met with Barrett in Toronto to tell him of the human resources committee’s endorsement of his continued leadership, as well as its new terms. Bentley says Barrett, whom he likes a great deal, was gracious and flattered. As for the two-year stipulation, Barrett said he would have to give that some serious thought during his Christmas vacation in Europe. Some senior bank officials, including a few Bank of Montreal directors, suggest that
the committee structured its conditions in such a way as to give Barrett a gentle nudge to leave his job.
Outside the bank, a contingent in the financial community holds Barrett responsible for triggering and then bungling the merger with the Royal Bank, even though the board itself endorsed the scheme and supported the bank’s aggressive approach. After the merger failed, Barrett’s arrogance, once an asset, was seen as more of a liability. Most important was the growing view that Barrett, however brilliant and beloved by his staff, had not moved on since the failure of the merger. Up until Martin’s rejection, Barrett believed the finance minister would relent. Barrett “thought there would be a lot of wailing and gnashing of teeth but at the end of the day, they would be able to work something out,” a source close to the bank’s senior strategists told Maclean’s. “I think he was surprised, shocked, it didn’t happen.”
In the weeks that followed, Barrett was seen as “the only bank chairman who did not manage to put the merger behind him,” a Toronto pension fund manager says. As evidence, he and other Bay Street sources cite the recent observations of senior Bank of Montreal employees that their organization is ill-prepared to implement an alternative strategy. Two senior Bank of Montreal sources confirmed that, for all the talk during the merger campaign, there never was a solid “Plan B.” Says the fund manager: “It made sense for somebody new to take over.”
For his own reasons, Barrett decided it was time to step aside. On Jan. 13, he wrote a letter to Bentley and MacAulay saying he wanted to retire. According to Bentley, Barrett said the board’s generosity in urging him to stay “made it very difficult for him.” Barrett agreed that whoever launched the new strategy should see it through and that, for personal reasons, he would not be able to make the two-year commitment the board was seeking. One of these reasons, people who know Barrett say, is that he hopes bowing out will stem the flow of gossipy newspaper stories about his marriage to 44-year-old jetsetter Anne-Marie Sten. All Barrett asked was to complete the financial year as chairman—an agreement that allows him to collect the $1.2 million a year in pension that kicks in when he turns 55—and which would provide Sten $700,000 a year after his death. Bentley says pension eligibility “was never a topic.” Rather, he says Barrett made
AN EVENTFUL YEAR
|| Royal Bank and the Bank Montreal drop their i|y bombshell—they publicly announce plans to merge. Je Royal chairman and CEO John Cleghorn would become head of the new bank, while Matthew Barrett, chairman and CEO of BMO, says he would stay on only as long as he was needed to help integrate the banks.
MppgHI «JAN. 23, 1998: The
• APRIL 17: The Toronto Dominion Bank and Canadian Imperial Bank of Commerce announce that they, too, plan to merge.
• SEPT. 15: MacKayTask Force report says mergers are not the only
alternative to the status quo available to the banks.
• DEC. 11: The federal competition bureau delivers its report to federal Finance Minister Paul Martin. It is highly critical of the mergers.
• DEC. 14: Martin announces he will not allow either merger to proceed. That same day, members of BMO’s human resources committee decide to tell Barrett that he has their full confidence, but will stipulate that he make a twoyear commitment to his job. A few days later, committee chairman Peter Bentley tells Barrett of this proposal.
• JAN. 13, 1999: Barrett sends a letter saying he will inform the board that he cannot agree to another two years at the helm.
• JAN. 26: The Bank of Montreal board meets to discuss Barrett’s decision to
step down. The board I expresses its I regret and I lauds his 1 successes.
I It is agreed
1 that president
2 Anthony « Com per, who
is well-liked on Bay Street, will become the new CEO. Comper worked closely with Barrett and was the best man at his friend’s wedding to Anne-Marie Sten in August, 1997.
• FEB. 23: Barrett announces to shareholders in Halifax that he will remain chairman until the fall, but Comper is now the CEO. He stresses that his decision has nothing to do with the failed bank merger.
this request because “he wanted to complete 37 years with the bank.”
When the board met in Toronto on Jan. 26 to discuss Barrett’s decision, the directors agreed not to vote on the matter—because a board vote would have made it a material item that would have to be disclosed to shareholders. Bank of Montreal managers did not want to do that until they were ready to unveil their Plan B strategy. As it turns out, Plan B is not yet at the point where it can be called a strategic direction. Rather, what the bank announced on Feb. 23 is a U.S. system called Value-Based Management that will serve as a method for getting the bank where it wants to go—once Comper and his team have had a few more months to decide exactly where that is.
In the meantime, Comper told the annual meeting, the Bank of Montreal will be reorganized into 32 lines of business managed under three main market segments: retail and commercial, wealth management, and corporate. Wherever possible, the bank will expand in the United States. In Calgary the next day, Royal Bank chairman and CEO John Cleghorn—who told people to expect him to remain in his current jobs for quite some time—said his bank plans to establish itself as a leading North American competitor by expanding its e-banking network and cutting $400 million in costs over the next two years.
Cleghorn insisted, however, that this will not be done by closing bank branches or eliminating jobs. Intriguingly, banking analysts say the Bank of Montreal, which owns Chicago-based Harris Bank, could soon find itself battling with the Royal for market share in the American Midwest.
By the time this happens, however, it will not be Barrett’s concern. He has been taking a back seat at the bank in recent weeks, grooming Comper to move into his new job. People who know Barrett socially say he looks happy and relaxed these days. Barrett and Sten were spotted recently looking over a new Jaguar with friends Ken and Marilyn Thomson at the gala opening of the Toronto auto show. At the Halifax meeting last week, the bank chairman said a few words, keeping it glib and light. He ducked out quickly, leaving instructions that he is not to be bothered by journalists. After returning briefly to Toronto, Barrett and his wife headed off on a ski vacation in St. Moritz in Switzerland. A bank spokesman would not speculate on Barrett’s plans or ambitions, but said he understands that Barrett intends to travel, write and possibly teach.
Nonsense, says Peter Munk, chairman ofTrizecHahn Corp. and Barrick Gold Corp. Munk’s wife, Melanie, introduced Barrett and Sten six weeks before their wedding, and he has seen how Barrett is sought after in the upper echelons of international business. Munk thinks Barrett will end up running a big U.S. or European company—and that this, as well as being fed up with what’s been written about his marriage, is why he decided to leave the bank. Right now, Barrett can have his pick of a dozen prestigious high-paying jobs, Munk says, which may not be available to him if he spends another two or three years at the bank. “This guy is too young and too successful and too cocky and too much at home in Mexico and London and St. Moritz to put up with this any longer,” he says. “People ask why Matt would want to leave Canada. Because he can move to Europe and make $34 million a year and pay fewer taxes and his lifestyle will be better and nobody will ever write nasty things about him again.”
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