When it comes to a track record of smart management, sound investment decisions and excellent governance, few organizations can top the Ontario Teachers’ Pension Plan. For that, Claude Lamoureux, Teachers’ president and CEO for 17 years, starting with its founding in 1990, deserves much of the acclaim. Yet Lamoureux’s success at Teachers marks just one installment in a long and still-growing list of achievements. Others include his 25 years as a senior executive and, ultimately, CEO of Metropolitan Life Holdings Ltd.; his role in cofounding the Canadian Coalition for Good Governance in 2002; and his present and past service on well over a dozen private, public and non-profit boards. Here, in conversation with leadership and governance adviser David W. Anderson, Lamoureux shares some of his many insights and lessons learned about leadership, effective board governance and business success.
David W. Anderson What’s the hardest part about being an effective leader?
Claude Lamoureux You have to make a lot of decisions—challenging in scope, complexity and risk—but implementation is the tough part. My job at MetLife, in charge of operations across Canada, was much tougher than the one at Teachers, where everyone was in the same building. To be a good leader you have to be present with people—in their workspace, not your own. That’s where you learn what’s happening, pick up ideas and understand the impact of your decisions. As CEO, nothing happens in your office; it all happens beyond your door. But too many people stay inside, hidden from those who matter.
David W. Anderson How were you so effective at implementing your decisions?
Claude Lamoureux People have to understand your strategy, what you want them to do and have the tools to make it happen. I met with small groups of people regularly from across the company. “Coffee with Claude,” I called it. I had meetings everywhere, including the mailroom. I went to learn about what was happening in places where things actually happened. If you want to know what’s going on, you have to talk to your customers and employees directly. If anyone want- ed to talk to me, they did. I would ask people if I could help them if they looked lost and start up a conversation. They didn’t always know who I was, so I learned a lot.
David W. Anderson You’ve got a particular style of engagement—a combination of social ease, genuine interest, striking candour and unassuming charm. It’s disarming and rare. How did you leverage your style to learn from customers and employees?
Claude Lamoureux The easy thing for me is to meet with people. I found that in talking to people, earning their trust, I got into a flow of conversation in which people told me what I should know. This is how you find out the problems. People know what’s not working well in their organization. These conversations were essential to helping me understand problems and how to fix them. I spent time with people across the organization from junior clerk to senior executive, from new to long-tenured employees. I liked to ask, ‘What do you think of this place?’ and ‘What do you need to do your job better?’
David W. Anderson Why is the depth and quality of dialogue you had as a CEO with your customers and employees not more common?
Claude Lamoureux CEOs of large companies often remain physically isolated from the people that matter most. They also don’t create or use the opportunities to host productive meetings with staff or customers. I met weekly with staff to confirm priorities, review projects and communicate what was going on. I think universities still dedicate much of the teaching time to finance and accounting and such, not how to deal with people and get things done. It’s essential to learn these things. If a CEO doesn’t go around and talk to people inside and outside the company, they’re missing the boat.
David W. Anderson When talking extensively to employees junior to your own direct reports, how did you deal with those who felt cut out of the loop or undermined?
Claude Lamoureux Getting the right answer for the company trumps hierarchy. You can’t undermine your managers, and though they may feel it on occasion, you have to make sure they are aware of the issues. I simply let my direct reports know of the problems I found and asked them what they were doing about it. People got used to the fact that I would talk to anyone and everyone. Things changed for the better. The reality was that there were stupid things going on. No clocks were allowed in the office, because management didn’t want people to watch the clock. Give me a break! I got clocks installed. A manager didn’t buy a computer when I told him to do so in order to get productivity up. So, I told him to bring me the purchase order and I signed it myself. You have to demonstrate you want change and empower people to act. The last thing I wanted was people resisting change in my name. Inertia is great for most people because they don’t want to change. Someone has to start. I did.
David W. Anderson When you got the ball rolling, how did you deal with the inevitable mistakes people made trying to follow your lead?
Claude Lamoureux Making mistakes isn’t bad. It’s what you do after that’s important. We all make mistakes. I didn’t punish people for honest mistakes.
David W. Anderson What role did your board play in setting you up for success as CEO?
Claude Lamoureux Gerry Bouey, Teachers’ board chair and former governor of the Bank of Canada, asked me how I’d run the pension plan. I said I’d run it like a corporation—based upon broad limits of authority and with full transparency. He agreed, hired me and that’s how it ran. My board empowered me from the start to run the business. That allowed us to be the first pension plan to do derivatives. The received wisdom was that pension plans only worked with new income, but Bob Bertram’s idea to use derivatives allowed us to diversify much faster. The board said yes. We made mistakes but they didn’t kill us. They didn’t over-control, but watched and were flexible. We earned directors’ trust and when we asked for more authority, they gave it to us. We wanted to go into private equity but knew we’d have our greatest advantage if we could be the investor with the fastest response in the market. So the board agreed to hold meetings within 24 hours if there was an investment opportunity that exceeded our authority. Many boards didn’t show that flexibility to management and thus failed to accommodate the market reality. Jim Leech wanted OTPP to be the first call from any investor, and we made that a competitive advantage.
David W. Anderson Having a board that far-sighted and responsive says something remarkable about its composition. How did Teachers’ board end up with consistently good directors?
Claude Lamoureux From early on the board had two constituencies: the teachers, who appointed four directors via their union, and the province of Ontario, which appointed four directors via the government. Both had to agree on the chair. Unions typically appoint their own members to such boards, but Margaret Wilson, the general secretary of the teachers’ union, understood we were dealing with a lot of money and the best thing for the teachers was to have three of the four union directors from the outside, chosen specifically for their understanding of investments and capital markets. As management, we would suggest names for nominations to the government and union, and in general, we got the people we needed to have a strategic board. Our transparency to both our constituents—union and government—established the necessary trust in our judgment as to who would contribute best on the board. As a result, Ontario Teachers’ Pension Plan is one of the best-governed pension plans in the world.
David W. Anderson In those early days, few companies had boards and management teams working so effectively. Many directors and advisers reject the term “partnership” but you embrace it.
Claude Lamoureux The board certainly was our partner. Yes, the board supervised me and had final authority, but you have to treat them like partners to get the most out of the relationship. Even when I had clear authority, say in what I could raise in the capital markets, I would call on the board for their opinion. Some CEOs don’t do that. If I had a tough decision, I would call the chair. You have to show your board what’s happening. When the CEO doesn’t tell the board things, it’s a problem. I don’t understand why anyone would lie or hide things from their board. I also exposed the board to all the senior people. I made sure the chair met one-on-one with all the senior people we hired. I saw the same partnership at work when I was on the board of Xstrata. We would visit mines around the world without the CEO. He encouraged us to go and tell him if we saw any problems. Many CEOs would say ‘No, I have to be there.’ Trust is liberating.
David W. Anderson How do businesses get in trouble?
Claude Lamoureux I can think of three broad reasons. First, having the wrong management. This may mean a CEO who doesn’t understand capital markets. The time to raise money is when you don’t need it. When you come to the table asking for money at the last minute, you’re at a disadvantage and the cost of capital becomes punitive. It can also mean having a CEO with a big ego or a management team that doesn’t listen to and trust employees. This is costly, as General Motors is experiencing with recalls. Employees knew what was going on, but no one wanted to tell the truth through the channels provided. A second reason is simply being in the wrong business. But a competent CEO will recover. Look to good venture capitalists; they realize when they are in the wrong business and move quickly. A final reason concerns accounting practices. Not keeping the books current, pushing the envelope on accounting and not treating the external auditor as a partner are concerns for me. I prefer to pay more for the external auditor and get solid answers—do I have the right CFO and the best team I can get in accounting and treasury?
David W. Anderson Are there systemic challenges to boards functioning proactively?
Claude Lamoureux I’ve watched many boards do their work. The reality is that as a director, you’re relying on management for information. Some CEOs, though, don’t see the board as a partner—by that I mean some CEOs don’t tell the whole story. The board of CP Railway tried to make changes, but the CEO told them how it couldn’t be done. Eventually you have to make a choice: accept the reasons for poor performance given by the CEO or change the CEO. It’s easier to accept the reasons given because directors think, ‘The CEO knows more than me.’
David W. Anderson What do boards consistently get wrong that makes it harder to do their job?
Claude Lamoureux Most boards don’t do a good job reviewing CEO performance. Meaningful performance appraisal of CEOs is rare, so I see this as a risk. Many CEOs think boards don’t have the knowledge to judge them—and they’re often right. You have to get the board and CEO together to figure this out. Boards have to be able to tell their CEO what and how to improve.
David W. Anderson Given that boards know relatively little about their own CEO’s performance, how do directors know when to change the CEO?
Claude Lamoureux It’s a gut feeling. It’s tough to fire someone, unless the failure is big, obvious and harmful. There’s a strong tendency to give the CEO leeway. When in fact you know it’s time for the CEO to go, it’s often two years late. When a CEO retires, you see a new CEO step up and you think, ‘Wow, we should have done this five years ago!’ The same thing applies to employees, but coming to a decision is harder at the board because you have to persuade others—who often have relationships.
David W. Anderson Tell me what’s hard to do as a director that appears simple from the outside.
Claude Lamoureux Everything to do with compensation! If you want to change it, get on a board and try it yourself. It’s impossible. You can’t just make the change; you have to earn your stripes first, building your reputation within the board. A new director has to gain credibility to have an impact over time. And that’s part of the problem, because in time people can get too close to the CEO. Being on a board is not an easy job.
David W. Anderson, MBA, PhD, ICD.D is president of The Anderson Governance Group in Toronto, an independent advisory firm dedicated to assisting boards and manage- ment teams enhance leadership performance. He advises directors, executives, investors and regulators based on his international research and practice. E-mail: email@example.com. Web: www.taggra.com.
Claude Lamoureux — Biography
Primary role Corporate director
Board chair Orbite Aluminae, Cordiant Capital
Director Maple Leaf Foods, Industrial Alliance Insurance and Financial Group. Non-corporate: St. Michael’s Hospital, The Canadian Institute for Advanced Research, York University Foundation
Former director Domtar Inc., Xstrata plc, Atrium Innovations Inc., Finch Asset Management. Non-corporate: Canadian Coalition for Good Governance, FAIR Canada (Foundation for Advancement of Investor Rights), Institute of Corporate Directors, International Corporate Governance Network, Canadian Institute of Chartered Accountants, Institut pour la Gouvernance des Organismes Publics et Privés, The Learning Partnership
Former CEO Ontario Teachers’ Pension Plan, Metropolitan Life Holdings Ltd.
Education and certifications BA, Université de Montréal; B. Comm, Université Laval; Fellow of the Canadian Institute of Actuaries; Fellow of the Society of Actuaries, ICD.D (Institute of Corporate Directors)
Honours > Officer of the Order of Canada > Officer of the Order of Ontario > Officier Ordre National du Québec > Fellow of Institute of Corporate Directors > Honorary doctorates: Glendon College (York University), HEC (University of Montreal)
Current age 71
Years of board service 30 on private boards, 6 on public boards
Photography: Jeff Kirk