Dominic D’Alessandro is the President and Chief Executive Officer, Manulife Financial. On October 29, he received the Ivey Business Leader Award at a dinner at the Four Seasons Hotel in Toronto. Below is the speech he delivered on receiving the award.
Good evening ladies and gentlemen. It is so nice to be here with you tonight.
I will confess to being very apprehensive about having to speak to you tonight about the important subject of leadership. It’s a subject that has been covered so many times by so many other, far more capable speakers. In fact, I feel a little like Elizabeth Taylor’s seventh husband much have felt on their wedding night. I know what to do. How do I make it interesting for you?
Well, let me try.
Just what is leadership anyway? Leadership should not be confused with status, although a leader does have status. It is not power, or propaganda or manipulation, or coercion or pandering. It is not even official authority – the meter maid has authority but would not be considered a leader – or management. Leadership is something more than keeping the accounts straight or directing people.
There are many definitions of leadership – just as there are many different types of leadership. The definition I like best is that “leadership is the ability to persuade others to pursue an objective.” Leaders make thing happen – things that otherwise would not happen.
I don’t know why some people are leaders and why others aren’t. And I don’t know if it’s true that leaders are born and not made. But I believe that regardless of the times or circumstances, leaders always share some common characteristics. I’d like to elaborate on what my reading and experience tell me are the most important leadership traits. And, I’d also like to tell you a bit about how we’ve put them into practice at Manulife Financial.
Business leaders have bold vision and aim to achieve great things. They lift us out of our daily preoccupations, and unite and mobilize us in pursuit of our goals.
Early on in my tenure as CEO of Manulife, we articulated the vision of “being the most professional life insurance company in the world.” At the time we were a smallish mutual insurance company. We had a great pedigree, but few would have said that we were a world leader.
Adopting such a bold vision – note that we aspired to be the best in the world, not the best of those in Canada – immediately captured everyone’s attention. It was obvious to all of us that if we were to achieve our vision, we would need to offer the best and latest products; that we would need to service our customers and producers well; that we would need to sustain profitability levels which compare with those of the best in the world; that we would need to be financially strong. And so forth.
We also identified the critical skills that we would have to master in order to enable us to make progress towards our goals. Skills such as: excellence in distribution and marketing, excellence in risk and investment management, excellence in product design and innovation. Our position in the marketplace and our track record attest to how well developed these capabilities are at Manulife Financial.
Another important leadership trait is self-confidence. I’ve had, as I said earlier, the pleasure of working with many business leaders over my career both here and abroad. The strongest amongst them had self-confidence in spades. Leaders know they are not powerless; they are not fatalists. They believe that they can bring about a good result in any situation.
At Manulife, our self-confidence is evidenced not just by the ambitious vision to be the best, but also by our determination – often stated – to achieve profitability levels that are the best in our industry. It wasn’t evident, for example, back in 1994, when we were earning less than a 7% return on our equity, that a target of 16% would be achievable. Many doubted that our industry would allow such returns. Well, we did it and we’ve surpassed our goal many times.
Our self-confidence is also apparent in the many important initiatives that we undertook over the year, including our pioneering efforts to enter the People’s Republic of China in 1996, and where we now have some 10,000 people; our access in 1999 to the emerging market of Vietnam, where we were welcomed as the first western company to be favoured with a license; or in Japan, where in 2000 we made an investment of $1 billion – the largest ever Canadian investment in that country – to acquire a troubled domestic insurer.
Together with self-confidence, strong business leaders have an entrepreneurial mindset and are prepared to make bold moves. At Manulife we’ve made a number of bold moves over the years, but undoubtedly the most significant was our acquisition in 2003 of the John Hancock, one of America’s most venerable and important life insurance companies. It was at the time, at $15 billion, the largest cross-border transaction in Canadian history.
The two companies complemented each other extraordinarily well and the business combination was effected in textbook fashion. Indeed, it is often referred to as the most successful merger ever of two major financial institutions. We are so proud that John Hancock has for the past few years emerged as the leader in sales of life insurance in the United States.
The strong leaders I have known have all been decisive and not at all hesitant to set priorities, formulate goals and establish a course of action. And having made a decision, a good leader is always, always willing to take responsibility. As I said earlier, leaders are not fatalists; quite the contrary, they all seek to take control of their destiny. They shape events and make things happen.
I am proud of Manulife’s performance in these areas. All of our expansion and development initiatives over the years have been the result of self-initiated actions. Never have we relied upon outsiders to steer our strategic direction. Investment bankers and consultants have been used by us as appropriate to achieving our goals, but they didn’t ever determine what those goals should be.
As I’m fond of saying, “If you see a CEO who is too often in the company of consultants or investment bankers, short the stock!”
Another – and perhaps – the most important quality that a good leader must possess is integrity. I’ve been fortunate, as I said, to work with people of a very high caliber. All of them always conducted themselves to the highest possible moral standards.
As I get older, I realize more and more that integrity is the foundation on which everything else depends. Without it, you may still get to the top; but, it’s almost certain that your stay there will not be successful, nor will it last long. More than ever people today want leaders they can trust, who stand for something and who can be relied upon to do the right thing.
We have worked very hard to make integrity the cornerstone of our fine company. At the same time that we articulated our aspiration of being the best in the world, we also developed a statement of values, summarized by the acronym PRIDE. Our values are non-negotiable beliefs that guide everything that we do. They, as much as anything else, represent our culture. There isn’t an employee anywhere in the world who couldn’t explain what the acronym means.
The “I” in Pride stands for Integrity. It means that all of our dealings are characterized by the highest levels of honesty and fairness; that we develop trust by maintaining the highest ethical practices.
We’ve had many occasions over the years to refer to our values in deciding how to resolve a difficult situation. An example that received a lot of public attention occurred in 2005, when a number of financial advisors, upon our recommendation, put their clients into the financial products of Portus Asset Management. It eventually came out that Portus’ products and fee structure weren’t as represented, or as we and our clients understood them. After an investigation, the authorities determined that client money was being diverted. The principals have been criminally charged and Portus is now being liquidated.
Now, we could have said to the unfortunate buyers of Portus products, “Hey, we referred you to them in good faith. We’re sorry. But there’s nothing we can do.”
Of course, that’s not what we did. Instead we wrote all of the affected clients and apologized to them. We also quickly reimbursed them the full amount of their investment and told them we would “stand in their shoes” in pursuing recovery through the court process. We lost a lot of money making clients whole. I am glad we did ….. and I’m glad, too, that the decision was one which the entire organization supported. It was the right thing to do. It was consistent with our values.
A final quality about strong leaders that I want to comment on is that they all work very hard and they are not afraid to surround themselves with teams of talented people. I can’t stress this point enough. Without good people, nothing else quite matters in business. Those of you who know our company, know what a hardworking group we are. And you know that we demand excellence in everything we do. We are always eager to find, attract and retain exceptional men and women. We are a meritocracy. As I am fond of telling all of our employees; “We don’t care who your parents are or where you came from or even where you went to school. What concerns us is simply, what you can do.”
I am proud of the people I work with. I hope that is obvious to everyone. Our emergence as the largest insurance company in North America and our performance over the years are testaments to their capabilities.
Now, ladies and gentlemen, the irony of speaking to you tonight about leadership and integrity, given the tumultuous developments in global financial markets, is not lost on me. Every day brings new revelations that these qualities, sadly for everyone, were too often absent in many parts of the financial services industry.
It is simply too unbelievable what has happened. Who would have thought a few months ago that we would witness the nationalization or forced sale of major portions of the banking industry in Europe, the United States and elsewhere? That investment banking, as we know it would virtually disappear? That AIG, once the world’s largest financial institution, would be on life support, almost certainly never to regain anything remotely like its former stature?
I am pleased, as I think we all should be, that the situation in Canada is a far healthier one. Our financial institutions are strong. Just this month our banking system was ranked as the strongest in the world by the World Economic Forum, and Manulife’s triple AAA rating was reaffirmed by S&P a few weeks ago. We should be proud, too, that our business and regulatory practices in Canada simply did not allow the excesses now evident in other parts of the world. However, as we all know, it is an inter-connected world and the difficulties that are being felt elsewhere are bound to affect us too.
How to make sense of what has happened? I believe that when all is said and done there are really two main reasons for the difficult situation that exists today.
First is the inexcusable sin of failing to properly regulate our financial markets. Indeed, for the past thirty years or so, deregulation has been the religion of policy makers in many parts of the world. The result is that the financial markets were turned into veritable casinos. The fallout is affecting everyone, even those of us who have run our businesses in a disciplined and prudent manner. If I sound a little bitter about this, it is because I am. I have particular sympathy for the millions of retirees and others who are adversely affected by the conditions of today’s markets.
Second, we all seem to have forgotten that there is no such thing as a free lunch. We wanted to have our cake and eat it too, whether consumers buying houses they couldn’t afford or government financing expenditures with borrowed money. Instant gratification was the order of the day. In one way or another we’ve all been guilty of this.
I spoke about the financial crisis at our annual meeting last May. If anything, the revelations since that time serve to confirm the views that I expressed then, and I want to repeat them here tonight.
As a result of the global financial crisis, we can expect that a number of far reaching and profound changes will be made to the regulations governing how our financial institutions operate. Already, there are many lessons that can be drawn from the sad, recent experience. Here are a few that I think are particularly important, and which I hope will shape the actions of policy makers going forward.
Policymakers ought to rid themselves once and for all of the attitude that the “market is always right”. It is this attitude – which events have shown to be naïve and dangerous – which more than anything else is at the heart of the current crisis. It should be obvious that sound regulation is necessary if markets are to operate properly. That such regulation should be harmonized and consistent across geographies and markets goes without saying. The challenge, of course, will be to keep regulation intelligent – we don’t need another SOX 404 for example, but we do need rules of the road.
As a matter of some urgency, policymakers should carefully examine the operations of hedge funds and the derivative markets in order to assess the extent to which they might pose systemic risk. Based on what has been reported about their size, complexity and use of leverage, it would seem obvious that they do. As this is the case, these activities ought to be subjected to the same regulatory oversight applied to more traditional financial activities.
Questions should also be asked as to whether or not recent innovations in the financial markets are proceeding in a reckless and uncontrolled manner. Again, it is now obvious that many of the innovative instruments at the center of the current crisis are fiendishly complex, not properly understood by anyone and certainly not well controlled by any of the risk management systems in effect at many of the world’s largest financial institutions. I believe that a slowdown in the pace of innovation, to allow for a more comprehensive assessment of risk, would be a very good thing.
It is also my opinion that we desperately need to move to a principles-based system of financial reporting. Rules-based systems will always be “gamed” by the clever. However, I question whether the wholesale adoption of fair value accounting as currently proposed by the standard setters is a step in the right direction. Time will show I think, that this global financial crisis was greatly exacerbated by the accounting practices requiring that assets be written down to reflect current pricing levels, regardless of the highly unsettled market conditions that prevail.
The many adverse consequences of adopting reporting standards that greatly exaggerate performance, either positively or negatively, seem to be of no concern to rule makers. For those organizations that have the intention and the demonstrated capacity to hold assets for the long term, fair value is useful as supplementary disclosure; it is much less meaningful when periodic changes in fair value are co-mingled with operating results. Whatever happened to the “going concern” principle that served us so well for so long? Doesn’t fair value accounting encourage the type of behaviour – the short termism – that so many of us deplore? And, doesn’t it make the building of stable, productive enterprises much more problematic and difficult? Now, I suggest, would be a good time to pause and re-examine if the move to fair value accounting does in fact produce the improved financial reporting model that was envisaged.
Ladies and gentlemen, I want to conclude on a positive note. We should all take comfort from the very bold and pragmatic actions that the authorities around the world are taking in a collaborative and coordinated fashion to deal with the situation. Central banks are providing liquidity to the markets on a massive scale. The global banking system is rapidly deleveraging and many of the world’s leading banks are being recapitalized either by forced government intervention or through their own initiatives. Problem assets are being rapidly written off or sold, with more relief to come as programs such as those announced in the U.S. take effect. These actions will work, the system will heal itself. While much remains to be done and stresses still remain, I am confident that the worst is behind us.
Remember too that history shows it is challenging times that create the circumstances for great leaders to emerge. I’m optimistic that history will repeat itself.
I want to conclude by once again thanking the Ivey School of Business for this great honour. Thank you everyone for your attention and warm reception tonight.