Gimme a Crisis With Howard Green

One of the best business books I’ve read in the past five years is Railroader by Howard Green, and it’s easily in my Top 100 business reads of all time. Howard’s newest book is about another CEO who spent 43 years at Scotiabank, known as Canada’s most international financial institution. The CEO is Rick Waugh, and it is a perfect, very readable case study of leadership during a crisis and extreme economic challenges.

Episode Highlights

1. Does Rick Waugh belong in the discussion of the greatest CEOs of all time?
2. Rick’s resume is instructive on rising to the top role while having a knack for investing and assessing risk.
3. A short history of Canadian banking and the Alexander Hamilton influence.
4. Risk management starts with understanding the downside first, realizing nobody bats a thousand.
5. Wartime vs. peacetime CEOs.
6. The swing and miss in Argentina.
7. Not numbers vs. people; numbers and people.
8. Understanding the limitations of AI and algorithms.
9. “I need $300 million by 3:00 p.m.”
10. Scotiabank’s strategy is not to be the lead bank on U.S. bank deals.
11. New York’s big pond and its impact on Rick’s development to become a CEO.
12. Revisiting the Dominican Republic bank fraud of 2003.
13. The fundamental difference between capital and liquidity.
14. Scotiabank’s view on diversification.
15. Mark’s argument for finance professors using Gimme a Crisis in their curriculum.

The Perfect Book for Finance Professors

I cannot remember his name, but there is a professor at Rockhurst University who uses Barbarians at the Gate in his curriculum. He doesn’t just refer to it during his lectures; students are required to read the book in its entirety. Smart move, brilliant professor.

Similarly, Gimme a Crisis is even better because its topics are broader and include both the emotive and informative aspects of financial decision-making. If I were tasked to create a curriculum from Howard’s book, my short list would include the following topics:

1 – Understanding Risk Management

When I mentor and coach CFOs, I require them to read or skim an annual report of a company they like. While the natural inclination is to head to the financial reports first, I want them to read the Risk Factors first. Some are boilerplate, others are must-reading.

I then ask them how these risks should be mitigated, minimized, or ignored. Gimme a Crisis is chock-full of risk management decisions that Rick Waugh faced regularly before and during his tenure as CEO at Scotiabank.

Scotiabank hired its first Chief Risk Officer (CRO) in the late 1980s (page 59). Are CROs only for banks and/or large organizations? How about teaching a CRO mindset for smaller businesses? There’s a week’s worth of material on this topic alone.

Before moving on, reread, understand, and restate in your own words the following quotes on risk I pulled from Howard’s book:

…the main consideration of success in banking is not large profits but small losses.” Waugh, who repeatedly talks about first understanding the downside of any loan, transaction, or investment … in other words, lend well, and not for long periods.

Gimme a Crisis, page 43

The IIF views risk management as a ‘business culture’ that must pervade an entire organization.

Gimme a Crisis, page 181

By and large, he trusts it, reading—or at least scanning—four major newspapers each morning. They include the Wall Street Journal, Financial Times, and the Globe and Mail’s Report on Business. The fourth may depend on where he is at any given time. Aside from his love of reading newspapers, he might come across a column not directly related to a specific financial world issue but that will nonetheless trigger a connection of some sort. While you needed to stay abreast of the macro situation, Waugh said, for someone running an international bank “it’s the microeconomic that determines your response.” The micro, for example, would be if one of your major borrowers couldn’t repay a loan, which would affect the bank’s liquidity and, in turn, determine how the bank would act.

Gimme a Crisis, page 206

2 – Liquidity

I spend most of my time working with CEOs who run businesses with revenues ranging from $10 million to $100 million. Most do not even think about liquidity. Instead, they think about cash and not having enough of it.

Finance and management students need to understand not only the definition of liquidity and how to track it (most writers on this topic overemphasize tracking), but also how to plan for it in advance.

I’ll go so far as to state this is a required skill every finance and management student should master as best as possible.

Again, liquidity is a prominent theme in the book, especially during the banking crisis chapters. Note that Scotiabank did not lose money during this period.

3 – Investment

When I think of great CFOs, two names come to mind: Ruth Porat and John Jacob Raskob. In Ruth’s case, she’s still focused on investment at Google, even in her new role. Raskob was the guy who got deals done for Pierre duPont. It’s the reason his family made millions of dollars thanks to the opportunity Raskob brought to them, an investment stake in General Motors.

There’s nothing wrong with cost management and stewardship. But investment is not easy for smaller firms, and there needs to be a framework and a more innovative approach to deciding how and where to invest, as Scotiabank did under Rick’s leadership.

4 – Basic Working Capital Management

There’s a line in the book that goes something like, “Lending is like investing, more art than science.”

Every small business becomes a bank when it offers credit to its customers. Yet a small business lacks a banking mindset. That has to change. And let’s start in the classroom. That’s because when I’m mentoring CFOs, none of them have a mental model for keeping AR clean and vibrant.

How many of the big Canadian banks went under during the banking crisis? Go back and reread those two chapters that cover this time period. The answer is none? There are several reasons for this, but internally, each bank had a rock-solid credit policy.

A sound credit policy always precedes intelligent working capital management. Young finance students can never forget this.

5 – Bank Financing

This topic is not hit head-on, but several brief stories can serve as an introduction to finding, obtaining, and managing bank credit, especially lines of credit.

I was reminded of the humorous section of the book when Howard tells the story of how Texeco needed $300 million by the end of the day. They got it, but wait, they are Texeco.

How does a small business get credit? Is it merely following a rigid checklist? Is it that simple?

Once again, this is where street smarts is needed, and this topic is either not taught, taught well, or ignored. While my sample size of about 30 CFOs is small, none possess this skill. Let’s start in the finance classroom.

6 – The People Side of Finance

I’ve always been good at my craft in finance. In George Leonard’s excellent book, Mastery, he describes the dabbler, the obsessive, and the hacker. I was obsessed early in my career. I was focused on the problem at hand and either fixing it or bringing the goal to a logical end state of success. I was more focused on the work than the people around me. I wasn’t mean, harsh, or brutal to be around. Yet, my three bosses recognized that while I was a keeper, I needed to go charm school (or that’s what I called it at the time). My thirteen weeks at Dale Carnegie were the best education I’ve ever received.

I mention this because Rick uses the word sociology in the book. Similar to Raskob mentioned earlier, Waugh was a genius at getting to a ‘yes’ answer, not because he was manipulative, but because he was a people person. He knew what the other person wanted. He listened. He cared. He had a gift for merging the goals of two different parties. Art or science? Or innate?

Whatever you believe on this topic, never forget the human side of finance.

7 – Women and Finance

My mother was an IBM keypunch operator at Orscheln Truck Lines during my childhood. When I started working at KPMG in St. Louis, I thought nothing of one of our women partners (rare in 1989) or the many women senior managers I worked for. Accordingly, my paradigm of women in leadership positions is one of gender blindness. But I’m not naive. Not everyone thought that way forty years ago, or even today.

While I like the last chapter in Howard’s book, let’s expand our thinking about women in leadership roles. Skim the list below, and be prepared to explain the challenges any of these women faced as they did business with male counterparts during their CEO journeys.

1. Sandra Kurtzig
2. Katherine Graham
3. Dame Vera Stephanie Shirley
4. Raegan Moya-Jones
5. Mary Kay Ash

Books Mentioned

• Flying Blind: The 737 MAX Tragedy and the Fall of Boeing
• John & Paul: A Love Story in Songs
• The Good Allies: How Canada and the United States Fought Together to Defeat Fascism During the Second World War

Episode Pairings

Background Title Image Credit: Creative Commons 4.0 Attribution