Finance Committee on June 12th, 2017

[The Vice-Chair, Conservative, Ron Liepert]

Thank you, sir.

Ms. Blanchet, from the National Bank of Canada.

[Lucie Blanchet, Senior Vice-President, Distribution, Solutions and Processes Retail Banking, National Bank of Canada]

Mr. Chair, honourable members of the committee, thank you for having me today.

My name is Lucie Blanchet. I am Senior Vice-President, Strategy, Distribution, Solutions and Processes Retail Banking at the National Bank of Canada.

First, I'd like to say that we have carefully followed the events of the past few months in this country and elsewhere, the events that led up to today's testimony. We are sensitive to the thoughts that have been expressed. Our business model is based on trust established over time with our clients, and it must be renewed continuously.

Very briefly, in the next few minutes I would like to introduce you to the activities of the National Bank and the context it works in, the importance we give to the balance among stakeholders for the success of the Bank, and finally the primordial importance we place on ethics and integrity in our operations.

The National Bank was founded in 1859 in Quebec, and it offers integrated banking services to more than 2.3 million individual clients, and some 130,000 corporate clients. It manages assets of $239 billion. The National Bank has 445 branches and more than 100 stock brokerages.

Geographically, we conduct our activities mainly in Quebec, New Brunswick and Ontario. We also have a presence in certain other metropolitan centres in Canada, such as Winnipeg, Calgary and Vancouver.

The bank provides leadership in several areas, such as agriculture, technology, energy, real estate, health and government financing.

The bank is an important employer and provides work to more than 21,000 employees. Last year it was nominated for the 12th time as an employer of choice.

The bank is an active player in all of the communities where it is present. Last year it contributed over $25 million to various Canadian organizations. The National Bank's activities are conducted mainly in Canada, where 95% of its revenues are held.

Our enterprise evolves in a business context undergoing profound transformation. Our clients want to interact with us in a personalized way using the method of their choice at a time that suits them. Our ambition is to offer a distinctive experience based on accessibility, simplicity and the proactivity of our solutions. In order to do so, we have to continue to adapt and perfect the necessary agility to meet their expectations.

Our organizational culture is based on three pillars: balance amongst stakeholders, respect for our corporate values, and sound risk management. Reaching a balance among stakeholders is an omnipresent goal in our organization. This is directly reflected in our performance management framework. These stakeholders are our clients, our employees, our shareholders, our community and our regulatory tools. The balance among each of these parts allows us to assure the sustainability of our organization in the short, medium and long terms. This message is rigorously communicated to all levels of the enterprise.

We attach a great deal of importance to respecting our values: a client-centered approach, rigour, accountability and collaboration, in order to create a stimulating work environment for our employees. Risk management is also at the heart of our operations and it is an inherent part of our corporate culture.

Finally, ethics and integrity are crucial to our capacity to ensure the success of the bank and its long-term survival. As a frame of reference for our employees, they are the basis for the trust placed in our institution. All of our employees, from the moment they are hired, adhere to our code of ethics. This code specifies what is expected from each of our employees, our managers, and our administrators in the performance of their duties.

The bank has several mechanisms in place to allow clients and employees to report any ethical breach or undue pressure. Among the mechanisms in place for our employees are the managers of our different services, human resources, the compliance sector, the employee ombudsman, as well as an annual survey on our work environment.

For their part, our clients can count on the employees in all of our points of service, social networks, the client ombudsman, and several client satisfaction surveys to express any dissatisfaction or discomfort. These practices allow us to maintain a stimulating work environment and ensure a dialogue based on trust with our employees and clients. We are always open to suggestions on ways we might improve.

To conclude, we are sensitive to the circumstances that have led to today's discussion. The organizational culture of the National Bank is based on the balance among our shareholders, our values and the sound management of risk. That is the culture that will continue to frame the governance of our enterprise, our human resource practices, all of our operations, and the daily activities of our employees.

Mr. Chair, I would be pleased to answer questions.

[The Vice-Chair, Conservative, Ron Liepert]

Thank you so much.

Next is Mr. Auerbach with BMO.

[Andrew Auerbach, Executive Vice-President and Head of Distribution, Canadian Personal and Commercial Banking, BMO Financial Group]

Good afternoon, Mr. Chairman. My name is Andrew Auerbach. I'm responsible for distribution in our personal and commercial business in Canada, so that would be the 940 branches in Canada as well as our commercial bank, and the 12,000 employees on our teams. I'm pleased to join my counterparts at today's hearing and to provide BMO's perspective and experience on the issue of sales practices. What we've all heard in recent news reports is disappointing. We do take this matter very seriously. The issues expressed are not consistent with our approach of delivering a great customer experience. We strongly believe that our practices are oriented towards helping our customers.

BMO's vision is to be the bank that defines great customer experience. We pursue this vision by focusing on building and strengthening our long-term relationship with each of our customers. Fundamental to these relationships is listening closely to our customers, making sure that we understand their needs, and that we see things from their perspective so that we can help them manage their financial needs now and in the future. Frankly, we can't do that if we are selling products and services that our customers don't need. That's not the right thing for our customers, and it's not the right thing for our employees. Instead we believe that we're in the business of helping our customers choose products and services. The question of whether a product or a service is right is measured not by a sales goal but by our promise that we're here to help.

At BMO we know that the only way to deliver on customer promise is by ensuring that our employees are fully engaged and motivated. We are people first and bankers second. We strive to put others first through listening and understanding one another's perspectives. We ensure that our employees have the knowledge, the skills, and the support required to deliver a great customer experience. It is also important, though, to have a robust set of measures and governance in place to make sure that what we believe is happening in our customer interactions is, in fact, happening. To that end, we have created a culture that is anchored on our customer experience vision and that reinforces that we must always do the right thing. Our employee goals and how we evaluate performance are balanced between the “what” and the “how”: what we are trying to achieve and how we achieve our goals by ensuring that our approach is always focused on our customer and their unique needs. This approach to goal setting is also reflected in a number of criteria including customer experience, risk management, demonstrating our values, and, of course, performance.

We have systems and monitoring in place to ensure that our sales are driven by customer need and usage. We have a defined process for customers to raise and escalate concerns including the involvement of independent bodies. Each concern is investigated and actioned. We also have audits and reviews of our policies and our processes to ensure that we have the proper integrity of our practices in place. The rigour with which we safeguard our policies and our processes reinforces our confidence in the integrity of BMO's practices. As well, we have fostered a culture in which we are all protected from retaliation. Everyone at BMO can voice concerns without fear. Most importantly, we continuously invest in our employees to ensure that they have the knowledge and the skills to help them help our customers.

Mr. Chairman, BMO welcomes the opportunity to be part of this discussion, and I look forward to answering your questions.

Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you, Mr. Auerbach.

Starting with Mr. Ouellette, we will have a seven-minute round.

[Robert-Falcon Ouellette, Liberal, Winnipeg Centre, MB]

Thank you very much, all of you, for coming here today. I really appreciate the opportunity to ask a few questions.

Mr. Dudtschak, I would like to just focus on the RBC for the next seven minutes, so the others can relax.

You mentioned that 0.05% of cases were escalated. I was wondering how many of those cases, when you do reporting, are reported to regulators?

[Kirk Dudtschak]

Those are cases within RBC. The 0.05%, which is roughly 650 cases on the 2.4 million, are ones that we report internally. There are other reporting mechanisms when a client escalates a concern beyond, let's say, an adviser or a manager, or they escalate a concern past our independent client care group to the ombudsman, and then off to the independent ombudsman. I will share with you those statistics.

Our ombudsman last year—so these are cases that got beyond our client care team—had 817 cases last year that were new and 735 were closed. Those cases are consistent with what we would have had in recent years.

From that to the external and independent ombudsman, there were 69 cases in 2015 and 77 in 2016.

[Robert-Falcon Ouellette, Liberal, Winnipeg Centre, MB]

Is it appropriate to not report every case to a regulator? We could get a better feel for what's going on in the marketplace and if there's metadata going on, we could follow it more closely instead of just what is reported. It's not to hold the banks—

[Kirk Dudtschak]

No, for sure. Our records are available to all of our regulators, the FCAC and OSFI. Where there are serious issues or breaches, we do report them onward to the MFDA or IIROC, if it's a regulated employee. We are currently in the midst of a review with FCAC and OSFI, and we're open to working with them and making improvements.

[Robert-Falcon Ouellette, Liberal, Winnipeg Centre, MB]

I was just wondering if you could talk about evaluations of employees. We heard from other banks previously that sales are not the only component. Could describe very quickly the other components that go into the evaluation of an employee?

[Kirk Dudtschak]

Yes, there's the ultimate job description of the employee that clearly articulates their mandate, their code of responsibilities, and their job descriptions. It also includes a listing of skills and proficiencies they need to have and to demonstrate so that they can provide service and advice to clients on their area of responsibility. Those are the things that generally, for a branch employee or a call centre employee, would drive their base salary and their merit improvements.

When it comes time for the annual bonus amount, which is in the range, for an average branch employee, of 8% to 10% of their total compensation, their total reward, there are really three components that we look to there. There are things that I would describe as client experience activities and behaviours, which ultimately create a better client experience: the number of clients you connect with, the tools you use to deliver advice objectively to that client, and verbatim feedback we might get on that adviser from clients. Then we go to client loyalty and then to business outcomes.

[Robert-Falcon Ouellette, Liberal, Winnipeg Centre, MB]

Client loyalty and business outcomes.

I was wondering if, in the call centres, you do sales coaching weekly with your employees?

[Kirk Dudtschak]

Yes. There are two levels of coaching that occur. One is through the direct leader or manager, and then the other is through listening to calls and coaches who provide regular training. Those coaches are working day in and day out providing lessons and coaching to our call centre employees.

[Robert-Falcon Ouellette, Liberal, Winnipeg Centre, MB]

It's important to create a culture, so if you're doing sales coaching all the time, it does create a certain culture where all of a sudden you gear an employee, you condition them—behaviourism—towards sales being important, and you emphasize that over and over again.

What happens if there's an employee who has a complaint and doesn't feel comfortable with the sales practices that are asked of them? How would they go about, then, making a complaint to someone?

[Kirk Dudtschak]

I will respond and react to your first reference. The coaching is in relation to the client experience, the way we uncover customer needs, the way we address customer needs, and business outcomes are an outcome of that.

There are a variety of ways that employees can raise concerns. They can raise concerns with their manager. They can raise concern online. They can call our employee relations group and reach out to them for advice and counsel. They can speak to the manager's leader. Then there are whistle-blowing or different hotlines that our employees can reach out to in order to raise concerns if they're not comfortable with any part of our business, including our goals and objectives.

[Robert-Falcon Ouellette, Liberal, Winnipeg Centre, MB]

How many complaints do you then get through the hotline and those other mechanisms? Sometimes when people are employees of some system, it takes an awful lot of courage to complain about something or to find a culture of acceptance. They often want to keep their heads down, be the round peg in the round hole, and not disturb the water, because they'd like to keep their jobs. If they become a disturbance, they often end up with lower performance evaluation reports and they're out the door.

Do you have statistics on any of those things?

[Kirk Dudtschak]

I do not have with me today the exact numbers of calls into our employee relations centre. I would be happy to get those. We do keep track of the calls from employees and managers into our employee relations centre and investigate those calls fully.

I would also put forward that our best source of employee feedback is our managers and our regional leaders, who are also accountable for our code of practice, our conduct, the kind of client experience we're trying to create, and for building our employee skills and capabilities.

We listen actively not just to our employees, but also to our leaders, to understand where there are cracks or opportunities for improvement.

[Robert-Falcon Ouellette, Liberal, Winnipeg Centre, MB]

In some of your call centres, there are, for instance, a large number of employees. Do you actually have an HR person on staff in each place?

[Kirk Dudtschak]

Yes.

[Robert-Falcon Ouellette, Liberal, Winnipeg Centre, MB]

I've actually heard from people working for the RBC in these call centres that in fact there isn't someone in. There's only a phone line. They didn't have really anything, and they didn't even conduct annual reviews with some of the employees about their performance; it was just talk about sales, sales, sales.

You're saying one thing, and I'm hearing another thing from the employees. I wonder, because sometimes things don't always go up to the top. How can you describe that discrepancy in terms of what's going on?

[Kirk Dudtschak]

As I referenced earlier, there are coaches and leaders in all our advice centres or call centres who actively listen to our employees.

From a human resources perspective, there are a variety of channels where they can call. Our employees anywhere in the country, whether they're in a branch or a call centre, can call the employee relations centre for support.

[Robert-Falcon Ouellette, Liberal, Winnipeg Centre, MB]

I have a very short question.

[The Chair, Liberal, Wayne Easter]

Yes, a short question.

[Robert-Falcon Ouellette, Liberal, Winnipeg Centre, MB]

Can you provide this committee with actual performance evaluation tools that you use to see how each of the banks evaluates employees? In the military we have a point system that we use for promotion, that is merit based in how we go about establishing it. I would love to see what the banks do.

You can submit it perhaps in confidence to the committee. I'm not sure how that would work, but I think it would be appropriate for us, to gain a better understanding of how you go about evaluating employees and to see the weighting in terms of promotions and how those come about, to see how people move forward in the organization.

[Kirk Dudtschak]

Okay.