Monique Leroux: Leading Change at Desjardins

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1 R E V : A P R I L 1 6, R O S A B E T H M O S S K A N T E R AI- L I N G J A M I L A M A L O N E Monique Leroux: Leading Change at Desjardins In December 2012, Monique Leroux, Chair of the Board, President, and CEO of Desjardins Group, took a few moments to look out the window of her 40th floor office in Montreal to reflect on nearly five years of effort as President i, which included weathering the global financial crisis. She had accelerated the transformation of Desjardins begun in 2001, when she joined the financial group as president of the holding company that oversaw the Group s subsidiaries after a distinguished career in accounting and banking. She knew she had just three years ahead as Desjardins President, and she wondered whether she had laid the foundation for meeting the next challenges of change. Desjardins was Canada's sixth largest deposit-taking institution, holding the leading market share in Quebec but competing against Canada's major national banks that were also rapidly globalizing. It traced its origins to 1900 when it was founded by Alphonse and Dorimene Desjardins as the first financial cooperative in North America, a type of credit union (called "caisse" in French, pronounced kess ) designed to maximize benefits to members, who often began as underserved populations. Earnings were distributed to members through patronage dividends proportional to each member s use of services, with member boards electing officers. As the number of caisses expanded, so did central offices ("federations") serving the network of caisses. By 1944, 11 federations offered shared services such as administering surplus funds to help caisses with liquidity and offering technology, risk management, product development, and HR functions. The federations also acquired private financial services subsidiaries. The big change in 2001 was the merger of the 11 federations into one, a process easier said than done, especially in light of the autonomous and legally independent caisses devoted to their local members. By 2007, Leroux had decided to run for President, saying that her goal was to increase collaboration across functions to leverage the power of their collective resources, especially in light of greater competition in Quebec and financial industry consolidation. She was elected in March 2008 and immediately became one of Canada's most powerful women, while Desjardins was emerging as a less provincial and more significant financial group. Leroux and her new team changed the structure, among other things, and she was reelected to a second and final term in March Her executive team had overcome many obstacles in the change process and produced a number of successes, but were there other obstacles lurking, and had the culture shifted sufficiently to sustain the changes? Had Desjardins build sufficient change capabilities i Desjardins more commonly uses the title of President instead of CEO Professor Rosabeth Moss Kanter and Research Associate Ai-Ling Jamila Malone prepared this case. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Professor Kanter was a speaker for Desjardins-sponsored events in Copyright 2013 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call , write Harvard Business School Publishing, Boston, MA 02163, or go to This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.

2 Monique Leroux: Leading Change at Desjardins to manage growth in addition to the caisse network? Leroux was an advocate for the virtues of cooperatives as a complementary model to 21st century capitalism, one that put members and communities first and managed for the long-term while being prudent about risk, but she and her team also had to determine how to invest in innovation and growth, with so many stakeholders involved in every decision. She was just over the mid-way point, a good time to assess accomplishments and consider choices for the future. Canada Canada is a Commonwealth nation 1, a member of the G8 (forum of the 8 largest developed economies in the world) and a member of OECD 2 (Organization for Economic Cooperation and Development). Canada has the world s second largest landmass, in 10 provinces and 3 territories, and the 33 rd largest population with about 35 million residents. 3 Canada s population grew at a rate of about 11.2 for every 1,000 between 1972 and 2010, with its immigrants increasingly accounting for the majority of the growth going from 4.4 in 1972 to 7.2 in While population overall increased, population in rural areas decreased from almost 90% in 1851 to around 20% in (See Exhibit 1. Canadian Rural Population) Canada had the 10 th largest economy and had 2 official languages, English and French. Between the 1930s and 1970s, Canada increasingly enacted social welfare policies to provide universal healthcare, social security, unemployment insurance, and more. The province of Quebec, located on the east side of Canada, had over 8 million residents with 23% of the Canadian population. (See Exhibit 2. Map) French settlers arrived in Quebec in the early 16 th century, but the British took control in In Quebec, the Catholic Church dominated schools, hospitals and charitable organizations until the 1960s. The ties to the Catholic Church preserved traditional gender roles and delayed the women s rights movement. Quebec was the last province to enact women s suffrage in 1940 by 15 years. Quebec s strong francophone catholic roots resulted in tension with the predominantly anglophone protestant majority in the rest of Canada. Some Quebec sovereignty supporters wanted recognition as a distinct society with a formal association to Canada. Quebecers generally did not want to leave Quebec. For instance, Royal Bank of Canada (RBC), previously headquartered in Quebec, moved their head office to Toronto in 1976 and many RBC employees left and joined Desjardins, Quebec s largest employer, rather than move. One employee explained, When you leave Quebec to go to Toronto, it's not the same dynamic. It's not the same culture. So the desire to stay home in this environment and for my kids to be able to learn French, as well as English, was important. The Quebecers who did leave Quebec maintained a strong sense of cultural identity. A caisse General Manager recalled working in Ontario, which had 500,000 French speakers, for the Desjardins federation and taking 2 years to convince the francophone members to accept the potential anglophone market of 12 million. A Desjardins executive described people in Quebec as thinking Quebec only, while Canadians outside Quebec think North American or globally. The population in Quebec was aging with the proportion over 65 increasing from 13% to 16% between 2002 and Although the official language was French, the birthrate for children born with a mother tongue other than French was higher than the birthrate for children whose mother tongue was French between 2001 and Like the rest of Canada the rural population in Quebec was declining. In 2012, Quebec had the highest net public debt in Canada at 50%, lower productivity, with struggling healthcare and education systems, which created a harsher economic outlook compared to the western provinces. 8 Quebec was also a net recipient of fiscal transfers and forecasted to grow by 1.4% in 2012, below the national average. 9 2

3 Monique Leroux: Leading Change at Desjardins Canadian Financial Services Industry Since the 1970s, the financial services industry became increasingly globalized. Capital flows across borders increased, with firms growing significantly in size by merging, expanding internationally, and diversifying their service offerings. Competition and complexity increased. In 2008, the Global Competitiveness Report concluded that Canada had the best banking system in the world, giving it a score of 6.8 out of a possible In 2007 when the U.S. housing bubble burst causing securities tied to U.S. real estate to drop significantly, the entire global financial system was threatened. While some Canadian banks were holding toxic American mortgages, the overall impact was minimal. 11 Canada s banks were tightly regulated, more liquid and less highly leveraged than other banks worldwide. In 2012, the World Economic Forum ranked the Canadian banking industry as the world's soundest banking system for the fifth consecutive year. 12 The Canadian economy is strong relative to other developed western economies. (See Exhibit 3) In the late 1990s, many Canadian banks proposed mergers as part of their growth strategy, but were denied by the government for antitrust reasons. So the traditional players - banks, trust companies, insurers and securities dealers - began consolidating to offer a packaged array of financial products and services. 13 (See Exhibit 4) The technological innovation of the 1990s supported the financial services sector s rapid convergence. In 2012, Canada s Big Five banks were Royal Bank of Canada (RBC), Toronto Dominion Bank (TD), Bank of Nova Scotia (BNS), Bank of Montreal (BMO), and Canadian Imperial Bank of Commerce (CIBC). (See Exhibit 5) The Big Five all had a strong national presence in Canada, performing well in urban areas and with the anglophone majority, while growing outside of Canada. Desjardins dominated Quebec, where it had strong roots and continued to thrive in the rural Catholic francophone population. Market share was the highest amongst competitors at 40%, and they had more points of service than all other banks combined. Quebec provincial law allowed the caisse to sell insurance and brokerage services along with banking services in the same physical location, unlike the banks that needed separate facilities. In 2008, Desjardins had 42,000 employees, 513 caisses with 6,300 elected officers and total assets of $152.3 billion and $215 million given to 5.8 million members and their communities through patronage, donation and sponsorships. ii Desjardins and its Governance Because Desjardins was organized as a cooperative, its governance structure differed from that of other banks. (See Appendix I for an overview of cooperatives) Elected representatives form numerous groups and attend meetings and conventions to guide the strategic direction of the Group at multiple levels. First, caisse members, who are owners, vote for the members of their caisses Board of Directors that meets monthly to oversee their caisse. Each caisse Board of Directors designates delegates from their board to represent them at an annual regional meeting, comprised of about 25 caisses. There are 17 regions, each with about 100 delegates. Each region elects 15 people to represent the caisses on a Council of Representatives, which meets monthly. The 17 Council of Representatives are joined together to form the 255 members of the Assembly of Representatives that meets 2 to 3 times per year. This assembly elects the combined position of Chairman, President and CEO of the Desjardins Group every 4 years (with a maximum of two terms). The President of each Council of ii All monetary values in Canadian dollars (CAD). Exchange rate as of Dec : 1 CAD equals USD 3

4 Monique Leroux: Leading Change at Desjardins Representatives sits on the Desjardins Group s Board of Directors, which meets monthly, along with 7 others. (See Exhibit 6) In any given month there are over 400 elected officer meetings. Some employees felt that the cooperative culture s decision making process, which involved numerous meetings and consultations, hindered their ability to execute time sensitive projects. The process could be lengthy (some reported up to 2 1 /2 years) because everyone had different priorities. Investments VP and COO of Asset Management, Gregory Crispin, who joined Desjardins in 2010 from a corporate bank, described the big adjustment he experienced in learning to navigate his way through several layers of committees and groups at Desjardins to convince people of his strategy. He talked about the benefit of group wisdom: people with different vantage points could raise valuable points, and once everyone could provide input and buy in, implementation was extremely quick. Non-Cooperative Units Desjardins was also involved in a growing range of financial services through subsidiaries that were fully owned by the caisses. This included insurance, trust, venture capital and brokerage. There were also 50 banking centers with venture capital funds ($1.3 billion to invest in SMEs), commercial centers lending $ million to larger clients, and securities and investment banking services, with industry specialty groups for construction, auto, and retail. Other commercial functions included payroll services, which was the largest in Quebec and the 3 rd largest in Canada, growing 12% between 2010 and 2011, facilitating mergers and acquisitions and advising initial public offerings. Desjardins Election of 2008 In 2007, Monique Leroux, then CFO, decided to run for President. There were seven other candidates, including one said to be favored by the then-president. Leroux had been President of Desjardins Financial Corporation and Chief Executive Officer of its subsidiaries, namely Desjardins Financial Security, Desjardins General Insurance Group, Desjardins Trust, and Desjardins Asset Management upon joining in 2001, before her appointment to CFO in Before Desjardins, Leroux had a solid academic background in music and later decided to pursue business because of her passion for people. She started her financial career at Ernst & Young in 1978 and stayed until Leroux followed this with senior executive positions at the Financial Group, Royal Bank of Canada, and Quebecor, a large media company. Her campaign slogan was Living Desjardins with trust and confidence and she stressed the importance of One Desjardins and wearing the Desjardins hat. Organizational Issues and Leroux s Platform Although 11 federations had merged in 2001 to increase efficiency through centralization, there was still a legacy as a collection of small companies, an executive recalled. The previous organizational structure was based on distinct legal entities with 290 senior executives. (See Exhibit 7) The different subsidiaries did not trust each other and did not share information. Because many groups provided similar services, internal competition occurred. Support functions information technology, human resources, risk management, finance and communication were completely separate, as each subsidiary owned and operated each function independently. Each subsidiary had independent infrastructures, applications, governance, procedures, policies, working conditions and cultures. This lack of cohesion created a number of inefficiencies. Desjardins had multiple different contracts with different pricing agreements for the same technology supplier. Some subsidiaries outsourced tasks that others built the capacity to complete internally. Finance included multiple CFOs that reported to the head of each subsidiary, 4

5 Monique Leroux: Leading Change at Desjardins giving the CFO for the entire company only the power to influence the other CFOs to work towards a unified strategy for capitalization, equity and liquidity. Lack of integration posed difficulties for customers and providers. Enterprise Solutions VP Luc Loiselle recalled, A lot of our members, our customers, often told us that it was quite complicated to do business with Desjardins. Wealth management, for example, is in caisses, the brokers company, the insurance company, so all of these people could eventually call you and then the customer thinks, I already do business with you guys. Why don t you know that? Why don t you take the information that you already have on me, instead of calling me and calling me? Employees at State Street Corporation, a U.S. based financial services holding company, found it challenging to do business with Desjardins when they were trying to provide services on the pension fund and mutual fund side. A 2010 Desjardins hire who previously worked at State Street remembered having five or six different people that they needed to talk to. It was convoluted, it wasn't clear. To me it just didn't make sense. As autonomous entities, the caisses were free to accept (or not) a recommendation from the federation. The federation would look at trends in the financial services industry and formulate solutions without consulting the caisse network. The caisse felt the federation was too far from the ground to develop effective ideas without them and were frustrated at being left out of the process. One manager summed up the sentiment saying, Caisses felt forgotten by their federation. Leroux s campaign was based on 5 convictions: 1) The caisses are the driving force of Desjardins Group; 2) The Federation and the subsidiaries are working for the caisses and their members; 3) Growth and strategic development of Desjardins Group is through the caisses, supported by the subsidiaries and the Federation; 4) Our human capital is our greatest wealth and our strength for the future; 5) Our values of cooperation are central to our actions. Leroux had to out-campaign the others while overcoming a perception by some that she would not represent cooperative values because of her corporate background and work ethic, which meant that she worked harder than had been typical in the past. One executive recalled, Many people who saw Ms. Leroux speak were very impressed. But it's a boys club, and the boys were not very kind with Ms. Leroux. The guys said, Never. The elected officers will never vote for a woman, never in 100 years. But most others felt that she articulated the concerns expressed by the caisse network better than any of the other candidates. It was a tough process, she recalled. I was attacked. But I was comfortable with my own ideas and conviction. The process was designed to ensure equal conditions for everyone running. Candidates provided six forms of written communication in a set format. Between January and March, on nights and weekends, candidates presented to formal regional meetings of of the 255 elected officers. In addition, Leroux decided to meet personally with each of the elected officers, sometimes more than once, which no other candidate did. Because she was also fulfilling her CFO responsibilities, it was a bumpy period, she said. On March 15, 2008, all 255 elected officers gathered for the vote. Candidates were given five minutes to summarize their views before the officers voted. Leroux won. Just after she took office, the global financial crisis hit. In her first year, she had two main objectives: stabilize the organization s financial situation in light of the crisis and simultaneously create the strategic plans for the future. Her success at managing the crisis using her technical knowledge and giving then-cfo Raymond Laurin full authority over finance departments, proved that more centralization was in the best interest of the company. Many employees reported that it earned their trust. 5

6 Monique Leroux: Leading Change at Desjardins Preparing the Ground for Change Leroux wanted elected officers and employees to focus on the future and be involved in the direction. In September 2008, Leroux had the Assembly of Representatives gather to discuss a very broad perspective of the financial services industry s difficulties and opportunities. The members then identified the top ten most important issues which included market expansion, Canadian development and strategic alliances, human capital engagement & talent management, productivity, and social responsibility & sustainable development. She held a session with 200 employees from across the caisse network, subsidiaries and the federation on a sunny day in October 2008 where she created 10 reflection groups of 15 to 25 people, each group representing one of the issues identified by the Assembly of Representatives. In addition to being a cross-section of employee affiliations, the group was geographically diverse and had a gender balance. One reflection group participant, Finance VP Robert Bastien recalled, The leadership of these groups was from the caisse managers. It was a big change. Each reflection group also had a dedicated address for employee input. Using the results from the reflection groups, Leroux reorganized Desjardins around 4 lines of business (Wealth Management & Life & Health Insurance, Personal Services, Business & Institutional Services, and Property & Casualty Insurance), which combined previously independent subsidiaries under one Senior VP. For example, subsidiaries Desjardins Financial Security and Desjardins Asset Management fell under Wealth Management and Life and Health Insurance; subsidiaries Desjardins Securities and Desjardins Venture Capital fell under Business and Institutional Services. The new structure created centralized support groups (Finance, Risk Management, Human Capital, Communications, and Technology), which all previously existed independently in the subsidiaries. There was also a Cooperative Network Support Group, Cooperative Development & Democratic Governance Support Group and Caisse central & Capital Desjardins Inc. This new matrix structure consolidated functions and eliminated duplication, directly impacting the 17,000 employees of the federation and its subsidiaries, resulting in over 220 manager positions lost, reducing the number of Senior Vice Presidents from 40 to 12 and the number of Vice Presidents from 250 to 112. (See Exhibit 8) Some boards and president titles were required for regulatory purposes but others were re-evaluated, consolidated, or eliminated in order to flatten hierarchies and encourage cooperation, not empire-building. Leroux appointed Marc Laplante as Senior Executive Vice President of Desjardins Group (second in command to Leroux) and leader of the change effort. Leroux worked on selection of the new leadership team for three months. All existing Senior VPs and VPs met with HR to determine where they would fit into the new organization. Leroux said: I was very clear: Select people with different views, approaches, backgrounds but the same values. To do this, you ask a lot of open questions. You observe their behavior afterwards. Sometimes behavior is not in line with speech. Sometimes people are excellent but don t share the values or fit. It s better for them and the organization to ask them to leave. Existing managers were invited to interview for 1 to 4 positions. Human Resources had interview prep trainings available to over 1,200 employees with a satisfaction rate of nearly 90%. Leroux challenged the 12 Senior VPs to hire more women, look externally, and mix things ups. Stephane Achard, Senior VP of Business and Institutional Services, described, In the past, resources belonged to an executive. She changed this saying, No, you're not working with the same fellows you used to work with. You're going to develop this person. She forced the mixing that we needed to have. By the end of 2009, the restructuring was over 90% complete. For all the VPs, 51% came from the federation, 31% from subsidiaries, 6% from the caisse network and 12% from outside Desjardins. And 26% of executives were women compared to 19% in previously. 6

7 Monique Leroux: Leading Change at Desjardins Leroux made it clear, according to an executive, that nobody would be above the group. When one employee asked to negotiate his terms and conditions, Leroux responded by giving him a 2pm deadline to accept the terms he was given. When he did not provide an answer by the deadline, he was promptly let go. At an executive management retreat on the South Shore of Montreal one Senior VP recalls Leroux saying, I will not go for bitterness, and backstabbing, and fights, and territorial management. You guys are responsible to make it happen and work as a team. Some employees who did not embrace the change left the company voluntarily, while others had to be removed. With the large number of personnel changes, morale dropped and stress levels increased because of the increased uncertainty about job security. This impacted the caisse network who struggled to get their phone calls returned or the proper level of support. Negative reactions lingered well beyond the first year of major change. Three years later, one former subsidiary head felt the timeline was too fast. In her group, employee satisfaction and engagement decreased. People felt demoralized and hurt by losing close colleagues and having to do the same work with a lesser title. One culturally diverse office of English speakers outside Quebec, felt alienated when they suddenly had managers that spoke only French and received a booklet depicting a homogeneous francophone management. Transformation Activities: Toward One Desjardins As the transformation began, some employees actively sought involvement in the efforts. Nathalie Larue, who first started at Desjardins as an external strategy consultant was later hired as a marketing VP for the business sector in As a consultant she had worked with Marc Laplante, who oversaw the transformation. Larue offered her assistance, which he accepted. She worked with Laplante for three years on the first integrated strategic plan as well as organizing and structuring the Congress, an event held every 3 to 5 years where over 1,000 elected officers represent the caisses, proportional to its size, and vote on the strategic direction of the Desjardins Group on behalf of the members. Many employees participated on one or more of the numerous projects that supported and reflected the transformation. (See Exhibit 9. Select Projects, ) Caisse Engagement: Balancing Centralized Structures with Local Empowerment Some long-serving executives felt that the 2001 merger of the federations, which was voted on by the boards and accomplished in 15 months with 1000 job cuts including all of the then-presidents, had created a disconnect between the federation and the caisses. The goal of One Desjardins was to use the central organization to better engage and serve them. Communications increased dramatically. Daniel Dupuis, as Senior VP of the Cooperative Network, established monthly conference calls with caisse general managers; he built on the trust generated by his knowledge of caisses from having worked in one earlier in his career. Guy Cormier, who became Senior VP of Cooperative Network Support in May 2012 and a 20-year Desjardins veteran, described how the group changed to increase caisse engagement. He created 17 smaller groups of caisses led by a VP, each of whom could maintain close contact with general managers and board members, listening to their needs and serving as a liaison to other functions, since caisses still performed a portion of major functions themselves. Similarly, caisses were encouraged to have their own Facebook page with support from the federation, although separate caisse websites were about to be combined. To ensure the caisses were supportive, Leroux held a Congress in Quebec City in November Leroux proposed 6 questions to the caisse regarding a Desjardins-wide focus, a service approach, developing market share, increasing productivity and increasing capitalization. The delegates 7

8 Monique Leroux: Leading Change at Desjardins approved the strategic orientation with historically high percentages between 84% and 97%, compared to typical approval rates around 60%. Caisse General Managers embraced collaboration opportunities with the federation. General Manager Daniel Hebert became actively engaged with federation employees by joining caisse laboratories, which piloted projects for various objectives such as increased productivity and increased customer satisfaction. General Managers Luc Turcotte and Yannick Laviolette spearheaded their own initiatives and reached out for support. Turcotte received assistance in automating one of his branches, while Laviolette worked with the federation to grow market share through a partnership with John Abbott College and billboard advertisements. Training and Team-Building Training programs were an important integrative activity which required new investment, given that Desjardins previously devoted only very small sums to professional development. Some Vice Presidents focused on training employees to support the new direction. Josee Ouellet, VP in Human Development, recognized Leroux s vision of wearing the Desjardins hat and developed an internal institute to help managers and employees with their professional development, particularly the new skills and mindset required for a matrix organization. Ouellet created a successful pilot program where a group of elected officers spent a Saturday together going through collaboration building exercises and discussing tangible business strategy. After the pilot, she expanded the program and reported that she was able to continue changing mindsets. Martin Brunelle, VP of the Cooperative Network Support Group, created a training program that included an intensive 3 day overnight boot camp for his 200 employees. He focused on helping his team develop consulting skills to support the caisse network. Raymond Laurin, a then Senior Vice President of Finance, spent a lot of time coaching and re-training his team. He had about 600 employees that he helped to understand their role and their future. He had numerous breakfast meetings and listened to his employees, and ultimately received their buy in to the new vision. In addition to developing and implementing specific trainings for their team, VPs also took advantage of companywide trainings for their professional growth within the new organization. Benoit Lefebvre, VP of Financial Planning and Framework, attended a rigorous 5 day training which was attended by 100 other VPs and general managers during the year. Daniel Hebert, Caisse General Manager, participated in an internal accreditation program that helped develop employability and capacities. The executives worked closely with human resources to build a new team that reinforced the new culture. For example: Daniel Dupuis, who was the Senior Vice President of the Cooperative Network in 2009, reduced his vice presidents from 35 to 19, in a difficult selection process involving 65 interviews over two months. Centralizing various functions involved difficult decisions about people. He found it hard, even sad, to let so many people go, including some who had previously held more senior titles. Robert Ouellette, Senior VP of Technology and Shared Services, built his team and had the highest number of external hires. As a new hire himself in May 2009, he found the value in bringing in people with a completely different mindset to align with the culture change. When Gregory Chrispin, VP of Investments and Chief Operating Officer of Asset Management, arrived in 2010 many of his employees did not know each other s names. He 8

9 Monique Leroux: Leading Change at Desjardins quickly learned everyone s names and physically put the equity and fixed income employees in the same room. Alain Hade, VP of Sales and Customer Service, Property and Casualty Insurance Group, created a team combining analysts with market development and sales management skills. His new team could measure performance, understand markets, and connect to customers, enabling them to improve call center performance. Leaders embraced the change because they were finally able to build teams that gave them all of the levers that they needed to achieve their objectives. Establishing Separate Groups outside the Cooperative Structure Desjardins already had experience with subsidiaries that had a corporate structure that was 100% owned by the caisses. One way to get change moving was to move some activities into their own entities. For example, to grow market share in commercial markets, Desjardins set up a new entity that could approach clients without caisse approval and that involved industry specialists. Stephane Achard, Senior VP and General Manager of Business and Institutional Services, recalled that it took two years of discussion to get support for this entity, even though caisses lacked the capability or expertise to support clients. Similarly, Senior VP Robert Ouellette, formed a new company, Desjardins Technology Group, that regrouped IT assets from all entities to accelerate the consolidation efforts. Ouellette was the first to successfully demonstrate merging 8 disparate groups. He also switched a $100 million IT outsourcing contract using new leaders hired from the outside. Innovations sprung up that were not necessarily separate entities, but that came from groups that did not have to consult directly with the caisses. Mobile banking was launched in 6 months with a small team from personal services and IT. This project grew out of a coffee room chat between Senior VP of Technology and Shared Services Robert Ouellette and Senior VP of Personal Services Normand Desautels, who read about a less tech savvy competitor s launch of a mobile banking application. A new car loan product, Ready to Drive, was launched in January 2012 based on integrating insurance and financing and using a new marketing campaign. This reversed a loss of market share into a growth of 42% after the first quarter. Facilitating Change Resistors presented challenges to change efforts. Some employees appeared to believe that the changes would not last, so they did not change their behavior. They continued conducting business independently, neglecting to consult with key stakeholders across the organization. For example, they would launch a new product in the caisses without ever engaging the caisses for feedback. When these employees were told to follow the new protocol they responded with excuses. There were even rumors, unconfirmed, of leaks to press and anonymous postings on social media sites. Others made it difficult to reach consensus and make decisions. Nathalie Larue, tasked with supervising a steering committee for the strategic plan, remembers some individuals wouldn t suggest anything. They would ask questions about our proposals and tell us that You can do that if you want, but I'm sure that's never going to succeed in Desjardins. Jean Brosseau, VP of Business Banking, recalled another common response to a new idea or project was that it was great but ultimately was not applicable because their situation was different. General Manager Daniel Hebert found that people said they supported change but in reality did not want change for themselves. 9

10 Monique Leroux: Leading Change at Desjardins Communication Enhanced communication was a major way executives leading the transformation tried to convert resistance to acceptance. Leroux made this central: You need to have the right financial stuff, you need to have a good strategy, but at the end of the day it's always about how you can mobilize people to go forward. You cannot do that by s. The world right now is so complex that you need to find a way that people will understand the complexity but will be able to work in simplicity. It may sound very basic, very simple, but when I look back, communication, meeting people, making sure to get their perspective about what was right and wrong and adjust was critical. My job is a people job. And the most important thing that you need to do as Chairman and CEO is to think about people all the time. My role is creating the right conditions for people to develop themselves and to take opportunities. Leroux started a newsletter titled, A Word from the Desjardins Group President upon getting elected and released it roughly every other month until the end of In each letter to the employees, she highlighted key events and encouraged everyone to write her directly. A new publication, Coming Together, focused exclusively on the organizational transformation. Leroux also held quarterly conference calls, town hall meetings, web conferences, and sent s and videos. The communications team had to quickly build capacity to support the increased number of web, video and audio messages. To ensure everyone had access to the information, they coordinated dial-in locations for people to gather and hear announcements because of the lack of lines to support the entire group and recorded all calls, making them available for a few weeks. Leroux frequently made trips to different departments or caisses throughout Desjardins to meet with people in person, sometimes as a surprise. Part of the surprise, an employee reported was that visits from the top were rare in the past; a predecessor was said to walk into a caisse and was not recognized. An internal communications VP Andre Forgues recounted another difference: Before, the question was always, Is this necessary to communicate? and with Leroux the question became, Why haven t you communicated this already? A VP of Human Capital remembered organizing a big event where past Presidents screened audience questions in advance, but Leroux broke tradition and made it clear that any question would be allowed. Overall, there was a large increase in the number of meetings, road shows and committees supporting companywide projects in the new collaborative spirit of One Desjardins. Leroux s meetings with Senior VPs and VPs fostered relationships that made collaboration easier. This was critical because in order to accomplish projects spanning the organization, teams needed to include people from different groups across the Federation. For example, Robert Bastien, VP of Finance, spearheaded an overarching strategy to develop the northern region of Quebec after the government incentivized businesses to undertake big construction projects. Bastien oversaw a collaboration between Business and Institutional Services, Risk Management, Finance and the caisse network to develop a strategy and identify all of the potential opportunities including commercial loans, payroll services and even personal banking for people that would receive significant compensation. The team exceeded their goal for North development. In another case, Personal Services VP Stephane Allaire started the creation of a unified Customer Relationship Management (CRM) system for all client and member contact information to more easily cross-sell products and improve customer experience. Communications Director Andre Forgues worked on intranet portals to increase transparency and expedite communication to all employees, members and elected officers. 10

11 Monique Leroux: Leading Change at Desjardins Formal communication vehicles reflected the transformation goals, as shown by an analysis of the elected officers and employee magazine between 2007 and The frequency of publication was increased from twice a year to five times a year, and there was more content. Leroux doubled the length of the message from the President from 1 page to 2 pages. Her message was titled, Just between us versus Let s talk. The magazine content was also different. The articles on strategic discussion and events were much more detailed, laying out the differing points of views and the various opinions from across the organization. More employee and elected officer names appeared in the magazine along with an increased mention of the caisses, with caisses even being featured on the cover. The idea of teamwork was reflected strongly with the frequent use of together and our throughout the magazine and prominently featured in the issues various titles. One issue included thoughts from 2 caisse management employees and 2 elected officers who won the Experience a Day in the Life of the President of Desjardins Group contest. One wrote: This unforgettable day was charged with energy. I noticed in particular the efficiency and precision of everything that happens around her. I was surprised to see her citing passages from little notebooks that contained Mr. Desjardins musings, dating from the end of the 1800s. I feel better knowing our President is so respectful of our founder s thoughts and values. Another winner wrote: Ms. Leroux is a passionate person very dynamic and very generous. She taught me to have the energy of a winner and the spirit of a fighter, while remaining a person with heart who really listens. Spending the day with Ms. Leroux gave me the motivation, as an officer, to continue like never before, to ensure member satisfaction and to address members needs. New Strategies, Enduring Values Throughout the transformation process, cooperative values remained embedded in Desjardins everyday decisions. Desjardins sought a conservative tier 1 capital ratio of 17%, 300 basis points above the banks and did not manage by ROE, which hovered between 9% and 12%, with an IRR of 10-12%. The goal was growth, earnings stability, and a strong capital base. Business and Institutional Services VP Jean Brosseau recalled that unlike his previous corporate banking experience, when anything new was introduced, the first questions were always about impact on members, impact on the community, and impact on the employee rather than the impact on profit. Senior VP of Wealth Management and Life and Health Insurance Denis Berthiaume described how Desjardins decided not to enter a lucrative auto insurance market until they could create an innovative product that would have greater returns for their members and clients while being profitable. Additionally, when Desjardins discovered that the majority of their competitors were creating an offshore business account to decrease their tax contribution and increase their profits, Desjardins decided to continue paying taxes as before because they felt it was in the best interests of the community to support the Canadian government. Leroux became a leader of the cooperative movement. She often stated, In a world marked by increasing inequality and violence, the cooperative movement offers a model dedicated to the common good. In our century, the cooperative movement can help speed up change and encourage citizen involvement in the economy. Leroux wanted to educate members, clients, employees, elected officers and the general public about cooperative values, personal finance and democracy and tasked VP of Personal Services, Eric Lachaine, with creating a robust program. Lachaine launched the Coopme program in 2011 with support of the board that voted to give 1% of Desjardins surplus 11

12 Monique Leroux: Leading Change at Desjardins earnings which is the equivalent of $15 million to support the program. The Co-opme program focused on helping the public understand how to manage their personal finances, creating innovative products to foster personal responsibility, building training and skill development programs for the youth, and promoting the cooperative model. Supporting projects included scholarships to young members, loans for individuals experiencing financial hardship that were excluded from traditional networks, a dedicated section on the internet site to educate people on adopting healthy financial habits, and revitalization of a school caisse program. The Youth Think-Tank was also launched and met for the first time in November 2010 with 35 young elected and intern officers from every region. The goal was to ensure that the younger generation had a voice in the advisory board s recommendations to Desjardins Group s Board of Directors. Desjardins in 2012: Accomplishments By the end of 2012, Desjardins had roughly 45,000 employees, 397 caisses with 5,400 elected officers, and total assets of $196.7 billion and $363 million in patronage, donation and sponsorship given to 5.6 million caisse members and the community in the past year. Wealth Management and Life and Health Insurance grew by 12.4% over the previous year due to a greater unified customer focused approach on large Canadian clients such as WestJet, BestBuy in Canada, Canadian Tire, and Quebecor. The Personal Services group created a mobile banking system in Desjardins also explored national and international expansion through partnerships. By 2012, Desjardins had agreements with Coast Capital Savings, the second largest credit union in Canada, to offer their card services and Credit Mutuel, a cooperative bank based in France, to identify business development opportunities. In 2011, Desjardins acquired Western Financial Group, which had the largest network of insurance brokers in western Canada with 122 offices, and MGI Financial, which specialized in mutual fund brokerage with 146 offices primarily located in Ontario. These acquisitions helped the P&C group reach 2 million policies by November 2011 over a year ahead of their December 2012 target and ahead of competitors. The Wealth Management & Life & Health Insurance as well as P&C earned over half their revenue outside Quebec. Other acquisitions were under consideration. Centralizing financial management and having all CFOs of subsidiaries report to the Group CFO enabled a holistic view of capitalization and equity and accountability for results. It was said that because the central function had control of treasury in a simpler structure, the Group could go to market faster and attract capital. Raymond Laurin, who retired as Senior VP of Finance and CFO in 2012, reported that liquidity increased from 13% to 18% from 2008 to Almost $300 million in productivity gains were achieved via commitments made by each group. Changing the accounting processes across the entire company saved $35 million. Centralized risk management, with a finance and risk commission giving every product launched a stamp of approval, gave Desjardins the strongest capital and liquidity position in Canada, according to Daniel Gauvin, Senior VP responsible for treasury, who also created the risk management group, led by Senior VP Real Bellemare. Desjardins credit ratings ranked among the best in the industry. In commercial markets in Quebec, market share went from 18% in 2002 to 28% in 2012 by focusing on small and medium sized businesses. (See Exhibit 10. Desjardins Financial Performance) Desjardins workplace environment received positive recognition in Mediacorp put Desjardins on their list of Canada s Top 100 Employers and recognized them as one of Canada s Top Family Friendly Employers. The Financial Post selected Desjardins as one of the Ten Best Companies to Work For. J.D. Power and Associates gave them the highest rank for investor satisfaction among Canadian discount brokerage firms for the third consecutive year. Global Finance ranked Desjardins 16th in the World for the 50 Safest Banks, and 3rd Safest in North America. The Banker magazine s 12

13 Monique Leroux: Leading Change at Desjardins July 2012 edition ranked them the 99th most important deposit taking financial institution in the world. Corporate Knights ranked them first on its list of the Best 50 Corporate Citizens in Canada. Brand Finance Canada ranked Desjardins among the 50 most valuable brands in Canada. Business and Institutional Services VP Jean Brosseau remarked that, My ex-colleague from another bank said, Before we were not worried about Desjardins as a competitor. We even suggested them to clients when we made deals because we were not afraid to lose. Now in the last couple of years that's not the case anymore. So I see that they respect us more. They fear us a little more. Future Choices As a cooperative, expansion was difficult for 2 main reasons. Cooperatives cannot raise capital on the equity markets and can get limited debt on the bond markets. They are inherently a roots-based organization so growing outside of their indigenous territory could be perceived as a threat to their values, which results in resistance from some members and employees. Desjardins had to be careful about its growth as it considered the financial and cultural challenges. Choices included maintaining focus on Quebec, expanding in Canada, and expanding internationally. Possible means ranged from alliances with other cooperatives to equity positions to outright acquisitions of commercial entities. Leroux had twice run for election as Desjardins CEO, but perhaps the most important campaign was to win the hearts and minds of everyone for an ambitious change agenda. She checked off the elements in her head, as an accountant might do in an audit, and wondered if the big goals had been accomplished. Was the transformation complete? Were the owner/members being served? Were the changes sustainable? And how should she think about strategies for the future in an increasingly interdependent global financial system? Desjardins was planning another organization-wide congress for April 2013 to ensure change for the long term, with One Desjardins as the focus. We can use the power of cohesion to do something aspirational, to innovate, to be better and different for the members, Leroux said. She was considering a new initiative involving a dozen people throughout Desjardins, balanced by gender, given tools, resources, and support to achieve quick wins in 2013, to accelerate the big machine. Meanwhile, a grass roots initiative was underway, a 3000-person eccentrics circle to try new things. Leroux said: Desjardins is not fully process-driven yet. We need to accelerate the pace of change, which is not easy in a cooperative organization. I know the 125 VPs personally and follow what they do, but I need to get closer to middle management. We need to make sure innovation circles exist throughout the organization, to act on opportunities and be close to the marketplace and members. I want to continue to work very hard on topics like trust, agility, cohesion, and innovation. At the beginning of Desjardins, the first caisse populaire in Levis was an innovation. The first computer system to bring together all the caisses was a brand new innovation in Canada and the banks followed us. So looking forward, I want to create conditions to stimulate innovation within the organization or within our cooperative partners. I really want to accelerate the pace a little bit. We need to continue to debate, we need to continue to participate, we need to continue to talk, but we need to be a little bit more agile. Leroux wasn t ready to think about what she might do after her second term as president ended. She was motivated by the mission and the work still to do. 13

14 Monique Leroux: Leading Change at Desjardins APPENDIX I. Background on Cooperatives Cooperatives are business enterprises in any field owned and controlled by the members they serve. The United Nations designated 2012 the International Year of Cooperatives, to raise public awareness of the contributions of cooperative enterprises to job creation, social cohesion, and poverty reduction, and to highlight the cooperative business model as an alternative means of doing business. Throughout 2012 there were many special world events, including a regional Summit convened by the Singapore National Cooperative Federation, an International Summit in Quebec City that attracted over 2,000 representatives from 72 countries, co-sponsored by Desjardins with contributions from non-cooperative enterprises, including a special issue of the McKinsey Quarterly. Desjardins CEO Monique Leroux spoke during the closing celebration in November at the UN in New York. The International Cooperative Alliance (ICA) estimates that over 1 billion people worldwide are members of cooperatives and a total of about 3 billion, nearly half the planet, is involved in some way. The highest concentration of cooperatives are found in countries such as Singapore, Canada, Norway, and Japan where cooperatives operate under special laws for their unique form of governance (elections by members of officers) and distribution of their surplus to members. Cooperatives can be sorted into three main groupings: producer cooperatives, consumer cooperatives, and financial cooperatives. To some extent, these types also form a scale of importance to members, or the degree of dependence. (See Exhibit 11. World's Largest Cooperatives) Producer cooperatives are found primarily in agriculture and forestry, and some manufacturers. Producer cooperatives serve as intermediaries for independent producers, such as small family farms, who can aggregate their output for sale in less accessible markets. The cooperative entities often create marketing and distributions capacities like professionally-run enterprises. Some carry major brand names and compete with shareholder-owned companies to distribute their products through large wholesalers and retailers - for example, Land O Lakes, a dairy cooperative; Ocean Spray, owned by cranberry growers; and CHS, a global agribusiness owned by farmers and ranchers. Japan has the 3rd and 5th largest cooperatives in the world, both in agriculture and forestry, and the largest in that sector. Fonterra, a leading multinational dairy company, owned by over 10,000 New Zealand dairy farmers, is the world's largest exporter of dairy products; but Fonterra issued public shares on November 30, 2012, en route to transitioning to a public company. Consumer cooperatives are member-owned retail establishments that return a portion of each consumer's annual purchases to that member. Some started as informal purchasing collectives in which members did most of the work with a minimum of paid employment but have grown into large employers. The John Lewis Partnership in the U.K. is a major apparel and online retailer. In Singapore, over half of the residents are members of cooperatives, primarily because Fair Price, a food retailer has the dominant market share and operates to world standards. Intermediary organizations have also grown to serve consumer cooperatives, such as the National Cooperative Grocers Association, which provides training and services for a network of member cooperatives. NCGA s 2012 report showed that its member coops outperformed non-coop competitors on important indicators such as local sourcing, organic produce, employee pay, and green purchasing. But experts at the Singapore regional Summit noted that most members are passive, merely looking for convenience rather than endorsing a set of values. Financial cooperatives often started as credit unions, taking deposits and making loans for the benefit of members who were thus pooling resources for mutual service meeting their savings and financing needs. Some are now large financial entities operating in global markets, such as Credit Agricole in France and Rabobank Group, based in the Netherlands. Rabobank Group is considered a leading example of community responsibility through its significant efforts in environmental sustainability. The top three financial cooperatives in the world are located in France, Credit Agricole Group, Groupe Caisse D Epargne, and Confederation Nationale du Credit Mutuel. Desjardins is the 9th largest financial cooperative globally and the 36th largest across all sectors. 14

15 Monique Leroux: Leading Change at Desjardins Exhibit 1 Proportion of Canadian Population Living in Rural Areas, 1851 to 2011 Source: Statistics Canada. eng.cfm, accessed December Exhibit 2 Map of Canada Source: Courtesy of the University of Texas Libraries, The University of Texas at Austin accessed December

16 For exclusive use at Edmc Online Inc, 2014 Exhibit /2012E Canadian Economy Relative to Developed Economies Source: Company documents.

17 Exhibit 3 (continued) Source: Company documents.

18 Monique Leroux: Leading Change at Desjardins Exhibit 4 Financial Services Income Declining from Their Traditional Sources Source: Department of Finance Canada, accessed December Exhibit 5 Canadian Bank Metrics 2011 Bank Share Price Market Cap P/E Ratio Royal Bank of Canada Canadian Imperial Bank of Commerce Bank of Montreal Bank of Nova Scotia Toronto Dominion $ Billion Operating Margin Return on Equity Dividend Yield Payout Ratio 5 Year Average Growth Rate 5.19% 14.50% 4.50% 71% 8.95% $ Billion % 17.23% 4.80% 51% 5.13% $ Billion $ Billion $ Billion % 13.91% 4.70% 54% 5.99% 41.80% 17.32% 4.00% 44% 7.02% 36.63% 12.45% 3.60% 43% 8.31% Source: accessed December

19 Monique Leroux: Leading Change at Desjardins Exhibit 6 Desjardins Governance and Photos Caisse members vote for the members of the Board of Directors for their caisse. The caisses Board of Directors must have a minimum of 5 and a maximum of 15 elected officers. The elected officers of the Board choose a President amongst them and are also responsible for hiring a General Manager. Each member of the board has a three year term and can serve for an unlimited number of terms. The Board meets monthly, oversees and advises the General Manager on the operation of the caisse to ensure that it is meeting the needs of all members. Members also elect 3 or 5 members to make up a Board of Supervision that is focused on the ethical and cooperative operation. At least 3 members of the Board, excluding the General Manager, must also form an audit committee. Each Board of Directors designates delegates from their board to represent them at the regional meeting, comprised of ~25 caisses. The delegates are either members of the board, the general manager or a member of the supervisory committee. The number of delegates for each caisse is based on the size of their membership. Each region has approximately 100 delegates. There are 17 regional divisions, 16 of them are based on geography (15 closely following the administrative regions of Quebec and 1 representing Ontario) and 1 division is for the Quebec workplace-based caisses. Each region elects 15 people to represent them on the Council of Representatives. The elected members of the council are comprised of 10 elected officials and 5 general managers. The members of the council must each represent a different caisse. The council meets monthly to discuss relevant business and represent the caisse in dealings with the Federation and the community. All of the Council of Representatives are joined together to create the Assembly of Representatives of 255 members. This Assembly meets 2-3 times a year and is tasked with guiding the strategic vision, participating in consultations on large scale projects and major changes within the Desjardins Group, and issuing opinions on bylaws for the caisses. The Assembly is also responsible for electing the Chairman, President and CEO of Desjardins who is also a member of this Assembly. The Board of Directors of the Fédération is composed of 24 members: the 17 presidents of the councils of representatives plus two vice-presidents of the councils of representatives with no voting rights, four caisse general managers elected by the Assembly of Representatives, and the President and CEO of Desjardins Group. This Board meets once a month to guide the strategic operations of Desjardins. The officers of the Federation also make up the Board of Directors of Caisse centrale Desjardins, Capital Desjardins inc. and Desjardins Trust. Each elected officer must remain elected by their caisse to continue in their subsequent elected positions. The Federation has a Board of Ethics and Professional Conduct which is composed of 8 members independent from the Board of Directors. Its main responsibilities are to adopt the Code of Ethics and make sure that employees and elected officers have tools, education programs and advice. Desjardins Group Annual General meeting is where the President talks about the goals and priorities for the future and gives a performance update. While caisses maintain their autonomy they need to agree with the federation to merge, buy real estate or hire and fire their general manager. The financial structure of the federation was designed to ensure financial security and equitable profit sharing for the caisse network. The federation s funds include: general, deposit, combined investment, and community development. The general fund managed payment of most support services for the caisses and their subsidiaries. This fund also held some small businesses such as card services and payroll. The deposit fund handled excess liquidity surpluses and liquidity shortages of the caisses. The deposit fund had a zero-profit objective. The deposit fund was the conduit between the caisse network and Caisse centrale Desjardins, a separate entity that invests or raises liquidity on the financial markets through the liquidity fund. The combined investment funds aggregates and coordinates the preferred investments of Desjardins Group. The community development fund supports social responsibility initiatives. Source: Casewriter Summary of Desjardins Governance. 19

20 Monique Leroux: Leading Change at Desjardins Assembly of Representatives composed of elected officers (arrow points to Monique Leroux) Board of Directors (arrow points to Monique Leroux) Source: Company documents. 20

21 Monique Leroux: Leading Change at Desjardins Senior Management Committee (arrow points to Monique Leroux) Youth Think-Tank Source: Company documents. 21

22 For exclusive use at Edmc Online Inc, 2014 Exhibit 7 Desjardins Group Executive Organization Chart (2008) Source: Casewriter modification of company documents.

23 For exclusive use at Edmc Online Inc, 2014 Exhibit 8 Desjardins Group Executive Organization Chart (2009) Source: Company documents.

24 Monique Leroux: Leading Change at Desjardins Exhibit 9 Sample Transformation Projects ( ) Projects Change outsourcing client Centralize the Caisee Network's back office Improve Basel Compliance Serving the SME market through Caisse Centrale Implement new Project Management structure Launched car loan product Launched mobile banking services Internship Program Caisse laboratory for productivity innovation Improve Governance Productivity Gain Commitments Outsource non-performing loans Merge caisses West Island Expansion/John Abbott College Partnership Description Switching $100 million IT outsourcing arrangement of all their banking technology to two new clients (data center and & infrastructure and printing). The caisse network also had many redundant activities that can be supported centrally to increase productivity and uniformity. Risk Management focused on bringing the entire group onto the advanced method of the Basel regulation, adding more detail and transparency to their risk profile. The caisse did not have the ability to support their small business clients as they grew and worked with the federation to provide services centrally. With the new culture and structure, the project management system needed to be re-evaluated and re-vamped to ensure it was more collaborative, inclusive and transparent across multiple groups. Worked across groups to create an innovative auto loan product that benefitted members and were profitable while the competitors products were highly profitable but not in the customer s best interest. In Jan of 2011, the SVPs of Personal Services and Technology and Shared Services discovered that a less innovative competitor launched a mobile banking solution. They convened the best people from each of their teams to create a solution by September In order to reach top talent, the new organizational structure made it easier to launch a college internship program across the organization. The federation and the caisse teamed up to create laboratories within volunteer caisses to test out new productivity ideas. A focus group discussed issues relating to the governance process and started initiatives such as online voting, recruiting more women and young people for elected positions. Finance used their centralized control over all of the groups to evaluate between $300 to $400 million in targets and get commitments from all of the SVPs. With increased trust within the organization, a caisse that previously handled their own non-performing loans, outsourced it to another internal group and saw significant results. With the support of the federation, a caisse was able to merge his caisse with another and automate the smaller caisse. The IT group worked diligently to implement and support the new technology. Caisse General Manager wanted to increase market share in the West Island through a partnership with John Abbott College, billboards and activities. He did not have the internal capacity and worked with the federation to get their support, resources and funding. Source: Casewriter Summary of Sample Projects. 24

25 Monique Leroux: Leading Change at Desjardins Exhibit 10 Desjardins Financial Performance ( ) Source: Company documents. 25