CEO Viewpoints podcast | Season 3

Insights from leading executives on business reinvention in Canada

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Delivering value through integrating strategy, culture, and stakeholder engagement

In this episode, PwC Canada partner David Bryan sits down with Curtis Stange, President and CEO of ATB Financial. Curtis shares his perspective on this year's CEO Survey, which focused on the global megatrends that are reshaping business and society. They discuss some of the key insights and themes from the survey, including the pressing need for CEOs to adapt to rapid technological advancements and shifting economic landscapes. Curtis also shares his personal insights on how CEOs can lead with resilience and adaptability in an ever-evolving economic landscape.

David Bryan: Hello and welcome to CEO Viewpoints, a PwC Canada podcast diving deeper into key themes and Canadian insights from PwC’s Annual Global CEO Survey. My name is David Bryan, I'm a partner at PwC and I'll be your host for this episode. This year's CEO Survey focused on the global megatrends reshaping business and society. Joining me to discuss his perspective on the survey's revelations, including the pressing need for CEOs to adapt to rapid technological advancements and shifting economic landscapes, is Curtis Stange, President and CEO of ATB Financial. Curtis has been at the helm of ATB since 2018, steering the organization through a period of significant transformation and growth. We'll discuss his insights on how CEOs can lead with resilience and adaptability in an ever-evolving economic landscape. Curtis, thanks for joining me today.

Curtis Stange: Yeah, great to be with you, Dave. Thanks very much. I really enjoy doing these, so it's great to be with you.

David Bryan: So let's kick things off. Tell us a little bit about the journey that you had to your appointment as CEO of ATB, the largest financial institution headquartered in Western Canada.

Curtis Stange: Yeah, thanks. Thanks for that one. I mean, my 38th year of banking, I was 23 years with one of the five big national banks and had an opportunity to tour right across four different provinces. And it was really rewarding and exciting to work in different parts of Canada. And then a big opportunity came across my plate when ATB Financial called back in 2009, living in Calgary at the time, and was keen on doing something that was going to be unique with my career, knew that there was a possibility to stay with the National Bank, but was open to other ideas. Through about a sort of a ten week different get to know you period, I actually joined ATB back in September of 2009, and the role back then was to stand up a new line of business. There was some challenge in their small medium sized businesses and their agriculture portfolio which ATB, one of the reasons it was created back in 1938 was to help rural business and specifically farmers in agriculture. So I stood up that line of business and then was asked, after about 14 months in the role, to lean in to help get what was a complex SAP banking system implementation complete. We were moving from an old mainframe to a distributed application SAP banking system, and the project had been going on for about two years and it was wobbling as many big technology projects do. So I leaned in there and over about a period of the next six months, helped with the successful implementation of that SAP banking system and then was asked, you know, when you implement a big banking system, it's a good idea if you stick around and lead the technology group to get over all of the different bumps and hurdles that big core banking projects hit you. So I spent five years post implementation leading the technology team, payments team back office. Actually including the payments team was the Mastercard team as well within that. And that was some really cool times. It was an opportunity for us to innovate. So during that time we launched Apple Pay, so we were part of the big groups that launched Apple Pay, which was pretty cool. Back in 2015, we actually were the first bank in Canada for sure during the Payments Canada annual summit to move money over the blockchain. So we had a German bank set up on the other end and we actually moved, I think it was the equivalent of something like $20 Canadian over the blockchain back in 2015. And that was really cool. We stood up a Facebook chat bot, so lots of really cool things, as we were hardening that core and making sure that the core banking systems worked really well. We were innovating back then, which was really cool. And then in 2016, I was asked to come out of that role and take on what was a chief operating officer role. All of the lines business profit centers reported to me. We called it a chief client officer. Our focus and our passion on the client has always been there, but for all intents and purposes, it was a chief operating officer and did that for two years and then was asked to take on the CEO role in June of 2018. And have not looked back.

David Bryan: That's a great story and a couple things that really jumped out at me. And I had forgot about how sort of leading edge ATB was. And you know, when you reminded me of that blockchain moment in 2015, I remember when people were still trying to figure out what blockchain was all about, and ATB was really, was really leading the conversation around how that could be used to advance banking globally. Thanks for that reminder. And the other thing that really stuck out at me, Curtis, so you said 38 years when I was reading through some of the material, and I know ATB fairly well, I remember reflecting on 2019 and your leadership team set a ten-year strategic plan that was then endorsed by your board, and it was really an impressive read. And can you talk a little bit about where you are in that journey since you started in 2019 with that really well articulated plan?

Curtis Stange: Yeah, for sure. It was a bit tricky for management first off, and then the board to wrap their heads around a ten-year strategic plan, right. We had done, like many organizations have been in the flow of three-year strategic plan, which in my opinion are really three year operating plans. And I think that was the biggest ‘aha’ moment for us is, you know, we had been doing a lot of reading and a lot of research and different sort of aspects of strategic planning, and this notion of looking out further into the future was really important. And I think, you know, especially important in Canada and Western Canada and Alberta specifically, where a lot of the industries are longer term industries, that you've got to look out in a longer sense, to really get a true understanding of what cycles will look like. And then if you add on top of that the massive macro trends that were taking shape globally that were almost this ubiquitous, they transcended across many different industries. And that would include the rapid advancement of technology and Moore's Law, which I firmly believe in the rapid advance of artificial intelligence and massive data sets and changing consumer expectations in Canada, the regulatory bodies and these macro trends, economic trends included in that we needed to look longer than three years. And so we first of all, thought we could look at 20 years. And that became a little bit too difficult for us to do. But looking out ten years was the right thing to do. So to your point, we crafted that in 2019 and then implemented in 2020. And of course, the pandemic hit. But we're just now going into year five of that ten-year journey, and we are where we would have expected to be. There have been some things through the pandemic that we had to pivot on and focus in on supporting our team and our client base, and making sure that we as an organization survive through the pandemic as many organizations did not. So we were nervous back in early 2020 and through 2020. Having said that, banks overall and financially came out of the pandemic actually very strong. But back to the strategy. We fundamentally wanted to differentiate ourselves from our competition by providing a consistently remarkable client experience, and that might be something that is in the annual report of some of our competitors. But I think we're going about it in quite a different way. Like we would know as a regional player, we can't have product differentiation for a long period of time. That's not sustainable. You can't have scale as a regional player, and the client experience is where we need to anchor on. So we're anchored on two real primary client journeys. The first is our advisory offer, and then the second is our digital experience journey. And many times those journeys will intersect as clients receive advice digitally as well as face to face. And we really define our success, and as we implement those two primary client journeys across four stakeholder groups, we as a regional bank, we're a bit unique. And even though others will talk about being committed to a purpose and a purpose driven organization, we really live it like we have, our high level scorecard focuses on the success of our team members, and proudly, we were just named the fourth best place to work in Canada, the top bank in Canada. That's the point of our differentiation. We commit to good returns for our shareholders, and obviously we really lean into the communities that we serve and all that to service our purpose, that we exist to make it possible. It's going well overall on the implementation of these journeys. Again, we're in what we call the middle innings in year four, five and six. The first three years were all about hardening the foundation, and then the late innings will be about accelerated growth, where we thought we would be with a few pivots along the way.

David Bryan: That's super interesting. And I want to just go a little bit deeper on two things you said, if you don't mind. The first one, the culture and your customer service and sort of your trust relationship with your customers. How do you balance that with the new technologies? And then if we could go a little bit deeper, maybe talk a little bit about generative AI and how that impacts how you're doing business.

Curtis Stange: Yeah. So for us in organizations and we're not different than other I'm sure different than PwC, we try and balance short term delivery results for investing for the future. This is this unending balancing act for senior leadership teams and boards is how do you deliver the short-term results that keep the commitment of your clients and your shareholder and the communities that you serve with having the right investment for the future and those investments in the future? Like our strategy, sometimes you don't see the returns within a specific fiscal year. It takes a bit of a longer time. So, I mean, our balance is to deliver organic growth within our lines of business and our segments and continue to focus in on leadership and development of core skills and the skills that team members need to be successful today, while at the same time investing in just major big technology projects like Salesforce, where we are live, and thanks to the great partnership with PwC in our business segment, and we are live in our wealth management segment and looking at now expanding that into capital markets and then into our retail group. We're looking at a complete review of end to end lending, which is a massive, will be a several hundred million dollar, multi-year project for us. And then our digitization, which is massive for us. So lots of real meaningful, major projects that consume a lot of your discretionary capital, a lot of the focus and energy, and then a lot of unique things that we're doing that get quick wins. We launched W by ATB to power the growth of women-led and women-owned businesses, a first home savings account, which was really cool for us. And so there's been some unique, one-off quick tactics that have got us some quick wins within the marketplace. And then again, still driving towards that long term strategy. And proudly, I would say proudly, we now can say that we have the strongest balance sheet of any regional bank I like to say in Canada, our CFO says in North America, and that would be against our peer group in North America. And probably through that hardening the foundation, those early years and building the strength of our balance sheet, we were in a position to pay a $100 million to our dividend, first ever to our shareholder, which was a huge milestone for us. So really cool. And I think to your point, just if I can lean now into Gen AI, I and this one was, I mentioned those big macro trends that we were looking at as we crafted the strategy. Gen AI was one of them. And that's only for four and a half, five years ago. This is a massive evolution of AI in the Gen AI. The good news is we're in really good shape. A, we have a very adaptable culture that you highlighted. And then secondly, part of that hardening the foundation for us in the early years of the strategy was very much focused on data and AI and incorporating and implementing the tools that are required for us to lean in and generate value from, which is our biggest asset, which is our data that we have. So we're running a number of proofs of concept, some driving efficiencies, some improving the client experience and all making sure that we do it in a very ethical manner. We for several years have had an ethics committee and the ethics committee, largely, while it covers the entire company, largely it focuses in on data and AI, and we have the head of our data in AI quite frequently at the ethics committee talking about the different models and tests that we're doing to make sure we're doing it in the right way. But we see this one, Gen AI as a real, almost a level setter, where small banks and regional banks can accelerate, if they do it properly, they can really accelerate and close the gap in the offers between us and the big banks. So very exciting.

David Bryan: Yeah, it really is interesting because I know when entities first started talking about AI and Gen AI, it was almost seen like a something that the tech guys did. And then it evolved into a little bit of a tool that you could play with ChatGPT. And now I know for us and it sounds the same with ATB, it's being incorporated into some of the big decisions that you're making on system implementations or how you do business going forward. And just how quickly that's evolved is so surprising to me.

Curtis Stange: It is. And our strategy is about going fast and going slow. So the going fast side would include, we have upwards of almost a third, we've got about 1,500 team members that we can see have downloaded one of the ChatGPT tools and would be incorporating it in the boundary conditions that we've set obviously, but would be incorporating it into their day to day work, right? So that's the go fast. We've got this adaptable culture, we've got a bit of an innovative spirit, and we're letting team members run with this. And then at the same time we're going slow, which is the part of our strategy where we will land on a specific tool. We're going to have Gen AI technology incorporated by the end of our second quarter of this year at scale across the company. That's a big step for us. And so I think, again, just making sure that all of our team members can utilize this type of tool is really important. And then also in the go slow is by that time, directionally, we will have anchored on where we want to scale Gen AI in a certain part of the company and really lean in and whether that's in our client care, so our telephony offering, you know, where we get what 100,000 calls in a month or we decide to scale it into some part of our client experience outside of telephone banking, or whether we go hard into our back and middle offices. I'm not sure, but we'll decide that within the next couple of quarters and then begin to implement. It's super, super exciting for us and hopefully it can help us further our differentiation from our competitors.

David Bryan: So we're both based in Alberta, and one of the subjects that comes up regularly is sustainability and ESG. And ATB has published a dedicated sustainability update, and I’d just love to hear your perspective on ATB’s stance on the energy sector, because it's so important to us in Alberta. And then how do you balance that with supporting Alberta businesses, and then that broader concern around non-renewable energy and ESG that might be coming from other stakeholders? I'd love to hear your perspective on that.

Curtis Stange: Yeah, we just completed what turned out to be almost a year long process of knitting together an energy strategy. We needed to take a look at that. This is a big sector for Alberta, clearly, and will be for decades to come. The economy in Alberta is now what I would call well diversified, based on the investments of various governments over the last decade, really since the collapse of the energy price back in 2014. So I think we're well diversified and energy is still going to play a role. And we're looking at it in a very pragmatic way as a business that has watched the transition of a variety of sectors before and had to morph and adapt to our value proposition, our services, our credit profile and advisory profile before, and we're going to do the same thing to the energy sector. But in our opinion, it's vital for the energy industry to have access to capital and liquidity and ATB Financial will continue to advocate for Alberta's energy industry as it is today. Full stop. Right. And we're also the largest lender of renewable energy in the province. So we have now put almost $1 billion of our balance sheet and committed finance to renewable projects encompassing wind, solar, hydroelectric initiatives, all situated in Alberta and then some into British Columbia. And so I'm not sure that the listeners would know that Alberta also disproportionately has had more renewable projects invested than any other province in the country by a long shot. It's not even close when you compare the renewable investment in energy to Alberta and the other provinces. So I think that's important to know. And then we will be there. So we know that over the coming decades, we're going to have to shift. And as we work with organizations in the traditional energy space, that shift is already happening. The acknowledgment of knowing that you have to be committed to ESG. And we have in the build up and the ESG index or some of the small cap and medium cap organizations in the services space and in the exploration space, we help them on the advisory side, they give them a scorecard of how they're doing against ESG, because they will know that they will be as liquid on their demand in the capital markets, and they might have to be a bit of a more premium for their capital if they're not in that space. So that big recognition in the sector, that ESG is prominent, and we want to help advise energy companies on how they can move forward with the financing part of their ESG strategy. So we're very committed to that. We launched the Carbon Certificate training program recently, which helps enable access to carbon offsets for our ATB capital markets clients. And right now, again, as I said, we feel we can do both traditional and renewable and then watch obviously from signposts that encourage us to transition with the industry. But again, that's a long way into the future.

David Bryan: Yeah, it's a really great story, though, and I and I really like the way you tied in how ATB can be an enabler or a partner or supporter with your clients as they go through this journey. The other comment that really stuck with me, and we tend to forget about it, is the amount of investment that Alberta is making into renewables. If you don't mind, I want to talk a little bit about your profit and your growth. You mentioned it earlier, but there was a lot of economic volatility in 2023. But ATB achieved its highest total revenue ever. And you, even as you mentioned, announced a dividend to your shareholder for the first time. Can you touch a little bit for our listeners on how you drove that profitability? And was it through efficiencies? Was it growth, the mix of both and especially during those challenging conditions? I'm sure the listeners would love to hear if there's a secret sauce somewhere.

Curtis Stange: Yeah. I don't know if there's a secret sauce. I think it is in strategy and culture for sure. We hit a milestone of over $2 billion, ending our last fiscal year, which just ended March 31st, which is a good big milestone for us. And I think to your point, it's not been an easy journey over the past six or seven quarters in banking. Having said that, banks generally make a bit of a spread as rates go up and then give back some of that spread as rates go down. And the industry didn't grab on to a lot of the spread, predominantly because of the inverted yield curve, and banks on the spread business tend to lend out a little longer and invest a little shorter. So on the lending side, we just did not grab the spreads that we would have historically. So that put a bit of pressure. And then like other industries, we were fighting inflation, a slowing economy. The higher rates that slow down some of the activity in the consumer in the business space for sure. So that 2023 was a bit tricky for us. There's no doubt about it. On balance, Alberta's economy has experienced record population growth, revitalized energy sector, proven its resilience, relatively speaking, to other areas across the country. And so that combined with some of my earlier commentary about how we're executing against the strategy and these short term wins, along with our long term investment equated to our year actually being quite positive for us. And again, I can't reinforce enough that we define success across the four stakeholder groups. And as I look back on the year, the question I have with my boss as the chair of the board is all about balance. And did we move forward with the culture and the evolution of our culture, and the major transformations we've seen in our culture in the past several years? Did we move that forward? Did we move forward on the client experience, and as a result, did we keep pace with what we would look at from a performance in an organization related to the economics and the return to the shareholder? And how are we doing on the greater good strategy as it relates to giving back to the communities that we serve? This is really important. And while each quarter might look a little bit different in our emphasis and how we're driving it forward, certainly at the end of a year or the end of a second year, we look at how we're doing in balance. But financially, paying the dividend was a major milestone. Having a balance sheet that is the strongest in Canada, slash peer group North America is really cool. I actually had a chance to speak to about 200 team members yesterday in our small business space, and they might get tired of me talking about the strength of our balance sheet, but we measured that in common equity tier one. And really, that's basically you take the risk weighted assets that we have, which is really our loan portfolio overtop of our retained earnings or our common equity tier one capital. And you get a percentage and the regulatory floor for us happens to be about 7%. We carry about 12. And why that's important is because it gives you dry powder to do and have strategic flexibility as an organization, right? So we're in a market for what potentially could be a bolt on acquisition into our wealth management business. Large capital levels can help you do that. If in fact, there is an accelerated growth, which we forecast in Alberta and in business, and there's a lot of drawn demand for loans, we need the spare capital, the excess capital in our balance sheet to be able to grow our balance sheet really quick. And I think an example of that is even in 2023, even though it was at slightly lower margins for us, and we had budgeted to grow about $2 billion in loans and ended up growing 4.1 billion net in loans, and that was both retail and business. The economic volatility was one thing, we had major headwinds, but we made the right decisions on the revenue side, implementing our strategy, and we had to make some tough decisions, like many companies, on the cost side too.

David Bryan: You talked about, and we haven't talked at all about this, but you did mention it a couple of times and it's one of your four pillars is culture. Teaming is a word you used a lot, that high performing culture, that sort of feeling of working together towards the goals of the organization. How do you foster that?

Curtis Stange: I love this like as I was evolving through my career, I really found that I really anchored on strategy and you really appreciate it as you take on bigger and bigger responsibility with different types of scale and people and complexity and teams that you know what? Honestly, it truly is all about culture. And I've always anchored on being a high relationship leader and anchored on the success of people. You really begin to understand it. And the intersection of the importance of culture and strategy and how one will be a major enabler or a major dis-enabler, or wind in your face, if you will, over the long term, I really fundamentally get that. But how we've done it is when I took the reins over, we had a culture of high care and quite a supportive culture. What was missing was what we call this little pixie dust, that performance and accountability. And so this is where the four stakeholder groups would have been out of balance. The culture would have been, quite strong and quite positive, but we wouldn't have been getting great feedback from our clients all the time. Our profitability, the strength of our balance sheet, our strategic flexibility wasn't there. However, the commitment to community is something that's been there, I think, from the beginning for the last eight decades or so. But how we did it was we redefined our why, what, how and who. And our why is our purpose. We exist to make it possible, no matter how much the world around us changes, one thing is going to remain constant, and that's our definite resolve to embrace what we say is the art of the possible for Albertans and their businesses. The second is what we talked about earlier, which is our strategy. That's our “what” and again, putting together that team of experts, in the strategy back in 2019 and evolving to where we're at today, we're in really good shape. And again, the first of its kind for ATB in a ten year strategy. And going into year five, we're feeling quite confident. So that's the “what,” the “how” is exceptionally important to us. And we built upon a real sort of balance of top down, bottom up of reinventing what are cultural traits and values needed to be in the organization? What does that look like as an evolution of those cultural values to make sure that they were the right ones we were focusing in on, rewarding the line to get us to the culture we needed to enable us to get to the strategy and get to 2030, so that “how” is exceptionally important for us. And to give you the strength of that, we incorporated that right into our performance enablement system. We basically narrowed it down to four cultural traits, one ATB, keeping us aligned on our goals as a regional bank is exceptionally important. Driven to perform is the second one, being client obsessed and then champions of belonging. So those four cultural traits make up the “how” in the why, what, how and who. And then finally the “who” for us was we reconstituted the value proposition externally to our clients and we went now, two years ago almost with the powering possibility brand value proposition to our client. We look back on it and we go, we now have this complete package as an organization that 96% of our team members, through surveys, would say they understand the why, what, how, who. They understand what they need to do to bring it to life and understand how their role individually in the company can help ultimately bring our purpose to light, of powering possibility for our clients and existing to make it possible for those four stakeholder groups. So that's a really high level, that’s the package of how we kept driving towards a high cultural and important external recognition for us, but making sure that in check we have the other three stakeholder groups.

David Bryan: So as we head near the finish line, Curtis, I want you to dust off your crystal ball for a second and just try to envision ATB’s trajectory over the next 5 or 10 years. And what does that look like? And then also, I'd love to hear what you perceive as some of the challenges that ATB’s going to face to maybe some of the more traditional banking models as we see things like open banking and those kinds of things. And so if you could stare deep into your crystal ball and let me know what it says, the listeners and I would love to hear it.

Curtis Stange: Yeah, man, oh, man, sometimes that thing's a bit cloudy, isn't it? As you look into 2030, it's only now five, six years away here. That's definitely our biggest focus right now. There's going to be new factors to consider. And you mentioned open banking as an example of one of those faster payments comes along with open banking. And I think the investments that Payments Canada and the banking industry are making in faster payments, in real time payments will be important for us. The legacy part, you mentioned legacy. The legacy is going to be grounded in the commitment of our four stakeholder groups that I spoke of earlier, and that's really important for us. And I can come back to that communities in a minute. But just to touch on that challenges to the traditional banking model and especially us as a regional bank. As a regional bank, we don't have scale, so we're high cost. That's part of our commitment to rural Alberta as well, there's some real economic benefit to being committed to rural Alberta. One of them is that spread business I talked about, there's an awful lot of deposit business that we would garner from being having a branch located or an agency located in some of the small branches in the province. So very beneficial to us, and they're definitely high cost model. So there's no doubt the thing that, one of the many things that can keep me awake at night would be the fact that we've got a high cost model. We have to be very effective at executing against our strategies and very efficient, because big players with scale and fintechs with lots of venture capital and lots of money in the background can come in and impede on the profit centers and profit pools that are in the model that we deploy today. So that keeps me awake at night, independent of cyber and all the major other things that that we all face that we're all protecting ourselves against. But, you know, going back to the legacy, if I can, for a second, the community strategy for us is anchored in what we call being in business for the greater good. I championed a lot of that as the CEO coming in not because of my position, but because of my passion for a lot of things, most particularly mental health. And we incorporated enhancing and evolving access to mental health as one of our many anchors in our greater good strategy. And I'm pleased to say that as an organization, we're being recognized externally, partly through Great Places to Work as being an organization that is supportive of mental health needs. And I think that one for us is we fundamentally believe that individuals, consumers and businesses, and you're already starting to see it today, will deal with you as a business for your core value proposition, but will it help enable you to differentiate yourself as what you do beyond your core value proposition? Or we like to call it beyond banking. And that's where our greater good strategy comes in. It's the right thing to do to give back to the communities that we serve. And we think it can help with competitive differentiation, for sure.

David Bryan: That's really interesting. And I love that comment about what are you doing beyond your core strategy or beyond banking. So in our last question, I was going to ask you to confess your loyalty to either the Oilers of the Flames. But I realize that's a completely unfair question. So I won't put you on the spot, but I will toss to a little bit of a softball because we'd all know what the right answer is. But any predictions for the Oilers in their 2024 Stanley Cup run that's going on right now?

Curtis Stange: Yeah, so I'm a hockey fan overall. And for your listeners, I think I spend half my time in Calgary and half my time in Edmonton and love both cities and love hockey. I think the Oilers have a real strong chance to go deep into the playoffs here. They've been a bit hot and cold through 2024, but if they get on one of their hot streaks, the skill level they have, top to bottom of their roster is pretty impressive. So I'm going to be away and traveling for all the games in this second round, so I'm not going to be able to get to any of the games in Edmonton for round two. So hopefully they get to round three so I can actually get back to watch the games. It'd be fun to watch.

David Bryan: Perfect. You said it perfectly. It's going to be a lot of fun to watch this next series with Vancouver. So that concludes this episode of CEO Viewpoints. And I want to take this brief second here to thank you, Curtis, so much for your time today. We really appreciate it. And we really appreciate you being so open and transparent on ATB and the amazing journey that you're on.

Curtis Stange: Thanks very much, Dave. Appreciate being with you.

David Bryan: So stay tuned for more insights from Canadian CEOs. If you've enjoyed this episode, you can subscribe to our series on Spotify or Apple podcasting platforms. And please feel free to leave us a rating or review on Apple Podcasts. This podcast has been prepared by PricewaterhouseCoopers LLP, an Ontario limited liability partnership, for general guidance on matters of interest only and does not constitute professional advice. Thanks for listening.

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CN CEO Tracy Robinson: Harnessing growth opportunities from shifting supply chains

Joining us for the first episode of the third season of CEO Viewpoints is Tracy Robinson, who talks to PwC Canada’s Sébastien Doyon about the drivers of growth in the rail industry and how the Canadian National Railway Co. is harnessing emerging opportunities. They explore the growing need for rail carriers to partner with both each other and other modes of transport like trucking companies to serve evolving supply chains. They also discuss key industry challenges like climate change as well as the leadership attributes required to steer organizations through complex and uncertain times.

Sébastien Doyon: Hello and welcome to CEO Viewpoints, a PwC Canada podcast, diving deeper into key themes and Canadian insights from the Annual Global CEO Survey. My name is Sébastien Doyon. I'm a partner at PwC, and I'll be your host for this episode. This year's CEO Survey focused on the global megatrends reshaping business and society. Joining me to discuss her perspective on the economy and the issues playing out in one of the most critical industries in global supply chains is Tracy Robinson, CEO of CN Rail. Tracy took the helm of CN in 2022, and ever since then has been leading the company through a period of intense change. She's here to discuss what she's seeing on the economic front, the growth opportunities for rail and the rising imperative for different players in the supply chain to work together to grow the industry's market share. Tracy, thanks for joining me today.

Tracy Robinson: Oh, it's my pleasure.

Sébastien Doyon: So before we get into the trends of the rail industry, let's talk a bit about what's happening in the economy right now. PwC is doing an annual study called our CEO Survey. And our recent results are showing that 25% of Canadian CEOs expect growth to improve. However, many are more pessimistic than the global CEOs in our study. CN is so well integrated into the North American economy and connected globally. So Tracy, I'm sure you do have a viewpoint on the economy and what's happening.

Tracy Robinson: We do indeed have a viewpoint. Like many of your other survey respondents, we are more optimistic this year, without a doubt. CN, as you know, our tracks span from the West Coast of Canada to the East Coast and then down through the US into the Gulf Coast. And we serve pretty much every industry across the continent. It's been a mixed bag where the real weaknesses from our perspective have been in two areas. One is in forest products, in lumber. We've seen that demand fall, and I think it's connected largely to some of what's happened to interest rates. Now, we know that there's still a fundamental shortage of housing in North America. So that demand is out there and it's going to come.
The second area of particular weakness has been in those consumer goods, largely the ones that come into the continent on containers. There's a glut of inventory last year that the retailers have been working through, and that's now gone. We're back down to normal inventory levels. So we are optimistic, without a doubt. Where we're still watching is the impact of some of what's going on around the world more from a geopolitical perspective. And more and more those kinds of things are affecting trade and how commodities and products move around the world. And we look at what's going on in the Red Sea, that has changed the way the vessels and containers will move around the world, and therefore ask different things of the North American supply chains and infrastructure. The water volume issues in the Panama Canal—that affects global shipping. It's a very dynamic environment, positive, with some cautionary notes on the geopolitics.

Sébastien Doyon: So now let's look at the future of rail. When I take a step back, I am forced to admit that there must be some good trends in your favour. If you look at, for example, the need to reduce carbon emissions, that must be helping you from a long-term perspective. In order to take advantage of these trends, it is inevitable that your industry improve interconnectivity and fluidity of your networks, to manage the movement of goods throughout their end-to-end journey. I'd like to understand how you see these future trends play out for you.

Tracy Robinson: I must say that I like our space when it comes to the very important file on climate and on emissions. If you look at North America, transportation accounts for between 25 and 27% of North American emissions. And that includes your airlines and trucks and rail, ships and cars and those types of things. Rail would be about 2 to 3% of that. Truck is about 25% of it. Right now, we move most long-haul commodities because that's where we are. The challenge is in the short hauls, the shorter distance hauls where right now truck is dominant. Overall, we would have about 25% market share of moving goods around, and truck would have about 45%. So the opportunity, given how emissions friendly we are, you can reduce emissions by about 75% if you transfer from truck to rail. So the opportunity but also the responsibility then is to figure out how we can lift more of that truck traffic off the roads.
To do that means that we have to think about our business very differently. We have to compete with trucks. People hire trucks for a reason. They want fast and consistent. And so we need to be able to create services like that. If you've been a customer of a railroad over time, and you want to go from Edmonton to the southeast part of the United States, you may be talking to a number of different railroads. So what we need to do is be more truck-like. So right now, we are getting together as a full supply chain. And it can involve ports and terminals, and it can involve warehouses. It can involve multiple railroads, and it can involve trucks. But we need to come up with one service package that is not only easy to use and easy to approach and understand, but also operates fast and consistently. You know it’s something you've seen every railroad in North America lean into. And what's really important is when we lean into it together, because that's where the magic happens. We've got some great examples of that where the service is coming, and now we've got to get the volume on these kinds of services. If we can do that effectively, I think you'll see a very positive impact.

Sébastien Doyon: There's then the notion of cooperation with even some people that are really your competitors. I know that you have made some announcements, like the Falcon Premium agreement with Union Pacific and Grupo Mexico. What does that tell us about the future of CN?

Tracy Robinson: Railroads have long histories of being fierce competitors, as you say, and we know how to do that. But if you watched what went on over COVID, there were a lot of shocks to the supply chain, and I think every single one of us understood suddenly how important it was that supply chains work effectively. What's going to be important is that we demonstrate that we can work together where it's important to work together. It doesn't mean we don't compete, but that we can come together and create supply chains that perform, that are reliable and resilient to shocks, and that can grow because our economy isn't going to grow unless the supply chain capacity continues to expand with it, where it needs to accommodate the trade flows, whether it's international or domestic. And so as we think about this, there’s a great case in all of the nearshoring that’s going into Mexico.
To move those flows, we need to think about coming together very differently. And so, as you said, the Falcon Premium service is our first and primary example of it. And we are now running trains from Mexico, from Monterrey on the Grupo Mexico, all the way through the UP system and onto ours in the United States and into Toronto. And we're doing that in five days, which is as good or better than a truck can do it. And we're doing it consistently in five days. This is the kind of thing that can happen if you decide you’re going to come together. And this is what we did with UP and Grupo Mexico as one company. We challenge ourselves around the table. We met this week around if we were truly one company, how would we think about this? And so that's when the competitive spirit comes down and the collaborative spirit comes up. And it's amazing what you can make happen when you get into that kind of head space. And so now it's a matter where we've proven it can be done and we can do it consistently. Now it's a matter of demonstrating it to the extent that we start to attract that truck traffic onto the trains. And it will do the same support of those trade corridors, only it's going to do it a lot more economically, a lot more emissions friendly.

Sébastien Doyon: Falcon premium is a good example of collaboration and cooperation in coming together. When you look at the industry overall, how far do you think companies are willing to go in working together?

Tracy Robinson: It's a very complex world, but I would tell you that it's an imperative that we're all taking on. Because if we can't figure it out, the economy is not going to grow. So it's not just railroad to railroad and figuring out how to work together differently. That's an important piece of it. But it's the full supply chain. So when a container leaves, say China, and it's going to, say, Chicago, it shouldn't be a surprise when it shows up at a terminal and a port. We can take down the barriers and share data between customers, between ocean-going vessel companies, between ports and terminals, between railroads, warehouses and trucks.
If we were to do the same thing we're doing with the UP right now and imagine we were one company, how would it work? How would data and information flow? How would we optimize? You're going to get better performance. It's going to be more resilient to shocks because you can recover much more quickly. And it's going to become obvious where we need to invest in order to grow the capacity, where the pinch points are. Right now, we're optimizing to our own operation, as opposed to the total throughput of the supply chain. It's a big leap of faith. But if we can't figure it out, we're going to be constraints on the growth of the economy. None of us wants that. We're all here to help the economy grow.

Sébastien Doyon: Tracy, I want to focus on trucking a bit more. Taking trucks off the road, putting business on rail is a threat for trucking companies. But you still need to collaborate. And I know different railroads have approached this in different ways recently. In CN's case, a few years ago, you acquired TransX as part of your intermodal strategy, and we've seen announcements of other companies also announcing partnerships recently. What's your view on how to successfully collaborate with trucking in that type of competitive environment?

Tracy Robinson: There's a way to be a partner with a truck company. So in the case of TransX, we made an acquisition and we use them as an extension of our system to serve our customers. Our customers can have us deliver directly to their door as opposed to contracting that last-mile delivery themselves. There's other models, and we do it differently in the United States, where you use IMCs (intermodal marketing companies) and you partner with trucking organizations in different ways. The question is: how do we use them in the right way and use the benefits of rail as a partner to make sure that we get the right service offerings and we do it at the right cost and, as I said, the right emissions profile? There's no single solution. And we think that without a doubt, rail is the answer on the long haul, truck will be the answer to a certain extent in the last mile when it comes to containers. It's how we work together and the path in between in order to continue to improve the efficiency and effectiveness, and some of the announcements that you're seeing are examples of that.

Sébastien Doyon: A lot of what you're talking about is also bringing me to question of transforming your business and freeing up and allocating resources. What's your approach to think about how do I deliver on my existing business commitments and at the same time build the future? Do you have any examples to share?

Tracy Robinson: In your survey, you spoke about the large percentage of companies that are focusing on the need for reinvention in order to build a sustainable type of a model. I don't think there's anyone that isn't in that situation. For us, we implemented a scheduled railroad operating model two years ago, and the reason we did that is it's our imperative. What we need to do first before everything else is make sure we deliver to our customers. And through a scheduled operation, it's driven us to be faster. We are far more consistent. But then you lift your head and say: where's the next way that we're going to do business? We’re sitting beside our customer and we're managing their base business, but they want to get into a different market, or they need to think about alternatives or different outlets given the way global trade flows are moving now.
There's a level of nimbleness that is required in thinking about our business these days. And so you take care of your base business. And there's a good portion of our organization that's focused on that every day. But what we understand very well is where we have capacity and capability to either take shocks or to respond to opportunities as the trade flows shift. And we're getting really good at recognizing that, sitting next to our customers and being able to communicate that and translate through the scheduled operating plan into the new way of delivering that business. And so it's proven through a pretty bad season of forest fires in the north here and some wind events in the south. Over the last year, it's proving to be a really resistant model. It can take a shock and it can recover very, very quickly. It can take a change in traffic flows and adjust very, very quickly. The benefit of a really structured, disciplined operating model is it allows us to lift our head and contemplate what is next needed out there.

Sébastien Doyon: A lot of what's happening in the world, including when we talk about collaboration, really comes down to the core idea of trust. Many organizations are dealing with declining trust at a time when they need to build stronger relationships in the communities they operate in. You've dealt with the issues yourself at CN. We saw recently, for example, the resignation of CN’s Indigenous Advisory Council. How are you dealing with this?

Tracy Robinson: Thank you for the question. This trust concept is an important one. And for me personally, it's important. I believe that really what it is every day is the way you show up, and you do what you say you're going to do. You need to be predictable. We move through hundreds of communities across the continent and hundreds of Indigenous communities, and our employees live and work in those communities. Their children go to school in those communities. And if they're going to grow, then we need to grow with them. Our first priority every day is to do no harm. Safety is our primary focus. And so once you do that, you work at making your customers in the industries in those communities successful. And then we lift our head and say, we would like to leave these communities better off than where we started. And every community, whether Indigenous or otherwise, has different needs and some different thoughts about what that may look like.
So we engage with the communities on a face-to-face, one-on-one basis. And whether it results in something like an arena in Prince George or a Sun Youth Centre here in Montreal, or the America in Bloom effort in the United States, we try to be very bespoke around how we drive benefit in communities. When it comes to Indigenous communities, the Indigenous Advisory Council at CN did a tremendous job of reconnecting our company to the role that the railways played in implementing some of the colonial policies and the impact of those policies on the health of the communities, whether it be economic health, the societal health of communities over generations. And that's an important part. I am very grateful to the members of the Indigenous Advisory Council in helping us establish that foundation. It wasn't always easy to hear and to reconnect with. We have issued an acknowledgment, and this is an acknowledgment of the role that railways played in the past, particularly in Canada, and the impact that it had on the Indigenous communities. And using that as a foundation, we are now committed to the building of a reconciliation action plan, and we don't want that to be superficial. So we're engaged in that right now in consultations with Indigenous communities, particularly across Canada, on what that needs to look like.
This is a long journey, and we want this journey to be one where we acknowledge the past but contemplate a future that looks very different in how we come together. It's going to focus on where we think we can move the needle. It's going to be around principles of awareness. We want to have an impact on people and employment opportunities for Indigenous communities. Almost 6% of our workforce is Indigenous right now, and we're very proud of that. We want that to grow and we want them to have a growing impact. We are a strong believer in economic reconciliation, and we're working very hard on how we procure. And there will be an environmental framework as well. So this is where we're starting. It's going to be a long journey. We need to take it step by step and very seriously. And I'm grateful to the Indigenous Advisory Council in helping us to get there. It's up to us to take it to the next level.

Sébastien Doyon: Under your leadership, there was a significant amount of changes that were introduced at CN. We often see a crucial ability is to mobilize people and help them embrace change. As many of us know, you don't become a leader overnight. It takes a lot of experience and mileage. Your career path, how does that help you prepare? What have you learned on the way that also helps you better connect, better engage, have better relationships with your people at CN?

Tracy Robinson: That's a really big question. As you know, I grew up at CP and I joined CP right out of university. I learned the business from the ground up at CP. I spent 27 years there, and I touched a lot of different areas: sales and then marketing and asset management, operations and finance, customer service. And each one of those areas gave me a perspective that the last one hadn't. I remember saying to myself on a number of occasions that if I'd known this, I would have done the last job differently. So that breadth of perspective around what moves the whole organization forward is something that I think is really important. I also, as part of that, ended up leading functions or organizations that I didn't have the technical expertise. That forced me to step back and think about what is important for this function or this department in helping the company move forward. So it forced me to think more broadly. You have to lead through the people because you don't have the technical knowledge.
There's a lot of companies, and railroads are one of them, that are deep in functional technical knowledge, and we're very siloed that way. And so the leadership comes up on the basis of the depth of their technical knowledge. What I learned along the way was how to lead more broadly, what I call the enterprise. Leading the enterprise means you're not an expert in anything, but you do understand how the pieces and the parts come together. And if you can understand how the pieces and the parts come together, it means you can be more nimble because you can anticipate the impact of things happening, shocks to the system. You can anticipate that, and you're more resilient and you're more nimble. As I worked with people in those jobs, I was always so impressed by what any one of those teams or areas was capable of once you lifted them to help them understand what you needed to do and why it was important. And once you get people connected to that, you discover and they discover what they're capable of. There's magic in it and there's magic in that momentum. It gets to be contagious. And once you get that going, that's what organizational effectiveness looks like. And I think it's what leadership looks like.
I know what this company was capable of because I competed against it for 27 years when I was at CP. And so it was a matter of us gathering around: What are we trying to do here? What's our reason for being here? How are we going to do it? And then who plays what role? We're not optimizing engineering. We're not an engineering firm and we're not an accounting firm. We are a railway, which means we need to decide what our role in the bigger piece of it is. And we need leaders who can guide us through that. So when my leaders come into my office, I might ask them to leave their function at the door and to come in as a broader enterprise leader, and then they pick their function up again when they leave. But we need to teach that broader level of thinking and then leadership through lifting into that. I'm very proud of this team for how they've leaned into that. And you've seen some of the impacts of that, I think, as we go forward.

Sébastien Doyon: So now that you created the momentum, how are you ensuring succession?

Tracy Robinson: Our business is very complex, lots of moving parts. It's 24/7, it's an outdoor sport, and all of our customers across all industries rely on us to show up and get it done every day. So that technical experience is there for a reason. But as we grow leadership, we're looking to give leaders coming up in the organization a broader experience. So if you aspire to be a leader of bigger parts of the organization, you will get experiences now in this company that's going to expose you to more than just the function you started in. And I think that that's an important part of development. It can be difficult to do if in your past you’ve relied on your technical competence, but it teaches you how to figure out, just as I went through, where you fit, what your organization needs to do and how to manage that and lead that through people.
So we're going to give more and more of those types of experiences to that portion of our talent and as you come up through the organization. And we're focusing now on our front line leaders. People need help in growing themselves into good leaders, and we need to give our people that help. And so we're leaning in on that, too. I want succession to fall from these types of developmental activities. We're also inviting more people in from outside the organization. New eyes from different backgrounds, different perspectives really helps us. And we need to be an organization that is interested in that and that welcomes it.

Sébastien Doyon: I want to talk about energy transition and climate change. In your case, at CN, I know you're looking at a variety of solutions to reduce emissions. I'd like to understand what role do partnerships play into your approach?

Tracy Robinson: We talked a little bit about how important railroads are in the economy by moving goods and moving them at a lower emissions rate. As we look at our own emissions, 85% come from locomotives. We're doing work on the non-locomotive emissions. But it focuses very hard on the locomotives. We made some commitments externally around reducing emissions intensity. And we're tracking well to those commitments. And the way that we've done that, two things out of the gate. One is the technology on locomotives that gives you data and information. It’s how we handle locomotives. The second thing is we've introduced biofuels or renewable fuels into our diesel, and we're working to increase that. We are the most fuel-efficient railroad in North America to the tune of about 15% on average.
Ultimately, it gets to propulsion. The industry is working on this. But right now, we're all kind of doing some testing on different alternatives. In Pennsylvania, we are working with Wabtec on a fully electric locomotive. We announced this past week in British Columbia with the help of the British Columbia government, we're working with Progress Rail on a hybrid diesel electric locomotive. Other railroads are working on other options as well. When it comes to the rail industry, we don't produce locomotives, so we're working with the original equipment manufacturers.

Sébastien Doyon: With those experiments that you're doing right now, are you seeing any specific challenges in terms of adapting your fleet?

Tracy Robinson: There's two kinds of pieces of that. One is the actual locomotive itself. And to the extent that we can use the same locomotive body to modify the locomotive in order to accommodate the next level of propulsion, that's something that will be the most effective path forward. The other is exactly what that fuel is going to be and how you get that fuel to the locomotive. So we have very well-established across the industry the diesel distribution system and how we all power locomotives. Whatever the next fuel is, we will have to also think about how we will deliver that fuel to the locomotive. So those are two areas that we're working on concurrently.

Sébastien Doyon: Now turning a bit to extreme weather events, we've seen some of these issues happening across your network. I know you're analyzing those long-term impacts of climate change, other extreme events. Given your experiences, what would you advise leaders at organizations that are at earlier stages than you are? How should they think about physical risk?

Tracy Robinson: First, they need to acknowledge that it's real and it seems to be increasing. So we pay a lot of attention to the data and to the information that's out there. I would advise others to do the same. There are lots of innovations coming. When you think about physical infrastructure on how to predict where these climate emergencies will take place, there's some really cool new innovations around how to predict where you may get fires or floods. There are things that you can do to harden your infrastructure in advance. For us, there's new kinds of materials that are more fire resistant, and we look at where the culverts are for the purposes of water. We have new sprinkler systems on some of our infrastructure and bridges.
So there's things that you can do to reduce the likelihood of impact, once you understand where these things are more likely to happen. And then once they are happening, of course, it's inherent upon all of us to make sure that we mitigate the impacts, we make them as small as possible. And we work very hard on our own infrastructure with our customers as well as communities to do that. But the level of innovation that's coming, and the predictability from a data perspective of what could happen, that is something that we all would be well advised to take advantage of as we think about building resiliency into our business.

Sébastien Doyon: That's very wise advice. Thank you so much for sharing your thoughts.

Tracy Robinson: Well, thank you and thank you for the survey. It was a fascinating read.

Sébastien Doyon: That concludes our first episode of Season 3 of CEO Viewpoints. Stay tuned for more insights from Canadian CEOs. If you've enjoyed this episode, you can subscribe to our series on Spotify or Apple podcasting platforms. And please feel free to leave us a rating or review on Apple Podcasts. This podcast has been prepared by PricewaterhouseCoopers LLP, an Ontario limited liability partnership for general guidance on matters of interest only and does not constitute professional advice. Thanks for listening.

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About CEO Viewpoints

CEO Viewpoints is part of our Shift podcast series, with a specific focus on diving deeper into the issues raised in our annual Global CEO Survey. In each episode, we explore how Canadian chief executive officers are navigating the growing reinvention imperative revealed in our survey and what they’re doing to stay ahead of key megatrends like climate change and other important disruptors. Listen as they offer their insights on the issues reshaping society and how they’re leading their organizations through the profound forces of change fuelling business reinvention globally.

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