Hawaii Business 2012 CEO of the Year: John Dean of Central Pacific Bank
The complicated deal to save CPB
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Although Central Pacific’s financial troubles were serious, the bank still had a healthy culture. “This is the big surprise,” Dean says. “Of all the struggling institutions that I’ve gone to, oftentimes, they lose their values in the struggle to survive. But this bank had a strong set of values prior to my arrival. I think it’s important that message get out. And what’s nice is that those values complement what I believe. I think the only thing I had to do was clarify those values.”
Dean emphasizes that a company’s values have to be reflected in its business operations. “While it was a great culture, good from an integrity and ethical point of view, there was more of a silo approach in the company: ‘You have your area, I have my area, and we’re not necessarily going to work together.’ So, we’ve really pushed teamwork – not just within the functional areas, but across the institution. So, if you’re a client, we need everyone in the bank pulling together to provide you exceptional service.”
To encourage that, Dean established a group – below the executive committee – to identify the bank’s core values in a way employees could remember and apply. They came up with T.I.E.S – Teamwork, Integrity and Excellent Service to customers. Then Dean introduced several programs that recognize employees who embody the company values. VP Norman Nakasone, who manages the service quality department and is the person Dean calls “the heart and soul of CPB values,” explains how the programs work.
The “On-the-Spot Rewards” card, he says, is a simple way for employees to recognize other employees who do something that embodies the core values. The card, which has a scratch-off section, sometimes comes with a small prize, like a $10 gift card. The recipient also qualifies for a monthly drawing. “Since we launched that program in April,” says Nakasone, “we’ve had 5,000 of these cards come in. The wonderful thing about that is one of our core values is teamwork, and roughly 50 percent of those cards are from an employee in one department to an employee in another department.” It’s a simple way to break down those silos.
Photo: Mark Arbeit
Nakasone says another program, called E-Notes, makes it easy for managers to recognize employees who may never see the impact their actions have on customers. Senior VP for community banking Bob Yee gives the example of a newly married customer who needed to close on a real estate transaction quickly to buy a condominium that would accommodate his disabled spouse. Because various departments worked together, Yee says, they were able to book and close the deal on the same day. “I was able to recognize all the departments and the key individuals by submitting an E-Note online, which was published within the week for the entire company to see. Without E-Notes, these people may not have been recognized or seen the ultimate impact on the customer, who, needless to say, was extremely happy.”
In all, Dean introduced more than a dozen programs to promote core values and improve communication in the bank. Maybe the most far-reaching has been the installation of upstream evaluations. According to Yee, when the upstream review policy launched, it started at the top. “John asked his direct reports to do an upstream appraisal of him first,” Yee says. “Then it was cascaded down to the various levels. Now, after a couple of years, it’s gotten to the point where staff are doing upstream appraisals of branch managers. And, of course, the branch managers are doing an upstream appraisal of me. So, line managers are getting honest, open feedback from the tellers on the line. If you’ve been a manager for 40 years, that can be an eye-opener.”
Dean’s willingness to “walk the talk” has been noticed by employees. Almost everyone at the bank offers examples of small acts in which he’s shown character, humility and wisdom. “This ID badge is a perfect example,” says Nakasone, waving his CPB lanyard. “All employees are required to wear this ID badge in order to access their particular section of the building. John Dean is someone who, even at the level he’s at, wears his ID on a lanyard like everybody else. I’ve never worked for another CEO who did that.”
When low-key Dean participated in a flash mob dance for a company video, dressing in disco clothes a la Saturday Night Fever and throwing in a few John Travolta moves, several managers were surprised. “At first, guys like us were apprehensive,” says John Taira, senior VP for commercial banking. “It’s embarrassing to dance in front of other people. But it was a great morale enhancer for the bank.”
Because of that mix of character, knowledge and success, Dean inspires great loyalty in his employees. “I’ve known him for so many years,” Ngo says. “I’d follow him into any organization, even if it meant walking over hot coals to get there. And after I came here, there were a number of colleagues from Silicon Valley Bank who called and wanted to be part of this organization. That’s the kind of leader John is.”
“It’s just been a great opportunity working alongside John,” says David Morimoto, senior VP and treasurer for the bank. “It’s only been a couple of years, but he’s the closest thing to a real leader I’ve been involved with. I just want to be a sponge; I want to absorb as much as I can. Every day, it seems he’s still learning how to be a better leader. Even though he’s been the CEO of five companies and he’s close to the end of his career, he doesn’t think he knows it all.”
Taira is succinct: “He makes me want to be a better person.”
The Big Deal
In the end, though, integrity only gets you so far. As Dean puts it, “Values are important here and we spend time on them, but core values, by themselves, would not have turned this bank around. There were so many things done from a purely business point of view – in terms of the capital markets, in terms of fundraising, in terms of the hard decisions we made – that were critical.”
Hard decisions included across-the-board expense cuts and a 10 percent reduction in force (conducted mostly by attrition and hiring freezes). It meant having high expectations and holding employees to those expectations. But the most important decisions were those that led to the recapitalization of the bank.
“It was all very complicated,” says Dean. “For example, we had a tax-loss carry-forward worth about $175 million. That means those losses could be used against future earnings. But, if the deal wasn’t structured appropriately, based on rules set by the FASB and SEC (the private sector’s Financial Accounting Standards Board and the federal government’s Securities and Exchange Commission), we would lose that tax-loss carry-forward. On top of that, we had the Federal Reserve’s holding-company regulations, which said nobody can own more than 24.9 percent of the company or they become part of the Bank Holding Company Act. Long story short, the structure was we did two 24.9s (The Carlyle Group and Anchorage Capital Group), and everyone else, to preserve the deferred tax asset – the DTA – had to be 4.9 percent or less.” In other words, there were a lot of people involved, and the size of their investments had to be strictly managed.
That’s complicated enough, but because the bank also received $135 million in bailout money from TARP – the Troubled Assets Relief Program – it had to negotiate a deal with the U.S. Treasury. That $135 million was secured with preferred stock, which would have made Treasury debt senior to any new investments. Naturally, the equity capital guys didn’t want to use their investment to make the Treasury whole, so the bank had to persuade the Treasury to convert its preferred stock to common stock. That meant the Treasury had to agree to take a $63 million loss.
The transaction Dean concocted included $10 million in employee stock options and a $20 million rights offering, which gave legacy investors the opportunity to buy stock at the same price as the equity investors. He even got the new investors to contribute to charity. “Please note,” Dean says, “we contributed $8.2 million to the Central Pacific Foundation last year. Think about that for a minute. These are private-equity investors that are all driven by bottom-line earnings. But I went and talked to them about it, and they said, ‘No, giving back to the community is important. We understand that.’ So, what I’d like to say is I think we ended up with some very good investors.”
The question, of course, is how was Dean able to strike a deal with investors when his predecessors weren’t? Previous CPB executives made several road trips from the summer of 2008 to the fall of 2009, pitching mainland investors on the investment opportunity at the bank. But no one bit. Morimoto, who as bank treasurer was part of the road shows under both Dean and his predecessors, says a big part of the answer is Dean’s reputation from Silicon Valley Bank.
“It was a remarkable run,” Morimoto says. “A lot of investors made a ton of money at Silicon Valley Bank during that period. So, when we went out with John for capital, we crossed paths with a lot of people where almost the first sentence out of their mouths was, ‘I know you; I invested at Silicon Valley.’ How’s that for a door-opener?”
Wayne Kirihara, the bank’s chief marketing officer, got another look at what Dean’s reputation could do. “The day John first came aboard, I was on the phone with the regulator. I asked them, ‘Can we please make some kind of announcement that John Dean is our new CEO, subject to regulatory approval?’ Normally, that kind of request takes 30 to 60 days to approve, but the regulator just said, ‘John Dean! Go ahead and announce it.’ I just about fell out of my chair.”
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