Peer Intelligence | Winter 2024

CEM has celebrated over thirty-two years in business. What did the beginning days look like, and what inspired you to originally found the company?     

The motivation goes back another fifteen years to when I happened to read Peter Drucker's one and only book on pensions, The Unseen Revolution. He wrote it in 1976. It basically set the rest of my professional career.   

In the 70s, the boomers were still young. Drucker said eventually, they will be pensioners, and they will be a very big cohort. Pensions will become a big deal globally, and they will need effective pension organizations capable of creative 'value for money.'  

At the time, I was applying portfolio theory at investing institutions. I looked around, and you could see already that the pension contributions were starting to flow into the financial system, and you could see they were going to get bigger.  

But when you looked around pension organizations in the 70s, they were not in great shape. They were kind of makeshift and ad hoc.  I thought, there's a big thing here in terms of organizing the pension system, so that it has clear purpose and is well managed. So, I began to test Drucker's 'value for money' ideas in institutional settings, but they were pretty low-key efforts in the beginning. 

And then a big thing happened. Ontario Treasurer Robert Nixon expressed the view that public sector pensions in Ontario were being poorly managed and there had to be a better way. This led to the creation of the Rowan Task Force in 1987, and happily, I was hired as a Principal Advisor to the task force.

Drucker had emphasized the critical value of clear purpose, organizational effectiveness, and their implications for governance, organization design, pension design, and the investment of retirement savings. The Rowan Task Force report titled "In Whose Interest?" laid all this out in considerable detail. 

Usually, what happens with these reports is they get shelved. That did not happen in this case. Nixon liked what he saw. And importantly, Margaret Wilson, who was the President of the Ontario Teachers’ Federation also liked the report. The two of them got together and agreed to actually implement the report's recommendations, and this led to the creation of the Ontario Teachers' Pension Plan in 1990. 

Putting a good board together was off to a great start due to the availability of Gerald Bouey, who had just retired as the Governor of the Bank of Canada. The board hired Claude Lamoureux, a senior executive from the insurance industry, as OTPP's first CEO. Claude hired Bob Bertram, who was a corporate finance guy out of Alberta, as his Chief Investment Officer. And that was the beginning of the Canadian pension model story.

While working with the Rowan Task Force, I began to think about another idea attributed to Drucker: 'What gets measured gets managed.' That's where the CEM Benchmarking idea came from. Pension organizations were going to need a benchmarking system that would measure value for money. Without such a system, pension boards would be left without information about how well their organization was performing. 

At this point, I roughly sketched out what such a benchmarking system would look like. I'm not a computer guy, so I had to find somebody who was good with spreadsheets. Enter John McLaughlin. I'd known John for some fifteen years by that time. I said, “John, I’ve got this idea about measuring value for money in pension organizations. Let's see what kind of data we would need to actually do these calculations.”  

He got his Excel spreadsheets out, and we visualized the data that we would need and how it would be processed. And then the next question was, where are we going to get the data to test our ideas? 

By that time, I had forged a network of pension organization leaders. We explained our idea about measuring value for money, and asked if they could provide us with the data we needed to start doing some analytics. Well, it turned out that enough of them liked the idea, and we got a large enough sample together to create some performance metrics. 

The data contributors also liked the results. John and I looked at each other, along with my wife Virgina who was involved too by that time, and we said, there's probably a business here. Once clients start, they will have to keep going, and as a result, the benchmarking organization ends up building databases that grow steadily over time. Eventually, this should tell the 'value for money' story of the global pension industry. That was the idea of the Cost-Effectiveness Measurement business... which we eventually shortened to CEM. 

John and I were both busy doing our own things and did not want to run the business. Fortunately, we found Tom Scheibelhut. It suited Tom to say “okay, new business, and starting from scratch. I'm in.” Tom’s a long-distance swimmer, so he had the perfect mindset to keep this new business going year after year. Thus, we had our CEO to turn the CEM idea into reality.   

What was your original mission for the company? Has this evolved over time?      

For me, an important evolution over time, beyond the accumulating databases, the analytics, the client reports, is how CEM has been able to support academic studies. It's great to see the data being used to create new insights into the ‘value for money’ creation process in the global pension industry. That's important.   

An equally important development is the socialization of the pension fund community around the world without commercial intervention. Forums of CEOs, CIOs, CFOs, CAOs from Singapore, getting together with their counterparts in Japan, Australia, Europe, USA, and Canada. These people create their own networks, and they become part of the thought process as to what's next: ‘What are we missing here?’ ‘What should we be doing on the investment side?’ ‘On the benefit administration side?’ Without CEM’s convening power, these events simply would not happen, and thus CEM is creating value in unique ways.   

What have been your favourite memories at CEM throughout the years?  

One flashback is Tom Scheibelhut on our third floor on Glenview Ave. starting the business, with our trusty Border Collie/Lab cross, Buddy, beside him. It really was a startup right from Square 1. Virginia and I cleaned out the third floor of our house and made that our starting office.  

Once Sandy Halim joined, we found a really interesting space on Church Street downtown. An exciting event there was a midnight break-in, and the police actually arrested some people that were in the office. Partner John McLaughlin was the ‘on call’ CEM rep. He attended the event, maintaining a safe distance behind the actual arrest process.   

Alongside your achievements at CEM, you have received many awards and honours over the course of your career, including being named "One of the 30 Most Influential People in Pensions" and one of the globe’s "10 Most Influential Academics in Institutional Investing.” What are you most proud of?   

Having been able to play an instigator/facilitator role in the creation of the Canadian Pension Model has been very satisfying. The Model put Canada on the map globally as being a thought leader in pension design and delivery. CEM has played an important role in that story. It was founded in Toronto, it has assembled a unique set of ‘value for money’ databases, and it continues to uncover the stories about what the data is telling us. As a result, CEM has had, and continues to have, a positive impact on how the global pension industry is evolving.  

I can imagine your work life has kept you very busy. What have been the most important things in your life outside of work?  

My wife Virginia appropriately reminds me that there IS life outside work! Thanks to her, I have learned to appreciate the opera world (although Wagner’s operas will always be too long for me!). We are both big fans of Niagara’s Shaw Festival and try to attend all their plays (by Shaw and others) each season. We are also co-investors in a medical device company, Bicep, which has a very promising device that connects wheelchairs to walkers. Virginia has also taken on the CFO role as the company transitions from a startup to a (hopefully!) cashflow-positive state this year.  

On the volunteer front, we both have had an involvement with the Princess Margaret Cancer Foundation dating back decades. I was a Board member for nine years, the last two as Board Chair. Virginia supported patients during their recovery phases from various cancer-related treatments.  On the fund raising side, we were both involved with the famous bicycle ride to conquer cancer from Toronto to Niagara Falls. 

On the sports front, tennis has been my game for many decades. I am now transitioning from singles to doubles, with my two daughters, Julie and Jane and son Peter often the other three players on the court. They are very nice to me, unlike my 13-year-old grandson Dylan, who enjoys running Grandpa off the court.   

Finally, I was involved in the 2004 founding of the International Centre for Pension Management (ICPM) at the Rotman School of Management at the University of Toronto. ICPM was intended to be a bridge between academia and the global professional pension management community, and has been realizing that vision to this day with 50 major pension fund sponsors from 11 countries. The week-long Pension Governance Education Program was added in 2011.    

What vision do you have for the future of CEM? Are there specific milestones you would like to achieve?     

Just like there is a human life cycle from young, to middle age, to older, so it is with organizations. In the case of CEM, we have managed to transition from young to middle age very nicely. The question now is: where do we go from here?  

I believe that with new CEO Rashay Jethalal, we found the right person to help us address that question.  His view is that if you're going to go to the next level, you've got to make some investments. CEM needs to expand its service offerings, and it needs to hire more people to do that. This is now happening. CEM is making significant capital investments to get into new spaces.  

As a personal example, I continue to ask how to best benchmark governance quality? It's a tough one because there are no obvious metrics you can use, yet it's such a critical area to success or failure. It takes us back to the early “John and Keith days,” trying to figure out what kind of data you need and whether you could actually get that data. We’ve already done some surveys, asking pension fund CEOs about their boards. The first one was in ‘97, the second time in ‘05, and the third time in ‘14. Maybe the time has come to do it again?