Tuesday, April 21, 2009

What Won’t Happen Today at Citi's Annual Meeting

1. The board won't get fired.
2. CEO Vikram Pandit won't get fired.
3. Citi won't announce a workable turnaround plan.

That's 0 for 3, Cody Ransom numbers.

Let's look at the board's track record. Enron, booted out of Japan, all you can eat sub-prime, Chuck Prince, Vikram Pandit. In baseball, it takes three strikes to be out; for the Citi board it looks like five strikes (and counting) won't be enough. The irony in all this is that on paper board members have great experience - Armstrong at AT&T, Belda at Alcoa, Mulcahy at Xerox, the list goes on. But, and this is the big but of corporate governance, just slapping down your resume on the boardroom table does not make an effective director. Actions speak much louder than resumes, and it's hard to imagine the Citi board did what great boards do - ask the tough question, probe top management, spend the time to really understand the company's business, and not defer to the "superstars" on the board (read: Robert Rubin). I really hope the new directors about to be officially seated get the principle that spectacular resumes (former CEO of US Bancorp, etc.) are not enough.

As for Vikram Pandit, the jury is in. It was not his fault that Citi made as many gigantic blunders as they did (he only started as CEO in December 2007), but he has got to bear responsibility for Citi's inability to come up with a viable turnaround strategy. More to the point, I find it hard to believe that he is the most qualified person to be CEO of Citi. Remember how he got the job? His hedge fund was acquired by Citi, and with all due respect to my friends in the hedge fund business, that is not the best training ground for the job of CEO in a complex, struggling company. That the hedge fund imploded not long after Citi bought it only adds to the ignominy.

Which brings us to the problem of creating a new strategy to fix the bank. Q1 earnings were driven by accounting changes, rumors of big paydays driven by AIG's winding down of credit-default protection, and the simple beauty of borrowing at 0% and lending (or investing) at 4%-12%. That is not sustainable, especially in light of the quickly melting commercial real estate market. Navigating around these curve balls is not easy for any management team and board; for Citi's, I fear it's just about impossible.

Hey, isn't Treasury all about good corporate governance? What's good enough for GM's board is surely good enough for Citi's.

1 comment:

  1. By your analysis one must staunchly support the ousting of Mr. Pandit. Clearly it seems that he is too incompetent to turnaround a company in as much trouble as Citi currently is.