The Times’s detailed story today on Citi’s deVikrafication is a fun read and adds a lot of information about Mike O’Neill’s coup and its aftermath, but I submit to you that if you found any of it surprising you need to pay more, or probably much less, attention to the conventions of corporate infighting. I pay a medium amount of attention, and the day the news came out I conjectured:
- the board was planning to fire Pandit for a while but made the final decision after the earnings release,
- then it fired him, though “fired” = more or less forced his resignation,
- and this was part of a play for more power by O’Neill, the non-executive chairman,
- and this would likely demoralize other executives because nice things are nicer than nasty ones and a cushy banking sinecure is nicer than Hobbesian war for P&L and efficiency.1
So that’s pretty much what the Times piece today reveals.2 I would pat myself on the back except, was anyone peddling an alternative explanation?3 Well, Citi, I guess, but come on. The notion that Vikram Pandit left Citi of his own initiative, the day after earnings, with no warning, is so absurd on its face that the fact that Citi and Pandit said that he didn’t doesn’t even qualify as a lie. The call on which O’Neill said “Vikram chose to submit his resignation and the board accepted it. Contrary to speculation, no strategic or regulatory or operating issue precipitated the resignation” so clearly meant “we fired the dude because we didn’t like him” that O’Neill shouted at Mike Mayo “Our statement is clear.”
It was! There is precisely one way to read it! That’s the kind of faint-praise statement you make if you fired someone because you didn’t like him but he wasn’t, like, cooking and eating security guards on company property. The statement where he actually chooses to resign – from an unlimited choice set as opposed to “resign or be fired” – looks very different. It comes on the earnings call, for one thing.
You can manufacture outrage about this in various ways. Henry Blodget and Fox Business think that Citi’s characterization of the ouster was fraudulent and/or is being investigated by the SEC; you can add salt to taste, but Blodget has some points here:
A CEO leaving a company is a highly material event. Shareholders and employees deserve to know the truth about the circumstances that led to the departure.
The shareholders of Citi absolutely did not know the truth about why Victor Pandit quit. The statements that were issued were technically correct, but they contained a huge lie by omission.
Citi shareholders have every reason to feel misled and angry about that.
And more broadly, given that this sort of statement is apparently what passes for forthrightness and transparency at a major global corporation, it’s no wonder that everyone thinks that companies are totally full of crap.
There are two issues here. One is, how much information is owed to the public about a company’s reasons and plans and hopes and dreams? Do “shareholders and employees deserve to know the truth about the circumstances that led to the departure”? This is a theory that gets a lot of lip service, in these and related contexts. Management’s Discussion and Analysis in SEC reports are supposed to “be a discussion and analysis of a company’s business as seen through the eyes of those who manage that business”; a merger proxy is meant to give an insider’s view of the background of the transaction and the board’s reasons for approving it; a 13-D is meant to explain a big shareholder’s plans for the company.
This is a nice theory but almost necessarily leads to creeping dishonesty; you cannot mandate access to executives’ and boards’ and investors’ thoughts, and their thoughts – whether they’re secret-sauce plans to make a profit, or nagging doubts about their business’s future, or just embarrassing personality conflicts – are precisely what they want to conceal. Every disclosure of intent or thought or reason or interpersonal relations, as opposed to plain numerical fact, will be ever-so-slightly shaded, because who wants their personality memorialized in a securities filing?
The second issue is: just what is honesty anyway? I cannot stress enough that Citi’s statements about Pandit’s departure, in the context in which they were made, misled nobody. I mean, they were false, or not the whole truth anyway, but their intent was so clear that no one who’s ever, like, met a corporation could have misinterpreted them.
Blodget says “it’s no wonder that everyone thinks that companies are totally full of crap,” and, sure, but that is an equilibrium, and companies come to rely on that equilibrium. If Citi had said “the board doesn’t think Pandit is the right guy for the job, and so we demanded his resignation,” everyone would have interpreted that as “he cooked and ate multiple security guards,” so why do that? The equilibrium of mild puffery is widespread. A CEO who doesn’t say the future is rosy will be interpreted to mean that a bankruptcy filing is imminent. A trader who doesn’t whine to his counterparties about how much money he’s losing on a trade will look like he’s ripping them off.
Every so often, though, this equilibrium runs up against people who are unfamiliar with it, and causes problems. Citi shareholders, I’m pretty sure, are not those people; I have an EMH view of fraud and the stock is mostly unch’d from where it was on the morning of October 16 when Pandit “resigned.” The next CEO forced out by a bank board will get a statement mostly identical to Pandit’s.
But bullshit4 is everywhere, and sometimes it creeps from harmless things like boardroom personality clashes into economic reality. Everybody knew that Libor was being manipulated, to the point that Libor-manipulating banks quantified the manipulation for regulators and clients, and yet – some people didn’t, and got screwed. Surely, thought the people on the assembly line that rapidly approved minimally documented mortgages, everyone knows that these mortgages are badly underwritten – but the people who bought them have at least some claim to feeling aggrieved. The bullshit that surrounded Pandit’s ouster is just fine, but the equilibrium that produced it is more worrying.
Citi Chairman Is Said to Have Planned Chief’s Exit Over Months [NYT]
I’m Sorry, But The Statement Citigroup Made About Its CEO Quitting Is Basically Fraud [BI / Henry Blodget]
SEC Looking into Citi’s Disclosure of Pandit’s Exit [FBN]
Questions for Citigroup’s Board [BBW]
1. From the Times today:
The dramatic boardroom coup at the bank’s Park Avenue headquarters has rankled some people at Citi, especially senior executives who feel that the action was needlessly ruthless and who spoke only on the condition that they not be identified. … This week, senior executives at the investment bank convened a group of employees to try to stem any exodus, according to several people briefed on the meeting. Among the employees’ questions: why remain at a bank that treated its top executive so harshly?
“Why would we work at a bank that sometimes fires senior people?,” they wail, etc.
2. Except that the plan may have been finalized earlier than the day he was fired. This is arguably problematic from a disclosure standpoint but I don’t get that bothered by it, perhaps others will. A plan is never really finalized until it happens; I’m sure each board member can tell a story of a mental reservation that wasn’t resolved until the last minute.
4. I use the term loosely. This is not classical Frankfurtian bullshit, in the sense of indifference to the truth. It is a language with truth values, but a language that is different from English despite using the same words.