There’s a thing called “corporate governance” which you might think means like “the practice of running a corporation in a good way instead of a bad way” but you would be wrong. You can tell because the consensus is that Citi has displayed good corporate governance by making a chaotic demoralizing mess of firing Vikram Pandit in disgrace and/or regretfully accepting his voluntary resignation and/or other. Here’s Felix Salmon:
The CEO’s job is to run the bank, to answer to the board, and to get fired if he doesn’t perform. Which is what seems to have happened with Pandit.
Meanwhile, further downtown, the exact opposite is happening. Where Citi’s powerful board acted decisively after yet another set of weak results, Goldman’s powerless board is simply sitting back and watching their bank report a much more solid set of earnings …
[W]hile investors care about earnings first and foremost, they also want to know that they’ll ultimately receive those earnings, rather than just seeing them disappear into the pockets of management, or be wasted on silly acquisitions. Governance matters. And on that front, if on few others, Citi can credibly claim to be leagues ahead of Goldman.
I say unto you that one or the other of these statements can be true, but not both:
- "Governance matters."
- "on that front, if on few others, Citi can credibly claim to be leagues ahead of Goldman."
If it matters, then good governance leads to other good things - like shareholders receiving their earnings, for instance, about which note Goldman's dividend increase this morning and Citi's continued wanderings in the stress-test wilderness. If you can choose between a board that decisively racks up a series of disasters, and a board that simply sits back and watches solid earnings roll in, you should ... I dunno, you should do whatever you want. Different views make a market; I will buy easy earnings and sell you all the wrong-but-decisiveness you want.
I feel like you want a lot? The “boards doing things equals good governance, whatever those things are” theme was widespread pre-Citi and there seem to be few qualms about applying it to today's circus, with Sheila Bair peddling a particularly enthusiastic application. Though I did enjoy Mike Mayo’s WTF on Fox:
I think Citigroup has had some of the worst corporate governance under Vikram Pandit, and in fact I think the way this transition has taken place is a microcosm of that poor corporate governance. Here you have not only the CEO stepping down, you have both the CEO and COO stepping down at the same time, zero transition period, and it’s one day after we were all listening to the CEO talk about the long-term strategy. I mean, what’s taking place here? Oh and by the way: where’s the conference call with the new CEO?
The hastily organized conference call eventually happened at 4:30, with the webcast title “Citigroup Organizational Update,” which, like, can you think of a less inspiring way to welcome the new CEO than “organizational update”? The new deputy head of the mailroom would be miffed if he was announced in an “organizational update.”
ALSO IT WAS SUPER AWKIES. Board chairman Mike O’Neill was sort of the angry dad of the conference call, and he had plenty to get angry about, because the form of Q&A went a lot like this1:
Analyst: Uh … what just happened?
Mike O’Neill Our statement is clear. Vikram Pandit submitted his resignation, and we accepted it. We have had an extensive process over the last two years to choose a successor and we are delighted to have Mike Corbat in the seat.
I think that’s clear? I mean, combined with today's leaks and O'Neill's avoidance of a specific answer to the question “did the board ask him to submit his resignation,” it seems clear, in a corporate-speak (corporate-governance-speak?) sort of way, that:
- The board fired Pandit,2
- last night,
- but it was planning that for a while,
- but it wasn't set in stone until last night, which is why it's okay that they didn't announce it on the earnings call.3
"Fired" is a loose term; it's probably more what the lawyers would call a "constructive dismissal." After that call I can easily believe this from Reuters:
O'Neill's ascension to chairman and the addition of new board members earlier this year upended the status quo and likely set the stage for disagreements on strategic direction between the chairman and the CEO, a second person familiar with the situation said.
A third person familiar with the bank told Reuters that Pandit and O'Neill clashed because the chairman wanted the CEO "to get in line soldier-style."
Do you think Corbat will get in line soldier-style? It's hard to make out from the call; Corbat seemed a bit bewildered to be there and perhaps he'll gain confidence after his, y'know, twelfth hour in the job. I was struck by a question from Mike Mayo to the effect of "in five years, how should we measure your success in this job?" That seems like a pretty standard question - not just for an analyst to ask a new CEO, but for a board to ask a CEO candidate in the two-year vetting that Corbat was subjected to (and that led to him being named a leading candidate in August).
Corbat's answer was "let me get back to you." That suggests a vetting process low on "what is your strategic vision" and high on "can you get in line soldier-style"? Here is the Times:
Mr. Pandit was seen by some board members as not being able to quickly and effectively execute strategy, lurching from crisis to crisis, these people said. There were concerns he lacked the breadth of vision needed to turn the bank around. “He was considered more technically skilled,” one Citi executive said.
So he lurched out the door this morning and was replaced by a technically skilled operator who talked about keeping strategy the same and improving operational efficiency while being pretty comfortable sharing the stage with O'Neill. If there is a breadth of vision here, signs suggest it's O'Neill's.
There's a certain meet-the-new-governance-same-as-the-old-governance aspect here; O'Neill would make a delightful autocratic CEO if he weren't busy being an autocratic board chairman. Perhaps he will also be a good autocratic board chairman, or Corbat will muscle him out and be a good strategic CEO himself. Or Citi's regulators will improve its performance. Or an activist shareholder. I dunno. In any case if you're a Citi shareholder my guess is you want what you wanted before: good management, good earnings, good regulatory relationships that lead to good return of capital. (Good employee morale and good communications with shareholders are also nice.) Good governance, in the sense of, y'know, "Good Governance," might have something to do with that. Citi will have to get back to us on that though.
Pandit Steps Down as Chief of Citigroup [NYT]
Citi's CEO Pandit exits after board clash [Reuters]
Citi's Pandit Quits Amid Board Clash [WSJ]
Citigroup Board Said to Oust Pandit After Multiple Setbacks [Bloomberg]
When bank boards flex their muscles [Reuters / Felix Salmon]
In Citigroup Shake-Up, a New Show of Power by Boards [DealBook / Steven Davidoff]
1.Paraphrasing! But not by much!
2.Or not? Is Pandit telling the truth and he left on his own whim last night because he just felt so darn good about earnings? I mean, one, no, but two, if that was true, what is with this board leak or leaks? Everyreporteronearthhada Very Special Conversation with someone Very Senior at Citi who told them "yeah the board hated that dude." Part of me wants the explanation to be that Vikula really did just walk out whistling a jaunty tune after his successful earnings, and then Mike O'Neill saw an opportunity to strike fear into the heart of Corbat to make him more pliable, so he started dialing. Thoughts?
3.RIGHT? The fact that the stock was up again today mitigates any of the bad feelings you'd feel about that, but still, planning to knife your CEO seems like a material thing to mention when you've got everyone in one place anyway.