One is forced to reach back to 1917 and a delusional Russian czar on the eve of his abdication to find such a comparative detachment from reality.
The almost heart-stopping disintegration of the value of Citibank shares seems unrelenting. It is not entirely surprising, however. This is a company that has had three CEOs in the past five years and is very likely headed for its fourth. Sandy Weill had to give up the reins when he failed to check a wave of scandals and regulatory run-ins that became costly to the institution’s reputation and stock price. Charles Prince had to relinquish power after he failed to stem an excess of overleveraging and mortgage-related bad bets that led to an unprecedented wave of losses and write-downs. Under the newest CEO, Vikram Pandit, the largest destruction of shareholder wealth in the company’s history continues unabated. As these words are being written, Citi’s stock has crashed through the dreaded $8 floor. Most investors have taken to averting their eyes every time their stock appears on the ticker. I am one of them.
Common to these problems has been Citigroup’s board of directors, which increasingly resembles a first-class sleeping car on a train wreck that just keeps happening. Almost whatever it does, it is too slow and too late. It can take months for Citigroup’s directors to clue into what others in the real world have known for some time. Sometimes they never do.
Nothing reveals the dysfunctionality of the board, and the utter failure of leadership on the part the current CEO, more than the position the company has taken on executive bonuses. Tens of billions have been wiped out in write-downs and losses. Over the past year alone, its share value has declined by $133 billion. Yesterday, Citi announced intentions to eliminate 52,000 jobs. Yet with all this, the board wants to take until January of next year before it decides whether or not it will award bonuses. One is forced to reach back to 1917 and a delusional Russian czar on the eve of his abdication to find such a comparative detachment from reality.
If the board can’t get a basic thing like executive bonuses right (meaning eliminated) at a time when the stock is in free fall and the company is receiving critical injections of capital from the American taxpayer, how can it be dealing with the larger challenges to Citi’s business model and where it fits into a radically redefined 21st century financial landscape? The answer is obvious. Citigroup’s board has demonstrated that it has not been on top of any major issue in more than a decade, much less been ahead of it. How it ever allowed the company to take on the level of risk it did and become almost suicidally overleveraged, how it permitted its once great franchise to become a laughing stock, and how it missed the mark with the company’s two recent CEOs –these are questions that quickly fall under the category “What were they thinking?” But that is a question that proceeds from a fundamentally flawed assumption. As we will show from the outdated and discredited structure of Citi’s board in our next posting, there hasn’t been a lot of thinking going on there for some time.