A little over a year ago I wrote a critical article on the abrupt firing of Yahoo’s CEO, Carol Bartz. The removal of Bartz was done without any succession planning and left the company floundering and rudderless.
On Tuesday, October 16, 2012 Citigroup lost its CEO, Vikram Pandit, under different but similar circumstances. Pandit chose to resign rather than be fired and the financial universe, although shocked, expressed its approval with an increase in the company’s stock price from under $35 a share at the end of Monday’s trading to slightly over $38 this Thursday morning.
The board of Citigroup has changed dramatically since the beginning of the severe financial strains five years ago. The board is now much more independent and focused on bank operations, especially since Michael O’Neill took over the helm as chairman in April of this year. This, of course, is a very good thing. The company had suffered under a rubber-stamp board ever since the Sandy Weill era.
Essentially, Pandit inherited a mess, made some good calls in divesting poor performing assets over the last couple of years, took a $1 salary in 2009 and 2010, and returned the company to profitability in 2010. Yet progress was slow. The share price had lost 89% of its value, the company had to recently eat a multi-billion dollar write-down of its stake in a joint venture with Morgan Stanley, and had to suffer the humiliation of not being allowed by the Federal Reserve to launch its stock buy-back plan, even though Pandit had supposedly built strong relations with Reserve Board members. It has been doing poorly compared to JPMorgan Chase and Wells Fargo. Clearly this was a cumulative crisis that had been gathering steam over several years. Pandit had done some good things, there is no question, but overall the situation had reached crisis proportions that called for the board to take dramatic steps
O’Neill is known as a tough cookie, and newer board members are no shrinking violets either. The time had come to take action. O’Neill had had conversations with Michael Corbat, Citi’s CEO for Europe, the Middle East andAfrica. The stage, therefore, had been set for succession, so it was quite clear that a transition was going to take place. The question was merely when. Apparently, some altercation between Pandit and O’Neill or other board members ensued the day before and ultimately Pandit was told he could resign or be fired.
Several things stand out. First, there is now an activist board at the bank. Second, Citigroup remained a limping giant and dramatic measures were necessary. Third, the consensus was that Vikram Pandit was not the man for the job. Under the circumstances one might wonder why it took as long as it did to make this move. Finally, the board was prepared and the succession was swift and neat. There were three surviving bank CEO’s from the financial crisis as of the end of last week. Now there are only two.
Vikram Pandit did his best. It wasn’t enough. Some outsiders like Sheila Blair, former head of the FDIC, felt that he was not the right man for the job. but it took a change in the board – fresh faces – to recognize the problem and do something about it. This is crisis management in action, perhaps a bit slower than investors would have liked, nevertheless a smart move that will auger well for the bank over the next couple of years. Big banks, crucial to the well being of our country as well as to its investors, must engage in crisis planning and be ready for the unexpected. At the onset of the financial crisis the banking and investment community was clueless about crisis management even though all the clues necessary had been served up on a silver platter. It didn’t have the will to do anything but push the can down the road. The ostrich approach to crisis management has proven time and time again to be a disaster. It is even more of a disaster when after the crisis has hit the reaction to it is sluggish. Dramatic times call for dramatic action. Vikram Pandit wasn’t dramatic enough. His board finally was. Hopefully Michael Corbat sees the problems and will implement solutions quickly to right the ship.