Citibank: politics before performance

I've seen this happen at growth-stage startups. A CEO/Founder focuses on getting the job done and not on politics. Out of jealousy/spite/ego, another Founder/Investor plays a political game, rounding up the board to push the CEO out. Deals are done, favors exchanged, and in the end, the wrong decision for the shareholders is made at the altar of political back room deals. 


Yes, no one should shed too many tears for Vikram Pandit, the ousted CEO of Citibank, but he accomplished a remarkable financial turnaround, paid back the gov't, and dealt with a large overhang of bad debt. After the earnings call, the management team planned to celebrate the good results. But... 




From the New York Times on 10/25/12: "Vikram Pandit’s last day at Citigroup swung from celebratory to devastating in a matter of minutes. Having fielded congratulatory e-mails about the earnings report in the morning that suggested the bank was finally on more solid ground, Mr. Pandit strode into the office of the chairman at day’s end on Oct. 15 for what he considered just another of their frequent meetings on his calendar.


Instead, Mr. Pandit, the chief executive of Citigroup, was told three news releases were ready. One stated that Mr. Pandit had resigned, effective immediately. Another that he would resign, effective at the end of the year. The third release stated Mr. Pandit had been fired without cause. The choice was his."

An even more brutal message was given to the COO, John Havens. According to the NYT: " 'Vikram has offered his resignation, and we would like to give you the opportunity to offer yours,' a board member said, following a script prepared by the board’s lawyers, according to several people with knowledge of the meeting."

Of course, it now comes out that the Chairman was passed over the CEO spot he badly wanted. Then he spent months building a case, bit by bit, on why Vikram should be pushed out.  Hmmm...Shouldn't the Chairman have spent time helping the CEO and figuring out the mess that is Citibank instead?  Yeah, I know...naive thinking that a high level exec would actually try to improve the company he's in charge of vs play political games. 

So back to startups. I've seen this game played all too often. Replace Board with VC/Angels, and CEO with founder. You get the picture. Sometimes kicking out out an intransigent founder may be the last resort, but I see this played out many times, only to have the company implode under the supposedly "pro-CEO". Sometimes, the founder even comes back to save the sinking ship. I"m sure Steve Jobs would have a thing or two to say about that!

Don't blame the market...it's oversight

In the end, my feeling is that market forces & capitalism didn’t fail us at all. Like Adam Smith recognized (and is conveniently overlooked by market fundamentalists, especially the chicago school of thought that so many republicans and clinton seem to adulate), the invisible hand needs close supervision. The markets did what they do best: create the best & fastest path to riches given the legislation and took advantage of the outdated regulatory system. 

I can’t blame the unethical & purposely deceitful workarounds wall street perpetrated in the name of short term self-enrichment at the expense of society. That’s what they will always do & we should expect it. Anything else is just naïve (like saying they will self-regulate: HA!). It’s governments responsibility to lay down intelligent (and admittedly imperfect but better than the alternative) rules to account for the greed & to make sure that the negative externalities are taken into account. Same thing goes for pollution, alternative energy, etc. 

An example of this is: several years ago, we should have had government state that by 2011 it will have 50% hybrids in its fleet. That would have encouraged manufacturers to develop hybrids since they know there is a guaranteed market. How they get there is up to the market, which is what it does so well. Another example: instead of the dumb-ass tax rebate we just had (which did near nothing), direct the tax breaks to education or some goal we want to achieve. The tax rebate simply went to TVs, electronics, etc: in other words usually a foreign made product that only produces at best a short term lift. Education is local & would pay back many times over by investing in our people. Market: how. Government: what.

What is clear to me (and has always been) that markets left to their own devices with little oversight will create monopolistic “winner takes all” systems that squeeze others & enrich the owners. These systems may be efficient but tend to be good for the owners many times at the expense of society/consumers.