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Dysfunctional Leadership in Times of Crisis – The Citi Saga

Nothing good can ever result when organizational leaders aren’t executing (or singing) from the same page. When an organization enters crisis mode, things can get really interesting.

While the past year has not been a picnic for any global financial institutions, Citibank seems to be experiencing a particularly bad run and it just don’t seem to be getting better.  Several media reports over the past week paint a not so pretty picture of dysfunctional leadership at the top.

On November 13, 2008,  DAVID ENRICH and ROBIN SIDEL wrote a front page article for the Wall Street Journal titled Citi Directors Mull Replacing Chairman (subscription required). Citi has denied the rumor but the article explains that part of the board’s concern is based upon a perceived lack of executive oversight.

The possible replacement of Sir Win comes as the New York company’s board is adopting an increasingly assertive stance toward overseeing Chief Executive Officer Vikram Pandit and his tightknit team of executives. Those executives took power last December after Citigroup’s previous CEO, Charles Prince, stepped down amid mounting losses. Some directors have grown concerned that Sir Win, who is based in London, hasn’t been exercising adequate oversight.

The article goes on to describe what looks like a fundamental breakdown of communication, and more importantly trust, between the governing board and operating executives.

Over the summer, several directors complained to Mr. Pandit that he hadn’t adequately kept them in the loop about his plans. In recent months, the board has been holding meetings twice a month and trying to be more assertive about supervising management decisions. That change has irked some Citigroup executives, who said the board’s involvement in the negotiations to buy Wachovia Corp. slowed the process and gave Wells Fargo & Co. time to re-emerge with a superior offer.

Also on November 13th The Financial Times took a look at Citi’s “dysfunctional leadership” with an article by Francesco Guerrera, Julie MacIntosh and Peter Thal Larsen titled Boardroom tensions highlight Citi divisions.

People close to the situation said the dissidents formed a sizeable part of the 15-member board. They had been moved to act by the company’s poor performance and their desire to see someone other than a full-time Citi employee in the chair.

The board on Thursday rushed out a statement backing Sir Win – a well-known figure in the City of London who used to run Schroders, the investment bank acquired by Citi in 2000 – and denying the Wall Street Journal’s report of a move to oust him.

On November 14th, the Wall Street Journal’s Deal Journal reprinted Citi Lead Director and potential future Chairman Richard Parson’s “keep the faith” memo to staff quashing rumors of lack of board support for Chairman “Sir Win” and management.

To: Citi Employees
From: Citi Board of Directors

It is important for us to communicate with you directly in light of recent media coverage of our company. The news coverage about the Chairman of our Board, Sir Win, is irresponsible and completely inaccurate, and we want you to understand and appreciate our perspective on it.

The Board of Directors and management are operating as one team completely aligned on critical issues, opportunities, and the direction of the company. This is especially important given the extraordinary times in the market and the challenging economic environment we face.

We don’t need to review with you all the things that have been accomplished is such a short period of time, but to highlight just a few:

* Nearly $50 billion in new capital raised prior to the additional $25 billion from the US Treasury.
* A reduction in legacy assets by more than $100 billion since the first quarter in addition to divestiture of a number of businesses.
* The decline of expenses for three consecutive quarters.
* The establishment of a new risk organization, with highly talented professionals, and the reduction of risk overall.
* The reorganization of our businesses to serve our customers better and to help make our people — our most important asset — as productive as possible.

We are confident that the direction our management team has set is the right direction — and the winning direction — for these extraordinary times. Citi is well positioned for growth because of its unique global universal bank model, and because it has the right talent, the right management, and the right approach.

Considering the significant adversity presented by a sustained global market downturn, all of your accomplishments have been nothing short of extraordinary. You are leading by example and you have our full support and appreciation.

Keep the faith!

Richard D. Parsons
Lead Director

On November 13, 2008,the Financial Times’ Lex column offers some interesting insight into the Citi drama with a column titled Citi’s chairman.

What exactly are chairmen for? In many countries the role is quite clear. As head of an (ideally) independent board, the chairman is a powerful figure fronting the interests of shareholders. In the US, however, boards are weaker. The chairman’s seat is occupied by the chief executive in 61 per cent of companies in the S&P 500 index, according to Spencer Stuart. That makes Citigroup – amid rumours over the future of its chairman, Sir Win Bischoff – rather unusual. Of the big Wall Street banks, Citi is the only one presently splitting the two roles.

The Lex column sums it up:

The shame is it seemed to matter little who occupied the top positions at banks during the financial meltdown: all share prices plummeted and much of the industry had to be bailed out. Nor did the carnage spare one corporate governance model over another. Some of the smartest CEOs, most respected chairmen and best boards were rendered ineffectual by the forces sweeping through the system. It will remain that way for a long time. That is why possible boardroom turmoil at the top of Citigroup, or any bank, risks looking like fiddling while Rome burns. For now, there are bigger issues at hand.

Finally, here’s an report on leadership factions within Citi representing CEO Pandit’s relatively new team, which is mostly from Goldman Sachs, versus the old guard from Citi – Salomon – Smith Barney.

The operating and governing structure of Citi might be partly at fault for what is going on. The financial market meltdown is certainly another influence.  But the effective exercise of leadership requires a delicate balance of clear communication, decisive action, adaptability to constantly changing circumstances and, most importantly, teamwork, something that appears to be sorely missing at Citi.

The Citi story is far from over but it offers some real-time lessons for all sizes and types of organizations about the importance of leadership communicating with one “voice” and working as a team in times of crisis. While we often have difficulty in quantifying the cost of dysfunctional leadership, Citi’s 12 month stock chart can provide a clue.

Citibank 12 mos

About the author

Peter A. Mello, Founder/Editor Founder of Weekly Leader and Sea-Fever Consulting, LLC, a leadership development and strategic communications consultancy. Previously, CEO of an international nonprofit organization and COO of a national insurance/risk management services firm. Peter has been leading people and managing organizations for over 30 years, writes a leadership column for MarineNews magazine and blogs about maritime culture at Sea-Fever. Follow him on Twitter.

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Posted in Business, General Leadership, Opinion.

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