Citigroup’s board timed its surprise move almost perfectly. Only days after the bank reported a positive earnings surprise, directors stunned Wall Street by announcing the resignation of CEO Vikram Pandit, quickly followed by a similar move by his close friend and Citigroup’s chief operating officer, John Havens.
Within seconds, everybody on the Street was parsing the language of the announcement. Curious about their conclusions? Here’s the evidence that Pandit was nudged to the edge of the cliff, to the point where he had little alternative but to jump.
“Vikram Pandit has stepped down as the Company’s Chief Executive Officer…”
Pandit has stepped down – but he didn’t resign. There’s none of the storytelling that accompanies a purely voluntary resignation here. It’s an abrupt statement of fact, says one individual who has helped craft such statements in the past.
“…and as a member of the Board…”
Had his fellow board members been content with Pandit’s performance or valued his insight into the issues facing Citigroup as it continues to battle its way through the post-crisis banking environment, they would have wanted him to hang around. Having someone on hand with first-hand experience of the events of 2008 and later could come in handy – assuming they thought well of his judgment calls and believed he had formed useful, solid working relationships with Washington.
“…effective immediately.”
Here’s the big tip-off. At a big financial institution, this kind of management change at the top does not happen overnight. There is a clear succession process put in place (and one veteran Citigroup insider says that there weren’t “anything more than the usual rumors that have been around for years and years” about a pending exit by Pandit) and often the CEO oversees a transition over a period of weeks or months after announcing his resignation. Look at the precedent set by John Mack, who announced his departure in September 2009 and stepped down as CEO in January.
So, having established that Pandit’s departure wasn’t altogether voluntary (I’m not quibbling with the official version that he stepped down, just suggesting that had the board not made it very clear that they wanted him to do this, he may not have acted), why was the timing perfect?
Having the announcement come immediately after a good earnings report helped reinforce the message to the market that the reason for Pandit’s exit, stage left, had nothing to do with any misstep on his part – say, a hefty trading loss à la the London Whale, or anything else that might cause investors to flee in panic or provoke shareholders still livid that Citigroup’s shares trade at nearly 92 percent below the price they fetched five years ago into pondering some kind of action against the company’s board. That, too, helps explain the warm and fuzzy words of farewell from Michael O’Neill, Citigroup’s chairman: “the Board and I are grateful to Vikram for his leadership, integrity and resilience in guiding Citi through the crisis and positioning it well for the future.”
No director in his or her right mind is going to hand ammunition to the company’s critics. In Citigroup’s case, the board did a skillful job in conveying the sense – publicly, at least – that while it’s not mourning Pandit’s departure, neither is it indicating that Pandit could have done better and that the board might have acted sooner.
Some of the problems that bedeviled Pandit were beyond his control; some of them were errors of judgment, such as the optics issue that has bedeviled him ever since he began to pocket a seven-figure salary (plus benefits) while telling shareholders to just be patient and wait for some kind of reward, whether in the form of a richer stock price or higher dividends. But in March, after Citigroup failed a stress test, regulators turned thumbs down to the dividend idea. The following month, shareholders voted against Pandit’s $15 million compensation package in 2011. The last straw? The sale of the other half of the retail brokerage, Smith Barney, to Morgan Stanley last month at a knock-down price, followed by a writedown against the just-announced third-quarter earnings.
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Pandit should be applauded for helping the bank survive the crisis, even if he hasn’t been able to ensure that it thrives in the aftermath. His departure is the opportunity for a clean slate. The question is what kind of strategy his successor, Mike Corbat, will pursue going forward. He already has won plaudits from former FDIC chair Sheila Bair, who praised his operational skills.
But Stephen Miles, CEO of the Miles Group, a leadership coaching firm, dubbed Corbat’s move into the top job at Citigroup a “battlefield promotion.” That, Miles said, signals “a lack of continuity and can amplify uncertainty.”
For now, at least, investors seem relatively happy – and not all that uncertain about their opinion of the change in leadership. Citigroup’s share price rallied 1.6 percent yesterday after the announcement. But to sustain those gains and help the share price recover still more of the ground lost in the wake of the crisis will require more dramatic action, and Corbat will have to move swiftly to show that he has a vision for the bank’s future – perhaps one that involves its breakup into an entity that is easier to manage.
