Leadership At Citigroup

“Responsible Leadership” at Citigroup

Citigroup is the largest bank in the U.S. The company is employs over 300,000 employees and reaches out to over 100 countries globally, with the assets of over $2.35 trillion, and a market value of $188 billion (CITE). The company is organized into three sectors of business: Global Consumer, Markets & Banking, and Global Wealth Management. These three sectors of business groups are comprised of 16 smaller subdivisions, which, coupled with Citi Alternative Investments, makes 17 distinct divisions of Citigroup.

Citi was founded in 1812 as the City Bank of New York. In 1998, a merger between Travelers Group and Citicorp gave birth to Citigroup. In recent news, Citigroup’s now former CEO, Charles “Chuck” Prince, stepped down from his position. This event marks the culmination of what many perceived to be the doomed failure of the oversized, over ambitious endeavor of Prince’s predecessor. In this paper, we will attempt to analyze the events that lead to the resignation of Prince in relation to Seeger and Ulmer’s idea of “responsible leadership.”

In their article “Explaining Enron,” Seeger and Ulmer assert that responsible leadership is built upon three communication-based leader responsibilities. These responsibilities are (a) communicating appropriate values to create a positive moral climate, (b) monitoring operations in order to stay informed, and (c) maintaining an openness to signs of problems and potential “bad news.” (CITING) A breakdown in any of these aspects of can cause degree of turmoil for an organization; for Citibank, the breakdown two of three of these of these aspects led to the resignation of the company’s CEO. In order to effectively relate the idea of leader responsibilities to Citigroup, each component of the idea must first be explored.

The first of Seeger and Ulmer’s prescribed responsibilities deals with leaders of the organization setting a positive example for their employees. Their article discussed how leaders where responsible for “establishing an organization’s ethical climate and moral tone” and went on to say that this inherent responsibility of management was to be met by “communicating values and standards and modeling behaviors for followers” (CITING). Also discussed was the idea that this moral obligation was not only an individual one, but also an obligation of the organization as a whole. Leaders, and ultimately the entire organization, set this example by acting in acceptable ways within moral and ethical standards. This also extends to following established laws and being a good “corporate citizen.” Citigroup’s history is littered with unethical business practices set in place by its former CEO Sandy Weill.

One of the notable cases against Citigroup was the 2001 case brought about by Attorney General Spitzer. Spitzer launched an investigation into the workings of Citigroup’s investment banking practice. The investigation found that on many occasions, research analysis and ratings distributed were biased, done with neither independence nor integrity. Also found was that some of the reports distributed where fraudulent and misleading in nature. It was ultimately determined that a conflict of interest existed and in the settlement of the case, it was ordered that the investment banking operations be separated from its research operations. The case’s settlement was for a record amount of $400 million. Citigroup also faced charges of deceptive lending practices when the Federal Trade Commission (FTC) filed suit against the company for duping homeowners into refinancing existing debt into high interest home loans with high fees. The FTC also alleged that the company tricked borrowers into purchasing high cost credit insurance, many times without their knowledge. The result of this incident was that the company was required to pay $215 million for what the FTC deemed “systematic and widespread deceptive and abusive lending practices.”

Citigroup was also involved with other high profile cases such as the Enron case, where Citigroup was found to have helped Enron hide $500 million through fraudulent means, and also the WorldCom case, where the company was found to have provided fraudulent “favorable” ratings on the company when it was in fact collapsing. These ethical assaults respectively cost the company $120 million and $2.65 billion in settlements. Citigroup was also forced to end their operations in Japan when the company was found to be linked to money laundering. Citigroup’s ethical issues were so troubling that in 2005 the Federal Reserve announced publicly that it refused to approve and mergers and acquisitions until the company solved its issues. From these numerous examples, it is easy to see that Citigroup was not fostering an ethical or moral environment. However, it is in this area that Prince came in and excelled as a leader.

The first years of Prince’s reign as CEO was spent cleaning up the unethical mess left by Weill. Prince took radical steps to ethically redefine Citigroup, which included the implementation of his Five Point Plan (FPP) and the hiring of ethics officers and other higher-level executives with proven records of ethical and moral character. His FPP was perhaps the most radical of his undertakings in his efforts to build a sound ethical environment for Citigroup. The plan was a four-page document on ethics that outlined a series of initiatives to be undertaken by Citigroup’s employees to foster an ethical organizational culture.

The first point of the FPP, “Expanded Training,” focused on fostering an appreciation for the “legacy” of the company and served to outline the three main responsibilities employees had to clients, each other, and to the franchise. His second point “Enhanced Focus on Talent and Development” focused on the implementation of 360-degree job reviews and training initiatives for employees at all levels. The third point, “Balanced Performance Appraisals & Compensation” focused on developing a standardized performance appraisal system and mandated that bonuses were to be paid according to how the company does as a whole, rather than how individuals did individually. Fourth, “Improved Communications,” initiated efforts to make communicating values and goals unified and consistent. Finally, his fifth point, aptly named