BREAKINGVIEWS - Pandit putsch is setback for U.S. board governance

Sat Oct 27, 2012 3:36am IST

Citigroup's CEO Vikram Pandit gives an interview on the floor of the New York Stock Exchange June 18, 2012. REUTERS/Brendan McDermid/Files

Citigroup's CEO Vikram Pandit gives an interview on the floor of the New York Stock Exchange June 18, 2012.

Credit: Reuters/Brendan McDermid/Files

Related Topics

Stocks

   

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

By Rob Cox

NEW YORK (Reuters Breakingviews) - Separating the roles of chairmen and chief executives is good governance, as a rule. That's why the practice is standard in the UK and has been gaining ground in the United States. But the logic is undermined by recent events at Citigroup. Chairman Mike O'Neill's ouster of Vikram Pandit as chief executive last week is looking increasingly like a power-grab rather than a service to shareholders.

An independent chairman serves useful purposes. He, or occasionally she, can provide air cover for management with regulators, politicians and other external constituents, something O'Neill's predecessor Richard Parsons did with relative aplomb. The role comes with internal responsibilities, too, such as running board meetings and, when necessary, holding a CEO's feet to the fire. In extremis, a chairman must show an underperforming boss the door.

Pandit's record of late was mixed. Citi had suffered a few setbacks this year, notably a rebuke from the Federal Reserve over plans to release capital. But the company's stock had rallied by more than a third, a performance that bested rivals JPMorgan (JPM.N) and Wells Fargo (WFC.N). And in the end the ex-CEO's departure came abruptly, just a day after Citi reported better-than-expected third-quarter earnings.

Details reported by the New York Times now suggest that a putsch took place. It seems O'Neill picked off Citi's directors in Machiavellian fashion, persuading each to support stripping Pandit of his job. The chairman then presented the CEO with a fait accompli, according to the Times: quit now, retire at year's end, or be fired. O'Neill gave John Havens, a Pandit confidant who ran Citi's investment bank, a similar message.

Now other senior executives at Citi are considering leaving, including some who would be missed by new CEO Michael Corbat and the board. Some people inside the bank think O'Neill acted partly out of frustration that his own hopes of running a major financial institution never came to fruition. If widely held, that belief could damage Corbat's credibility.

There may have been good reasons for regime change at Citi, such as the desire to turn over a new leaf with regulators. But part of a chairman's job is to manage any succession to ensure the maximum stability and continuity. By that test O'Neill failed. In the process, he has added unfortunate stigma to the useful separation of roles at the top.

CONTEXT NEWS

- Michael O'Neill, Citigroup's chairman, steadily built a case with the U.S. bank's directors since becoming chairman earlier this year to remove Vikram Pandit as chief executive, according to a New York Times report.

- O'Neill effectively forced Pandit's ouster last week when he presented him with three options: to quit immediately, resign effective at year-end, or be fired, the Times reported, citing three people familiar with the deliberations. O'Neill told Pandit: "The board has lost confidence in you."

- New York Times story: link.reuters.com/nuh63t

(Editing by Richard Beales and Martin Langfield)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

Pricing Controls

REUTERS SHOWCASE

India-China Relations

India-China Relations

India says to defend China border after standoff ahead of Xi visit.  Full Article 

Importing Iron Ore

Importing Iron Ore

As mining curbs bite, India offers market to glut-hit iron ore.  Full Article 

Lower Output

Lower Output

IOC cuts refinery output as rains hit fuel demand - source.  Full Article 

Drug Approval

Drug Approval

Epirus, Ranbaxy win India approval for arthritis drug copy.  Full Article 

Farming and Technology

Farming and Technology

Climate smart farmers get tech savvy to save India's bread basket.  Full Article 

Rajan Speaks

Rajan Speaks

RBI chief Rajan says limiting reliance on foreign debt.  Full Article 

India-Vietnam Ties

India-Vietnam Ties

India tightens Vietnam defence, oil ties ahead of China Xi's visit.  Full Article 

Debt & Equity Deal

Debt & Equity Deal

KKR to lend $175 million to GMR Infrastructure - source.  Full Article 

Preparing for IPO

Preparing for IPO

Alibaba boosts IPO as demand strengthens.  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device.  Full Coverage