The Governance of Citigroup
The discussions and revelations generated by the global financial collapse/ great recession continue to provide insights into the ongoing health care crisis. Let me start with a small item from the Dow Jones Newswire this week:
The California Public Employees' Retirement System said it opposes the re-election of two Citigroup Inc. (C) directors, in part because of their roles in the recent financial crisis.
The nation's largest public pension fund, which owns about 61.2 million Citigroup shares, plans to cast 'withhold' votes for board nominees Andrew Liveris, chairman and chief executive of Dow Chemical Co. (DOW), and Judith Rodin, Rockefeller Foundation president, at the annual shareowners meeting Tuesday.
Both served on the company's audit and risk committee before the financial crisis. During the crisis, the banking giant accepted a total federal government infusion of $45 billion, which it has repaid.
'It's time for new blood in the boardroom,' said Anne Simpson, the senior portfolio manager who heads the Calpers corporate governance program....
Let me back up a bit.
The near-failure of global banking giant Citigroup, prevented only by a massive US government bail-out, was one of the central components of the global financial collapse. We noted recently how Mr Robert Rubin, one of the key leaders of Citigroup was accused of "being asleep at the switch," "irresponsibility and misjudgment," and being a "very well paid boob" after his testimony at hearings by the committee investigating the collapse. We also noted his link to health care. As senior member of the Harvard Corporation, Rubin is one of six top stewards of the US' oldest and arguably most presigious university, containing one the country's most prestigious medical schools and teaching hospitals.
Although all those who were members of the Citigroup at the time it collapsed have not been hauled in front of the committee, there has been considerable discussion of their responsibility for the company's failures. For example, in 2008, soon after the government rescue of Citigroup began, the Wall Street Journal published an editorial:
"Citi never sleeps," says the bank's advertising slogan. But its directors apparently do. While CEO Vikram Pandit can argue that many of Citi's problems were created before he arrived in 2007, most board members have no such excuse. Former Treasury Secretary Robert Rubin has served on the Citi board for a decade. For much of that time he was chairman of the executive committee, collecting tens of millions to massage the Beltway crowd, though apparently not for asking tough questions about risk management.
Chairman Sir Win Bischoff has held senior positions at Citi since 2000. Six other directors have served for more than 10 years -- including former CIA Director John Deutch, Time Warner Chairman Richard Parsons, foundation executive Franklin Thomas, former AT&T CEO C. Michael Armstrong, Alcoa Chairman Alain Belda, and former Chevron Chairman Kenneth Derr.
When taxpayers are being asked to provide the equivalent of $1,000 each in guarantees on Citi's dubious investments, how can these men possibly say they deserve to remain on the board?
While other banks can claim to be victims of the current panic, Citi is at least a three-time loser. The same directors were at the helm in 2005 when the Fed suspended Citi's ability to make acquisitions because of the bank's failure to adhere to regulatory and ethical standards. Citi also needed resuscitation after the sovereign debt disaster of the 1980s, and it required an orchestrated private rescue in the 1990s.
Last year, as reported by Bloomberg,
Citigroup Inc. investors should vote against re-electing four of 14 board members, including John Deutch and Michael Armstrong, to improve management of the company’s risks, a shareholder advisory group said.
Deutch, former U.S. Central Intelligence Agency director, Armstrong, former AT& T Inc. chief executive officer, and Alain Belda, chairman of Alcoa Inc., should be opposed 'for poor risk oversight,' RiskMetrics Group Inc.’s ISS Governance Services said today. Xerox Corp. CEO Anne Mulcahy shouldn’t be re-elected because she sits on more than three boards, which may limit her effectiveness, the group said.
'The pattern of chronic oversight failure at Citi and the magnitude of the corresponding shareholder losses warrant removal from the board of directors most responsible for risk oversight,' RiskMetrics said in the statement.
'Despite the fact that the board has many incumbent directors that have been successful in their respective fields and have been on the board for some time, their track record taken as a whole is dismal given that the company is currently surviving on federal assistance,' RiskMetrics said.
Rick Conrad, of the Seeking Alpha blog, thus berated the CEO of Citigroup at its 2009 shareholders meeting,
Mr. Armstrong, who has been a director since 1989 is no longer part of the Audit Committee, as of this year, continues his 'service' to our Company on the Nomination as well as the Compensation Committee. Much as this company has suffered under an illusion of prosperity, it appears to continue to suffer under an illusion of competence.
John [Deutch] has served on the Audit Committee of our Company since 1997 and hence, likely drank the Kool-Aid as to the Illusion of Prosperity.
I note that the audit and risk management committee has many members who, like Mr Deutch and MrArmstrong presided over this seemingly out of control disaster.
Andrew Liveris since 2005 on Audit
Ann Mulcahy since 2007 on Audit
Dr Judith Rodin since 2004 on both Executive and Audit Committees.
Overlaps Among Citigroup's Board and Health Care Organizations' Leadership
So there seems to be good reason to believe that the board of Citigroup at the time the firm collapsed were a collective example of inattentive goverance and poor stewardship. We have previously documented overlaps among poor governance and leadership of finance, and the governance and leadership of health care, suggesting that the poor leadership and governance of the latter may be in part a result of infection from the former. So I looked for overlaps among the Citigroup board and health care organizational leadership.
A list of the membership of the failed board comes from the 2008 Citigroup proxy statement. The biographies provided therein, supplemented with some Google searching, produced the following overlaps:
- C Michael Armstrong - is also Chairman, Johns Hopkins Medicine, Health Systems and Hospital
- Alain J P Belda - was a Trustee and member of the Corporation of Brown University (including the Warren Alpert Medical School) (see link). (He stepped down prior to 2009 at an unknown time.)
- Sir Winfried Bischoff, Chairman of the Board - is a director of Eli Lilly and Co.
- Kenneth T Derr - is a director of the University of California San Francisco Foundation.
- John M Deutch - no overlap found
- Roberto Hernandez Ramirez - no overlap found
- Andrew N Liveris - is a Trustee of Tufts University (including the School of Medicine and Tufts- New England Medical Center)
- Anne M Mulcahy - in 2009, was appointed to the Board of Directors of Johnson and Johnson (see link)
- Vikran S Pandit, CEO - is a Trustee of Columbia University (including the College of Physicians and Surgeons and Columbia University Medical Center)
- Richard D Parsons - is a Trustee of Howard University (including the College of Medicine and Howard University Hospital)
- Judith Rodin - is President of the Rockefeller Foundation
- Robert E Rubin - is a member of the Harvard Corporation (including Harvard Medical School and multiple Harvard teaching hospitals), and a Trustee of Mount Sinai Medical Center
- Robert L Ryan - was a director of UnitedHealth Group, is a Trustee of Cornell University (including Weill Cornell Medical College, and Weill Cornell Medical Center), and was a Senior Vice President and CFO of Medtronic
- Franklin A Thomas - no overlaps found
So in summary, of 14 board members, 2 are trustees of major medical centers (Johns Hopkins and Mount Sinai), 6 were or are trustees or equivalent of universities that include medical schools and medical centers (Brown, Tufts, Columbia, Howard, Harvard and Cornell), one is a trustee of such a university's foundation (University of California San Francisco Foundation), 2 are or would be board members of pharmaceutical corporations (Eli Lilly and Johnson and Johnson), one was a board member of a commercial managed care organization/ health insurance company (UnitedHealth), one was a former top executive of a medical device company (Medtronic), and one is the President of a large charitable foundation which historically has supported multiple medical and public health initiatives (Rockefeller Foundation). Only 3 of 14 did not have a major leadership role of a health care organization.
Most of these health care organizations have been involved with cases we have discussed on Health Care Renewal (see links above).
Given the seriousness of the failure of Citigroup, one has to wonder why so many of the directors who presided over it still have such influential positions in health care organizations?
As we have pointed out, as the world economy was driven to near ruin by "masters of the universe," some of the same also became leaders of academia and academic medicine in their spare time. Maybe this made sense 10 or 20 years ago, but why does it still make sense? On the other hand, now that we understand how bad the leadership of finance really was, it is a little easier to understand why the leadership of health care has become so bad. Iit seems reasonable to hypothesize that some of the problems of academia, and particularly the problems of medical academia, may have been at least enabled by leadership more used to working in an increasingly amoral marketplace than to upholding the academic mission. The failures of the leadership and governance of finance thus suggest we need to re-examine the leadership of health care.